ESG focus meets reality of risk-reward in energy and mining
On 4 January 2021, we defined this year as the reflation year and recommended investors to get exposure to the commodity sector. This is still our view and the recent energy crunch is confirming us that the physical world is simply too small to support our green transformation ambitions and the demand created by historic fiscal and monetary stimulus in the wake of the pandemic. Back in early March, we flagged that black energy was sprinting ahead of green energy, and that investors should consider investing in the traditional energy sector.
As the long-term chart of the relative performance between the MSCI World Energy Sector and the MSCI World shows, the underperformance of the traditional energy sector is enormous and given the current trajectory for energy prices, there is a great risk-reward potential to get overweight the traditional energy sector. However, it requires the investor to put less emphasis on ESG and make a tactical bet.