Speaking to media, Fidelity portfolio manager Kate Howitt said that the financial services had an “intermediation” role to play in the energy transition but that blanket divestment from fossil fuel producers risked slowing it down.
“I don’t think that’s how the world works; if we all just divested the dirty companies then private equity would do really well and it wouldn’t actually save the planet,” Ms Howitt said.
“In this need to spend a lot of money and decarbonize, are you better off funnelling all of it into greenfield newcomers to the industry? Or are you better off making use of some of the existing kit that’s already out there?”
Ms Howitt explained that retrofitting existing energy infrastructure would be cheaper and more efficient than creating new infrastructure, but that financial markets had been “following that first model and penalising anybody who’s currently in the game”.
“There’s a lot of other permutations of this where a kind of naïve ESG view, when you actually think it through, can lead to suboptimal economic outcomes – and we just can’t afford to not be efficient about how we do that,” she said.
“Where you have other companies that can see this investment opportunity and are working towards it and maybe have a relative advantage because of their infrastructure and can pivot towards it, then we should be supporting them – even if right now they are 100 per cent fossil fuel.”
Ms Howitt also warned that previous mechanism for making companies take ESG issues seriously – the law – was no longer always up to the task, saying “the threshold set by the laws in a whole range of areas is not high enough” and that fund managers had to set standards.
“The way the community had its standards expressed was by voting for politicians and politicians passing laws and companies complying with the law. For a whole variety of reasons, a lot of communities no longer feel that process is happening,” Ms Howitt said.
“They’ve got strong views about things like carbon and decarbonization that they’re not able to get expressed through environmental laws, so they’re looking for other ways to get companies to change.”
