Energy insecurity and its impact on the markets, which we have been monitoring since the start of Russia’s invasion of Ukraine, force us to question our choices as responsible investors. In March, the energy sector saw some benchmarks generate strong gains as oil and gas prices rose after the negative supply shock following the outbreak of the crisis.
By analyzing the variation in the performance of the various sectors represented in the MSCI World index (US$) as of April 15, we see that non-renewable energies show a return of 35.7%, while it is nil for that of renewable energies. . If, like me, your portfolio reflects your values and you prioritize responsible investment vehicles, the majority of which exclude fossil fuels or sometimes limit their exposure, there is no doubt that the current context is testing your values! After all, beyond beliefs, we also like returns as investors, don’t we?
While it’s confusing to see benchmarks outperform, that doesn’t mean your responsible investing choices won’t beat them over the long term. Although geopolitical issues favor the short-term return of oil and gas, it seems rational to me to conclude that energy insecurity can only favor renewable energies in the long term. We have seen that in Europe, the energy dependence of several countries on Russia is exacerbated by the current situation. For example, Germany, 40% dependent on its consumption of natural gas, questioned the plan to close its nuclear power plants in order to anticipate its target of fully renewable electricity from 2050 to 2035.
So, although the conflict has caused oil prices to rise, it has also made many countries in Europe aware of their dependence on Russia and will hopefully have direct repercussions on the green transition and development. companies specializing in biofuels, solar or wind energy equipment, electricity networks or renewable public services.
Finally, despite the expected increase in electricity costs, comparative analyzes confirm that the total long-term cost of running an electric car will remain lower than for a gasoline-powered car, without even taking into account the drop eventual price of these cars and rechargeable batteries. The responsible investor defends his values, of course, but he also understands that the transition to this new economy represents billions of dollars in business opportunities.
In addition to oil, the prices of raw materials, agricultural products and some basic materials also rose in response to the war. Ukraine and Russia produce many key materials for the development of clean technologies, such as neon, which is essential for the manufacture of certain semiconductors currently produced by Ukraine.
Although recent events have made the development of certain companies more complex and have short-term repercussions on the performance of responsible investment funds — which are also often significantly exposed to the European market, currently the most shaken since the beginning of the year — these do not eliminate the long-term challenge of feeding eight billion people. Knowing that sustainable agriculture, industrial efficiency and energy-efficient buildings are at the heart of many responsible investment fund mandates, we can believe that this heart-rending conflict could be the catalyst for the already underway development of a more sustainable economy.
Responsible investment is not limited to choices taking into account environmental challenges alone. Social and governance factors are an integral part of this as well. There is no better context than Earth Day week to ask ourselves if we are ready to have an investment portfolio with the potential to create positive effects for the environment and society. I’m not advising you here to hold only securities focusing on the development of renewable energies, since these often have a long-term growth mandate.
Other solutions can be found in addition to this type of investment in order to create a portfolio that respects your risk tolerance and your objectives, including the bond portion of it. Diversification, regardless of your values, must be at the heart of the composition of your portfolio.
Personally, I sleep very well at night, even knowing that my wallet is not benefiting from the recent performance of fossil fuels. On my side, it passes the test of values!
Note: if you have these types of questions, do not deprive yourself of the advice of a responsible investment specialist.