A long, long time ago, an event called the COP26 summit took place in Glasgow.
There, nations gathered to talk about climate change, and pass worthy resolutions sounding the death knell for fossil fuels and the technologies that use them. Activists chanted, waved banners, and encouraged them on.
In parallel, fund managers and pension funds touted their own ESG credentials, proudly owning up to selling old-fashioned polluting businesses that they might have held for decades, and buying shares emblematic of a greener, brighter future.
It was remarkable demonstration of how — in a few short years — the attitude to what has become known as ESG issues (short for ‘environmental, social, and governance’) has changed the investment landscape.
Green is good. But warm is better.
Perennial Footsie stalwarts Shell (LSE: SHEL) and BP (LSE: BP), for instance, had come to be regarded as some sort of living dead: their balance sheets might be loaded with oil and gas fields, certainly, but these were surely assets in name only — full of oil and gas that would never be extracted. ‘Stranded assets’ was the term in use.
Turn the clock forward to today, and the picture is a little different. And you don’t need me to tell you why.
Oil and gas fields that companies were selling off have been retained. Shell has reversed its decision not to develop its Jackdaw gas field in the North Sea. It may yet change its mind regarding the as-yet undeveloped Cambo field off Shetland.
It’s the same all over Europe. Germany — which had planned to phase out the production of electricity from coal by 2030 — is now bringing mothballed coal-powered power stations back on-stream.
Those COP26 pledges? Keeping homes warm — and factories working — trumps greenery, it seems.
Unloved shares bounce back
Shares in Shell were changing hands at around 1,600p at the time of the COP26 summit. BP, 340p. Today, Shell shares are priced at 2,350p, and BP shares priced at 450p.
Even perennially unloved Centrica (owner of British Gas) is in on the action, with its shares up 50% in a year.
‘Stranded assets’? I don’t think so. Nor do I think that we’ll see a return of that phrase any time soon. The ESG activists will hate it, but governments know that energy security is vital. There’ll be green energy projects aplenty — but the lesson has been learned: fossil fuels are a handy backstop.
And, obviously, the shares of green power providers have benefited too — Greencoat UK Wind is up almost 25% since COP26, for instance.
But — critically — they weren’t mispriced due to ESG concerns in the first place.
All those fund managers and pension trustees must be feeling pretty sheepish.
Play it again, Sam
We’ve seen this movie before, of course — and with some of the same stocks. Back in 2016, resources stocks in general came under the hammer: mining stocks, oil and gas stocks, and the engineering and support companies that supply such businesses.
The reason? Slowing China demand, which could possibly be permanent. Prices crashed.
But — as I’ve written before — the whole sector soon seemed massively over-sold, and I loaded up.
I bought into BHP at 596p, Shell at 1,295p, IMI at 773p, and Weir at 777p, for instance.
Current prices? At the time of writing, 2,230p, 2,345p, 1089p, and 1,4421p — and that’s in today’s fairly-awful market. IMI’s high point for the last year is 1,878p, for instance.
The moral: when a sector is mispriced, bargains abound — for those adroit enough to spot them.
