06/21/2017
First published in 2016, Total’s Climate Report was designed to share with stakeholders how climate is integrated into our strategy. With the 2017 edition just out, we wanted to know how investors had reacted to it. Does it give them a better understanding of how Total aims to become the responsible energy major? Graeme Baker*, Energy Portfolio Manager at Investec Asset Management, answers our questions.
As an investor in the energy sector, how do you look at Total’s efforts to integrate climate into its strategy?
Graeme Baker / As investors, and Total shareholders, at the end of the day, we need to outperform for our clients, and that comes through share price appreciation. But the investing world is changing and you must now consider environmental, social and governance factors, including climate change. We aim to be long-term investors, and through its positions on climate, we understand Total is doing the same.
The company is prepared to take low initial returns that have the potential for greater returns over the long term. So, out of all of its peers, we feel that Total is ahead. Obviously there is always more that can be done, but we do think that Total is forward-thinking in this area.
What makes you say that?
G. B. / If you tried to ignore the issue of climate change, we would take that as a negative. You have to tackle it head on, accept that we are in an energy transition and show that you are able to adapt and that you have the expertise and the knowledge. That’s what Total is doing by acquiring and owning companies like Saft and SunPower. The fact that you are focusing on solar, storage, and even that you may consider onshore wind, really resonates with our long-term view. We also like the gas component of Total. Natural gas is the necessary transition fuel because it is much cleaner than coal, and you do need a cleaner form of hydrocarbon to allow a transition over a 30- to 40-year period. And although we like onshore wind and solar plus storage, we also understand intermittency issues potentially get in the way. It’s not possible to move to 100% onshore wind and solar power production immediately, so we believe gas is quite important.
Would you say that investing in Total is a sustainable investment?
G. B. / Within the universe we compare Total to, Total is moving in the right direction. It’s not possible for Total as a company or for the world to transition immediately; it needs to be a sustainable transition. Oil can’t stop being consumed straight away, the same with gas. We see oil consumption continue to grow in the short term and gas consumption growing for at least 20 years driven by emerging markets. There are disruptive technologies that might change this but without a significant hit to economic growth and people’s living standards, it’s just not possible to transition that quickly. People need to understand the reality of the energy transition that it will take time. So, it is fair to say that yes, Total is moving in the right direction with regard to sustainability. Some might argue against this, saying that you are producing hydrocarbons and therefore creating CO2 emissions and climate change issues, but we won’t, as long as you are working on solutions, new technologies, and working toward a sustainable transition. Engagement is key. Some may also argue that you could invest more into these technologies, but the economics also need to be considered and Total needs to make money for their shareholders. We are seeing a rapid improvement in these technologies and costs have and will continue to come down. This should allow a faster transition to a cleaner energy system and Total is well positioned for this.
*Disclaimer: The views and opinions expressed in this article are those of the interviewee and do not necessarily reflect the official position of Investec Asset Management.