In the fourth season of the television show “Mad Men”, Don Draper, the mercurial creative head of the ad agency Sterling Cooper Draper Price wrote an ad published in the New York Times claiming that the agency will no longer accept advertising business from tobacco companies. Don stated that he was relieved to no longer advertise a product that made people sick and unhappy. The circumstances, in the mid-1960’s, when smoking tobacco was coming under fire from doctors and heath professionals, feels familiar, when the anti-smoking lobby came up against ‘big tobacco’ and, ultimately, science and empirical evidence against smoking held sway.
Fast forward to today. Norway’s sovereign fund has announced that it is divesting its stocks in oil and gas companies. It will no longer invest in entities in international giants such as Exxon Mobil Corp. and Royal Dutch Shell Plc, divesting holdings worth $40 billion US dollars. How times change. In 2008, we believed that we’d run out of oil within a few decades. Ten years later, oil and gas companies are under siege and the world is awash in oil.
It’s no coincidence that Norway puts a 25% tax on gasoline-powered vehicles, that 47% of new car sales in July were electric vehicles and that by 2025 Norway expects to eliminate gasoline powered vehicles on their roads.
When the money dries up for investments in oil and gas exploration, that money will find other ways to be employed. When investments managers decide it’s time to get out of oil and gas, it’s only a matter of time before the consequences of that decision trickles down into the rest of the economy. Investments in long-term renewable energy is the logical replacement.
It happened to tobacco. It’s happening to oil and gas. It might be time to call your portfolio advisor.