Oil and gas's tobacco moment
Polite society does not tolerate smokers the way it used to. What was once a ubiquitous habit is now banished to outdoors in many countries. Tobacco investment is a rarer beast too these days, reflecting how deeply ethical preferences can affect capital markets. Now oil and gas securities could be about to face a similar shift.
The movement to promote tobacco divestment is now almost 30 years old and has never been short of energetic proponents. As a result, these days one would be hard pressed to find an institutional investor that does not offer at least some tobacco-free funds.
The same thing could soon happen to oil and gas producers. Hydrocarbon company IPOs look to be a dying breed — the recent listing of Saudi Aramco being an obvious exception — and BP, scenting the wind, is attempting to be carbon-neutral by 2050.
Divesting from dangerous or unethical industries for moral reasons, even at the cost of the returns such assets offer, is a vital step.
It won’t save the world or crush the industry — tobacco companies still manage to raise plenty of cash, and it’s not as though we will wean the global economy off oil overnight, even if investors were to dump their stocks in droves.
But divestment is a vital weapon to promote change that capital markets have in their arsenal. Making polluting behaviour more expensive to finance than clean behaviour is a key part of the incentives required to develop a sustainable economy.
The fact is that, as unhealthy as smoking is, the consequences of unmitigated climate change will be more devastating.
Hydrocarbons are still necessary but their producers must take seriously the consequences of our reliance upon them.
It should become a matter of capital markets necessity for those producers to address the consequences of their activities.