The continuing, horrifying saga of the Porter Ranch methane leak holds important lessons for investors, author and senior investment advisor Garvin Jabusch warns in a post on AltEnergyStocks.
“Investment managers are supposed to be assimilating all the risks, so why do some have a blind spot when it comes to natural gas and other fossil fuels?” he asks. “Part of it is inertia, a sense that doing things the way they’ve always been done must be ‘right.’ Part of it is ideological, and a tribal affiliation among some institutions and investors who resist the idea of an economic switch to renewables as simply contrary to the way they view the world.”
Jabusch notes that “the standard tool kit used by most portfolio managers, collectively called modern portfolio theory, doesn’t particularly allow one to attempt to look forward in assessing risk, basing almost all such calculations on the way stocks and groups of stocks have performed historically.” That’s a problem with a company like SoCalGas that knew about a faulty safety valve at its Aliso Canyon facility in 1979, but “was still considered an upright corporate citizen, among the finest and safest of our fossil fuel firms. Many money managers did not perceive a risk.”
Even in mid-November, seven weeks after the beginning of a methane leak that drew comparisons with the entirety of the Barnett Shale and the 2010 Deepwater Horizon disaster, SoCalGas’ parent company, Sempra Energy, was selected for the 2015 S&P 500 Climate Disclosure Leadership Index.
“Obviously, there is a disconnect between real-world, scientifically verifiable risks and traditionally contemplated investment risks, at least in the case of SoCalGas and Sempra. Which is a danger when you get into the business of looking for standouts in an inherently destructive business: even the very best are still destructive,” Jabusch writes.
“It’s like trying to decide which cancer you would like to get. Maybe you’d select skin cancer because it’s eminently curable if caught early, but the real answer is you don’t want cancer at all.”