Is big oil turning a new leaf? Oil investors are looking beyond profits as environmental, social and governance (ESG) investing could be supplanting the need to cash in on the commodity, especially given a challenging 2020.
“For years, the oil industry drew in investors with sizable—and regular—returns,” wrote Irina Slav at OilPrice.com. “Even when oil prices fell, Big Oil found ways to keep paying dividends, even if it had to cut them, which happened only in extreme cases. Now, it is becoming increasingly clear that dividends—and profits—are no longer king. Today’s investors want other things from their oil investments.”
Enter ESG—the sector has been seeing strong outperformance, even during the Covid-19 pandemic.
“Oil investors have been growing unhappy with Big Oil for a while now, ever since the environmental, sustainable, and social governance trend gathered speed,” Slav wrote. “A growing number of people looking for a company to buy into now want to know that this company’s business is environmentally responsible. That’s not just out of altruistic motives. Investors are being told that climate change constitutes an existential threat for many companies, and the more environmentally responsible a company is, the greater chance of survival it has.”
Investors looking to capitalize on ESG can also do so via ETFs. BlackRock’s iShares brand supports some of the most widely held ESG ETFs, including the iShares ESG MSCI USA Leaders ETF (SUSL), iShares MSCI KLD 400 Social ETF (DSI ), and the iShares MSCI USA ESG Select ETF (SUSA).
Other funds to look at include the FlexShares STOXX US ESG Impact Index Fund (ESG ). Investors who want ESG exposure and global diversification can look to the FlexShares STOXX Global ESG Impact Index Fund (ESGG ).
ESG seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the STOXX® USA ESG Impact Index. The underlying index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to ESG characteristics relative to the STOXX® USA 900 Index, a float-adjusted market-capitalization weighted index of U.S.- incorporated companies. Under normal circumstances, the fund will invest at least 80% of its total assets in the securities of the underlying index.