COP27 (Convention of the Parties – Convention on Climate Change) came and went … and as seems by now par for the course, the masses (us) were treated to dire and doom warnings, much in the way of press releases and lamentations, but not much in the way of concrete results.
Oh, but wait, in the final hours of the Climate change conference, which took place in Sharm El Sheikh, Egypt, Developed Nations “committed” to a fund that would compensate nations experiencing the significant downsides of Global warming. This gesture, the specifics of which look to possibly require another conference (!) looks to be meant to demonstrate that something of value was actually accomplished at this edition of these yearly proceedings, all the while the actual goals of climate reduction look to have been pushed aside by the imperative of a world still very much hooked for the foreseeable future on – unfortunately, like it or not- carbon emitting sources of Energy.
Naturally, we all realize that Russia’s invasion of the Ukraine, and repercussions on Europe overall likely wreaked havoc on the best laid intentions of moving away from coal, respectively Nuclear, the latter in Germany more specifically. Oh, and please, ESG advocates and proponents, pay note of the fact that while China appears happy to continue to pollute to its little heart’s content (but yes has grand plans at its end to increase its use of nuclear energy), it wanted to be sure to be labelled “developing”, so as to not have to contribute to the “damage compensation” fund.
Anyways – Where am I going with all of this?
Well, I have no doubt all of us – both as citizens as well as investors – have all the best intentions when it comes to the environment. After all, if Climate change results in us all having to live on submerged continents, I am not sure how well we’ll “deal”. As for the S (Social), and the G (Governance) of ESG, I don’t know about you, but by now I’d have hoped that we could all say: We’ve got this! Unfortunately, the fact is, we seem to be in some ways straying further away from it than solving for it. As for Governance, whereas I’d have hoped we would also long ago have gotten there, it appears much remains to be done. All to the good, in some way – in the age of transparency – it isn’t as if we lack data to highlight the distance to be covered to reach the goals of a better world and strive to get there in earnest as a new year’s resolution entering 2023.
Back to – where am I going with this. Mid-2021, I was hoping to be able to work on an ESG related project, the idea was to help Advisors and their clients sort through all the lingo and methodologies that have found their way into the ETF (Exchange Traded Funds) “distribution wrapper”. The problem? I felt conflicted, and hypocritical: On the one hand, yes, the wide array of ESG solutions available was increasingly appealing when looking to embrace what I’ll label the “motivating movement”, but on the other – well, I felt compelled to be pragmatic, and invest in Canadian Energy. At that, the vilification of our Oil and Gas patch at the hands of a woke Liberal government, and my disdain for their attempts at dividing Canadians and to gloss over our resource industry’s potential overall really bothered me, and left me hard pressed to reconcile the two. I opted to go the investment focused route and put money into our Energy sector (incidentally the only sector in meaningfully positive performance territory in Canada and pretty much anywhere else in 2022).
Well, last month, my partner and I at CREDO Consulting hosted the 9th Annual ETF Conference, presented by ETFinsight, in partnership with CREDO. The “theme” of the conference, if you will – aside from the fact that ETFs are tremendously relevant and effective as an access tool – was this: Energy and ESG – Not mutually Exclusive.
THIS notion, we feel, is critically important. Another way to articulate this could be – This ought to be Canada’s time. Specifically, Canada is rich, very rich, in the realm of resources, and Russia’s aggression of the Ukraine renders it imperative Canada stands up and helps and supports our Allies by looking at maximizing the benefit the availability of all these resources on or in our soil represents. Forget about whether philosophically, ESG is it, or if you should join the ranks of the more dogmatic types in the “exclusionary” world. The reality is – for Energy, for instance – the world will continue to require Energy for quite some time. Eric Nuttall, Senior Portfolio Manager at Ninepoint Partners, foresees a continued multi year bull market for Canadian Energy, with current valuation backdrop representing an opportunity he describes as the opportunity of a generation. Instead of seeking to alieniate it, or vilify it, our (?) politicians should revisit what they know about pragmatism, and ensure all Canadians benefit from the riches in our land. THAT would serve all of us and help deal with, amongst other things, inflation that for the moment seems to have gotten out of control, whether “justinflation”, greedflation, shrinkflation, or stagflation.
In the meantime, as an investor, or an Advisor, you best ensure you keep an eye on the nuances of what the ESG, or RI (Responsible Investing) framework embedded in your ETF positions results in as far as underlying industry exposure, and underlying positions held. Fail to do so, and the differences in outcomes will leave you wishing you had!
As an aside, the conference covered Energy, yes, ESG, yes, but also Nuclear, the Carbon credit market, Factors, thematics, fixed income, portfolio strategy, and relative opportunities heading into 2023. In case you missed it, all of the content is available here:
for postview / replay. Enjoy!