Energy investors concerned about global warming and explosive electricity demand may need to look beyond big oil stocks as the shift towards a green transition stalls, says Hargreaves Lansdown.
It follows an announcement from BP that its chair Helge Lund plans to step down from the company after growing shareholder opposition to its green agenda. In February, BP announced a strategic “reset”, with a focus on growing its upstream oil and gas business in an effort to boost long-term shareholder value and keep pace with its competitors’ valuations.
Joshua Sherrard-Bewhay, ESG analyst at Hargreaves Lansdown, said: “Pressure on BP has been ratcheting up for some time. Lagging performance and a push from activist investor Elliot Management seem to have forced BP into action.
“The calls have been for a focus on value and a roll back on low-carbon spending. BP has since axed its low-carbon mobility team and with the resignation of Helge Lund, one of the architects of the green transition strategy, it appears the tide is changing.
“Over the past 12 months, the oil and gas sector has begun to reassess its strategic approach to the energy transition. The adjustment has been categorised by a period of investment cuts, increased shareholder distributions and the dilution, or removal, of targets.”
Shell and BP had been two companies at the forefront of the switch towards green energy transition, with both making strategic decisions in 2020, including establishing net zero targets on output. However, BP’s recent strategy reset, dropping production targets and slashing on renewables shows times are changing for the sector, said Sherrard-Bewhay.
“Those investors focussed on financial returns will be pleased but those concerned with record global warming and explosive electricity demand may be looking elsewhere,” he added.
Derren Nathan, head of equity research at Hargreaves Lansdown, commented: “Shell was relatively quick in terms of altering course to maintain oil and gas as the core focus of its investment plans. A renewed focus on cash generation underpins a prospective dividend yield of about 4% and dividend growth of 4% per year is being targeted.
“Shell is reducing the proportion it invests in low-carbon projects after the financial returns on previous investments disappointed and zoning in on relatively clean-burning LNG to meet emission targets while leaving oil production flat. But, by targeting high-quality deepwater basins, it’s planning to boost returns on investment in oil assets as well.”
Hargreaves Lansdown said investors looking to invest directly in the transition may want to consider renewable energy generation assets such as onshore and offshore wind farms and solar parks.
Victoria Hasler, head of fund research at Hargreaves Lansdown, added: “Increased spending on, and government support for, renewable infrastructure should support funds which invest in assets such as wind farms, solar parks and battery storage facilities.”
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