Fossil fuels are far from synonymous with ESG investing, but Russia’s invasion of Ukraine has upended the market. While many countries have made vows to cut global emissions and be net zero by 2050, that is getting put on pause as they are considering energy security first. Many euro funds have underweighted fossil fuels historically, but as of late almost 6% of ESG funds now own Shell which was previously zero at the end of 2021. The underperformance of funds is certainly a part of this and many are leaning on commodities surge in order to help recover. Moreover, the euro area has passed a regulation that includes gas and nuclear power as part of ESG. While some believe this is a good step because it encourages cleaner ffs such as natural gas others are worried it’s a slippery slope.

Finsum: This is a radical step in ESG regulation, and appears to be on pause as inflation has all countries concerned.