In this weekly feature, FSA shows a potential investment that a firm has declined on the basis of ESG criteria. The purpose is to highlight firms that are actually putting into practice an aspirational ESG policy.
Company evaluated: A mid-cap oil & gas business based in Finland
Assessed by: Tim Crockford, manager of the Impact Opportunities Fund at Hermes Investment Management
We recently considered a company investing in a new generation of biodiesel, transitioning away from a traditional refinery business. The company developed a new technology that mainly uses waste products as the feedstock and with only around 20% palm oil, therefore contributing to the circular economy and the energy transition.
The company is generally regarded as a sustainability leader, with strong ESG ratings. However, taking a closer look at the numbers and talking in depth with the company and NGOs, we found the company not to be impactful enough to meet our investment criteria.
Based on our insights, we found the life-cycle reduction in greenhouse gas emissions from their biodiesel compared to conventional diesel to be lower than the 90% reported by the company. Also, while we were pleased to see that only 20% of its feedstock is palm oil, unfortunately PFAD (a by-product of palm oil production) makes up around half of the “waste and residue”.
Based on our research, we concluded that the company would likely remain a contributor to climate change over the short-term and would therefore not be suitable for our portfolio at present.