State-owned companies were often a thorn in the side of long-lasting investors, but Russia’s invasion of Ukraine is drawing attention to names like Gazprom.
The company is both a champion of the Russian state and a dominant force in the European energy market.
However, measures taken by Western countries, such as the blocking of Swift transactions in some banks, the fall of the ruble and negative public sentiment have all hit the stock hard.
Whereas Gazprom was not an easy sell for ESG portfolios before. Fossil fuels, such as gas and oil, are not always excluded from sustainable funds, as managers recognize a role for both sectors in the energy transition story, leading to debates over the inclusion of gas in the EU green taxonomy.
Like many of its peers in the sector, Gazprom has had to respond to investor concerns over its handling of climate targets and now it is likely to face even greater scrutiny on the ESG front, given its links with the Russian government.
Citywire Selector looked at the list of funds holding Gazprom shares, focusing on those whose names relate to sustainability, ESG or SRI. Of 201 names, five met the criteria.
However, when questioned, two of the asset managers said they had never owned Gazprom.
Citywire Selector could not establish whether this was an error by Morningstar or minimal exposures through other instruments held in the funds registered as holdings. We have therefore excluded these names from the table below.
Allianz Global Investors said it no longer holds the stock, but did not say when the divestment took place and on what grounds.
Robeco said it would not comment on individual holdings, while Neuberger Berman did not respond to requests for comment.
Questioning Article 8
Another challenge investors face is how to navigate sustainable regulations, especially since they often seem to add to the confusion rather than clearly point to sustainable activities.
Whether a fund falls under either Article 8 – meaning it promotes environmental and social characteristics – or Article 9, which covers strategies with a sustainable investment objective, should not be taken for granted.
Among the top 100 funds with the most exposure to Gazprom, the next six were listed as Article 8 strategies on Morningstar, which means they ranked as promoting environmental and social characteristics under the lender’s SFDR rules. EU.
None of the funds above have ESG, sustainable or green in their name, which tells its own story of how regulatory frameworks don’t always clarify sustainability.
It is important to note that these funds operate within the established framework, as the Article 8 categorization does not preclude a strategy from investing in oil or gas companies.
*The East Capital Russia and Eastern Europe funds have suspended their listings, as has the Amundi Fds Russian Equity fund.
Manager’s point of view
In response to Citywire Selector question, Karine Hirn, director of sustainability at East Capital, said the team was currently assessing the situation to see whether to divest from Gazprom.
“State ownership is a big challenge for us because we condemn the Russian act of war against Ukraine and we fully support Ukraine and its independence,” she said.
Commenting on Gazprom’s place in the company’s funds, Hirn said that the company was one of the biggest emitters of CO2 in the world and that the asset manager had had a very close dialogue with the company, pushing it to improve climate governance and significantly reduce greenhouse gas emissions.
“We are co-responsible for the Climate Action 100+ engagement on Gazprom, and for us it is clear that we can add value through our experience of engaging with Russian companies in a structured and effective way.”
Hirn said before 2019 there was very little climate action and external reporting at Gazprom, and East Capital has stepped up its engagement on methane emissions in particular.
“He embarked on a very thorough scenario analysis exercise, created a board-level sustainability committee and now has emission reduction targets for all segments of the business, which implies an emissions reduction of 26 MT CO2e by 2031,” said Hirn.
Renat Nadyukov, portfolio manager of the NN(L) Emerging Europe Equity fund, said he would not comment on specific stocks, but outlined the company’s approach to fossil fuels.
“Alongside some strict restrictions on involvement in oil sands and thermal coal mining, we also have a dedicated engagement approach to oil and gas companies, electric utilities and have a voting policy. proactive on climate-related topics on the agenda at general meetings.
“We both engage on our own and are active in collaborative engagements with others,” he said in an emailed statement.
“Generally in this particular fund, we have a preference for natural gas producers over mineral oil producers and we manage an even larger allocation to pure renewable energy producers and distributors over fossil fuel companies. “
Nadyukov declined to say whether the invasion of Ukraine would lead the fund to sell.
“We cannot comment on specific holdings and cannot speculate on potential real-time or future changes we will make to our portfolios,” he said.
Even though Gazprom shows signs of improvement on environmental targets, its ties to the Russian state will continue to be challenged the longer the invasion of Ukraine continues.
If world leaders struggle to bring Putin to the negotiating table, leaders will struggle to justify owning state-owned companies on the basis of commitment
Fund managers will need to scrutinize the public companies they hold. And nowhere else should they be more vigilant than in the ESG space.