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Outperformance of renewables versus traditional oil and gas

We are frequently asked about the performance impact of reducing or eliminating investments in 'XYZ' sector or companies, in-line with a faith’s values  --- where 'XZY' is often oil and gas. Performance studies are tricky, often suffering from the time period chosen for study given the availability of data, and the ubiquitous investment warning 'past performance is not indicative of future results'. But, as inputs for the basis of the faith-informed judgmental decisions we make on our investment programs, they can be useful. So how have oil and gas investments performed versus renewable investments?  The short answer: In recent periods – worse.


Global investment data giant MSCI is out with a new brief performance study of private renewables investments versus traditional oil & gas (O&G) investments. As they’re looking at private investments (versus publicly listed stocks), MSCI uses 'investment multiple' – the total proceeds from the sale (or 'exit' in the parlance) of a private asset compared to the original total investment in the asset, to compare performance over the same time period.

They find over more recent periods renewables outperform, with a multiple of around 1.5, specifically since 2016…


“…the returns of the exited holdings in renewables outperformed those of oil and gas. This contrasts sharply with the period before 2016, when oil and gas outperformed renewables between 2010 and 2015.”


Further, and coincidentally, the authors find that new investment into private O&G has turned negative since 2016, meaning more money is leaving the O&G sector, while investment into renewables as remained mostly positive every year since 2010, as shown below:



This data is interesting for many reasons, one being the narrative on the O&G divestment movement that private equity investors would step in to help fund ongoing O&G activity when public equity holders divested --- which may be not the case at all.


In the end, the study’s author captures the importance of these findings:


“Bridging renewables’ climate impacts with financial returns may increasingly be pertinent for investors looking to allocate private capital to energy-transition opportunities, providing the industry with the much-needed financing to achieve net-zero.”

 

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