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GQG stands firm on fossil fuel investment
by Benjamin Rusnak, afr

February 22, 2022 09:31 PM
Global investment manager GQG Partners denounced abandoning fossil fuels as “elitist” and “immoral” because it disregarded developing economies, for whom an increase in energy costs because of capital starved-supply risks causing a needless crisis.Co-founder and chief investment officer Rajiv Jain hit back at claims the firm’s energy investment stance wasn’t ethical, saying more nuanced thought was required, speaking at the Portfolio Construction Forum on Wednesday.Rajiv Jain at GQG’s office in Fort Lauderdale, Florida. “I think it’s immoral not to invest in energy, unless you’re willing to live by candlelight and walk instead of drive,” he said. “The whole argument of reducing supply [of fossil fuels] can be quite elitist. We need cheap enough energy for the world because there’s still a third of the world [that] doesn’t even have power supply yet.“The irony of COP26 was that almost everyone who spoke there arrived by private jet.“Energy prices are going up and that’s the perverse outcome of this. If you go to Africa or parts of Asia and suggest the price of oil should be double, it’s just not a realistic proposition in those parts of the world.”Energy represents 20.1 per cent of the GQG Partners Global Equity Fund, with Exxon Mobil, Petrobras, Occidental Petroleum and Exelon Corp all among the fund’s top 10 holdings.Mr Jain said the allocators of capital had come under increasing pressure not to back oil, gas or coal projects. “Investors have taken a binary approach, saying 'no' to fossil fuels and 'yes' to everything else,” he said.“If we choke off capital to coal, the narrative is the world will be better off, but we believe there’s no commercial merit to it. Choking off supply will only create a crisis, and we’re already seeing that across the globe.”The mood around fossil fuels has been particularly acute in the Australian sharemarket this week. On the weekend, Australian software billionaire Mike Cannon-Brookes and Canada’s Brookfield made a $5 billion bid for AGL Energy, promising to replace its coal-fired power stations by 2030.That came just a few days after Origin Energy announced it would shut down the 2880-megawatt Eraring generator on NSW’s Central Coast – responsible for 20 per cent of the state’s electricity needs – seven years earlier than expected. Energy minister Angus Taylor warned prices would spike.In 2020, fossil fuels contributed to 76 per cent of Australia’s total electricity generation, 54 per cent of which was coal-based.Mr Jain said Europe had already experienced the fallout of relying too much on renewable generation. “You’re seeing demand for coal going up because there’s gas shortages, European countries are phasing out nuclear, the wind didn’t blow as much this year and so you’re having power shortages,” he said.“It might actually be having a perverse outcome if you’re not careful.”Mr Jain also pointed to companies well advanced in the energy transition that were still heavily reliant on oil, coal and gas, as a sign it would take decades -- "30, 40 or 50 years" -- to make the leap, not years.“Norway is a good example because it's almost 60 per cent electric vehicles and yet, its total energy consumption hasn’t gone down,” he said. “Mobility is a very small part of things. We haven’t found alternatives to plastics and other big energy consumers, so it will take a long time to truly transition," he continued.“We’ll need to find a lot of copper [than what we currently produce]. Less than 1 per cent of cars globally are electric vehicles, and we’re already running tight on a lot of the metals used in EVs.”