The Canadian Pension Plan Investment Board (CPPIB) just joined the growing list of Environmental, Social and Governance (ESG) driven investors abandoning oil & gas stocks owing to their environmental concerns grounded in the nonsensical belief that CO2 causes climate change, joining the Caisse de Depot et Placement in Quebec (the “Caisse”) as two of Canada’s largest pension fund managers embracing ESG. The theory seems to be that cutting energy firms access to capital markets will somehow reduce CO2 emissions and “save the planet” from “climate change”.
How is that working so far? Not well.
Demand for oil & gas keeps rising despite the rhetoric promoting Anthropogenic Global Warming (AGW) theory as an “existential crisis”. Curtailing access to public markets for energy companies has done nothing to limit demand for hydrocarbons but has contributed to a shortage of supply. As a result, oil & gas prices are soaring and likely to keep rising for years to come.
Natural gas, a popular home heating fuel and a vital input to the petrochemical industry, has seen prices rise to the highest levels in history in Europe and prices in North America increase four fold in a few years, according to data published by the St. Louis Fed.
The result has been a boon to energy investors and frustration for “social justice warriors” whose “virtue signaling” withdrawal of financial support for energy firms has contributed to the global energy shortage which is now at crisis proportions. The result has not been to damage the producers of natural gas but to bring in a gusher of cash flow that is being used to pay dividends and buy back stock, with energy investors cashing in big time. Key Canadian producers like Peyto Exploration and Development (PEY.TO), Tourmaline Oil (TOU.TO), Birchcliff Energy (BIR.TO) and Advantage Energy (AAV.TO) have seen their share prices double or triple in the past 2 years. By contrast, the CPPIB returns on investment have languished turning in a scant 3.1% return for 2020, less than half the current inflation rate, lagging even the Caisse whose 5.6% rate of return was hardly stellar.
Canadian oil producers have done just as well. My portfolio included Whitecap (WCP.TO), Crescent Point Energy (CPG.TO), Baytex Energy (BTE.TO) and MEG Energy (MEG.TO) and those stocks have returned from 100% to 260% over the past 2 years.
I hope the “social just warriors” our leaders appoint to run CPPIB and the Caisse enjoy the feeling of superiority they get from pontificating about the environment and “saving the planet” while they collect multimillion dollar compensation (Mark Machin at CPPIB was paid $5.3 million in 2019 while the Caisse refuses to release what must be a similarly high level of pay for its leader) all the while damaging the beneficiaries of the pension funds they manage with ESG nonsense that might sound good but certainly earns less for those beneficiaries. Whatever happened to the concept of “fiduciary duty”?
When the politically correct “science” finally crashes into the laws of physics and AGW nonsense is disposed of by a new Nobel laureate who demonstrates the theory is bogus, the “climate change” part of ESG will be remembered in history as an era of mass delusion. Award winning IPCC scientist Kiminiro Itoh said it best “Warming fears are the worst scientific scandal in history. When people come to know what the truth is, they will feel deceived by science and by scientists”.
In the meantime, wise investors can profit from the institutional stupidity that permeates the halls of government in Canada, The United States and abroad.