When it comes to energy markets, the “E” in environmental, social and governance (ESG) investing tends to be top of mind. But the Russia-Ukraine conflict is shifting attention to social factors – including energy supply security, consumer protection and responsible sourcing.
The need for energy diversity is clear
The Russia-Ukraine conflict reinforces the case for having a diverse energy base that can better withstand crisis and reduce reliance on bad actors. At the same time, it supports the argument that the transition to alternative fuel sources will take time and that social and environmental considerations will need to be balanced.
In response to the crisis, policymakers in Europe and the U.S. are taking steps to prioritize energy security and independence, while maintaining strategic clean energy ambitions. Renewable energy capabilities will undoubtedly play a key role in Europe’s path toward greater energy self-sufficiency. In the meantime, Europe is considering a multi-pronged approach to reduce its reliance on Russian gas, including importing gas from other countries, maximizing power generation from bioenergy and nuclear, accelerating wind and solar projects, and possibly delaying coal plant closures.
The U.S., though less reliant on Russian energy, is seeing some bipartisan support for increased domestic oil production to combat higher prices at the pump. Yet amid efforts to contain gasoline prices and inflation, President Biden has reiterated his administration’s commitment to achieving net zero emissions by 2050.
What should ESG investors do?
Inclusionary ESG approaches can help identify oil and gas companies that are investing in renewable capabilities and investing in offsetting technologies like carbon capture. At the same time, engagement offers a way for investors to drive positive change, such as carbon-emissions reductions, at companies in polluting industries.
The transition to renewable energy is underway, but it will take time, underscoring the vital role of responsible suppliers of traditional fuel sources.
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