Major oil and coal mining companies are selling billions of dollars of assets to bolster their finances, to reduce carbon emissions and to gain favor with ESG (environmental, social and governance) investors. The buyers: typically smaller competitors that are wagering that fossil fuels will remain the world’s main energy source and that underinvestment by larger rivals will further increase commodity prices.
Investors and politicians should recognize that these assets are not going away. Instead, they are being operated by smaller players, often in less developed countries, that are typically subject to less effective environmental scrutiny.
All politics is local (thank you Tip O’Neill). The developed world is well positioned to be constructive about climate. This is not the case for most of the world’s poorer countries. Shutting down fossil fuel power generation is not a politically viable option for many countries, both large and small. Investors take note.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®