Amundi Says Oil, Gas Crucial to EU’s Clean-Energy Transition

(Bloomberg) -- Amundi SA wants the European Union to free asset managers to add oil and gas exposures to a new fund category intended to support the transition to a lower-carbon economy.

Elodie Laugel, Amundi’s chief responsible investment officer, says excluding fossil-fuel producers from such funds would make it harder for money managers to pressure them to reduce their carbon emissions over time.

“The more you have exclusion constraints on the transition category, the more you are missing the objective of actually using asset managers like us to help companies to transition,” she said in an interview.  

The comments from Europe’s biggest money manager come as Brussels rewrites the world’s most comprehensive regulatory framework for sustainable investing, the Sustainable Finance Disclosure Regulation. Efforts to overhaul the rule-set have overlapped with the ongoing war in Iran, which is forcing Europe to focus more on energy supply.

Some of the proposed revisions to SFDR, which covers assets worth about $14 trillion, currently don’t go far enough in allowing asset managers to hold oil and gas companies in transition funds, Laugel said. The EU’s proposal on such funds, which represents just one plank of the revised SFDR framework, is a “challenge for us,” she said.

SFDR, which was originally enforced in early 2021, is being overhauled after facing criticism it was a confusing piece of regulation that failed to prevent greenwashing. Transition funds are expected to address those concerns, and provide a credible pathway for investing in companies that stand to benefit from the push toward a lower-carbon economy

Lawmakers have been debating though whether to require transition funds to exclude fossil-fuel companies still expanding production. Their inability to reach agreement led to the delay of a critical vote on revisions to SFDR that had been due to take place earlier this month.

Proposals to include oil and gas exposures in transition funds come as companies including BP Plc and Shell Plc wind back earlier commitments to invest in renewable energy. Against that backdrop, some asset owners and managers have been stepping up exclusions of the sector, according to Covalence SA, a Geneva-based ESG ratings company.

Fossil energy accounted for 30% of all sector exclusions in the second quarter, up 4 percentage points in just three months, according to an analysis conducted by Covalence. 

At the same time, companies that depend on fossil fuels to power operations are increasingly being penalized in the market, according to an analysis by Bloomberg. Top renewable-power users outperformed them by 6% as of May. That’s in part as sources of energy that aren’t disrupted by the Iran war see their appeal rise, the analysis found.

Money managers have long disagreed on the extent to which oil and gas companies belong in funds that claim to be supporting the clean-energy transition. Purists argue that investment clients would rightly be surprised to find that their sustainable fund holds fossil fuels. Energy companies have countered they’re more likely to transition if they’re not shut out by investors.

TotalEnergies SE, the biggest oil and gas producer in France, has said that “excluding companies solely because they invest in new oil and gas projects, while disregarding their significant and expanding contribution to low-carbon energy, weakens key objectives the European Union aims to achieve,” according to an April document discussing SFDR and seen by Bloomberg.

Nareg Terzian, head of strategy and communications at the International Association of Oil & Gas Producers Europe, says the war in Iran — and an unpredictable administration in the US — means the EU needs to focus more on energy independence. There is “nascent discussion” among member states to tap reserves, and “we make sure that it’s on their minds,” he said.

Supporting domestic energy production “is definitely part of the answer,” Terzian said. And it “should get greater attention.”

Against that backdrop, oil, gas and coal companies should be included in transition funds, says Mitch Reznick, group head of fixed income at Federated Hermes in London. 

“Where returns justify the risk, transition funds should be able to invest in high-emitting sectors demonstrating genuine decarbonization through their governance, strategy and capital allocation,” he said.

Laugel of Amundi says she “completely” understands that there might be greenwashing concerns. But “more transparency” could resolve that, while a ban would eliminate the leverage that asset managers have, she said.

“If you are not around the table, there is this expression: that it’s likely that you are on the menu,” Laugel said.

EU lawmakers are expected to take up the question when they reconvene after the summer holidays in Europe. Any agreement would then need to be reconciled with member states’ proposed requirements, which in June stipulated oil companies with “time-bound” plans to cut emissions should be allowed in transition funds. 

(Adds timeline of lawmaker talks)

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