Absolute Disposal of Unwanted Energy Assets Needed

The first law of thermodynamics says that energy can be transformed from one form to another but neither created nor destroyed. Could this also describe what is currently happening in the oil industry?

According to the Economist, the West’s six largest oil companies have divested $44 billion worth of fossil fuel assets – their most polluting ones since 2018, mainly due to pressures from activists, governments, and regulators.

Private equity (PE) funds spent $60 billion to buy these “brown” assets, a third more than they have spent on renewables. But with big oil companies report of high profits and soaring energy prices, these investments would mean very high profits for PEs.

As for their carbon footprint, they reasoned that since they have invested in these assets and will control them for many years, they are in a position to reduce their emissions.

These PEs still have $3.3 trillion of unspent private capital, and their asset managers could use them to make profitable deals or craft thoughtful decarbonisation plans.

On the other hand, green investing has steadily increased – these are future-minded institutions consisting of pension funds and insurers who have eliminated carbon-intensive assets from their portfolio.

The Economist shows that the number of institutions that have stopped investing in fossil fuels consists of 53 pension funds, 23 universities, and 32 foundations, many of which are from the United States.

Big oil companies continue to offload more assets worth hundreds of billions of dollars in the coming years.

If PEs manage to stay away from them, other state-owned and sovereign funds from Saudi Arabia and Russia, countries that pay little heed to sustainable investment, are just waiting to take them in.

Matthieu Favas, the Finance correspondent of the Economist, writes that unless carbon disclosures and taxes apply to the whole economy, the fossil fuel hunt will carry on.

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