Can energy companies be SRI compliant?
Meredith Block, Head ESG analyst at Rockefeller, shares the criteria that guide the investment selection strategy in a sector facing disruption.
MEREDITH BLOCK: In order for energy companies to be included within the portfolio, they have to meet an incredibly high bar when it comes to environmental performance and occupational health and safety standards. So, that means that their detection and repair systems are absolutely best in class. It also means that their occupational health and safety incident rates are well below industry averages.
We believe that once a company has its environmental practices and its occupational health and safety standards to that absolute highest, best-practice standard that they're then ready to begin having a conversation about how their business model could potentially be disrupted.
Because society is still very dependent on fossil fuels, we believe that the companies in the best position to make change are the fossil fuel companies themselves. This is why we'll only invest in companies where we can actually have a conversation with that company about how they are assessing the risks that climate change could pose to its business model. Whether that means demand displacement from electric vehicles or other disruptive technologies, or whether or not regulation could have a big part to play on, you know, the breakeven price per barrel of oil extracted.
What we want to see from our energy companies is an acknowledgement that the low carbon economy is coming and is coming maybe a bit faster than they would like, and we want to see a commitment to really identifying what the risks could be to their business throughout that transition.
Another important factor for us is the discussion of the just transition. What happens to the labour force of many of these companies is they transition away from fossil fuels and maybe into other types of energy. Or they become completely different companies altogether.
These are the discussions that we have using our voice as a shareholder. We believe that it's incredibly important for energy companies to take into account the extent to which either demand disruption or increased regulation could actually impact their ability to do business in the future.
And this is why we feel it's much more important to invest in these companies, with a mind to have this discussion, than just to divest and not have a seat at that table.