Let’s suppose – and we hope it won‘t be the case – that reading this newsletter is giving you a headache.

You take a paracetamol – the active ingredient of which is derived from oil. Less trivial ailments, too, are treated

with oil-derived medication, from antibiotics to a new molecule that increases the chance of healing for chronic

Hepatitis-C patients from 20% to almost 100%. And crude oil is not only crucial in medicine, but also in chemicals

and the production of plastics and synthetic fibres.

 

That being said, there are alternatives. Even the first industrial plastic, celluloid, was plant-based. Today we have

a vast range of biopolymers that can substitute oil-based plastics. Important chemicals, too, are increasingly

derived from renewable sources. However, both remain a niche for the time being. By 2025 the market share

of bioplastic is expected to rise to a mere 3%. Quality issues and excessive costs limit the development. While the

recycling of one tonne of plastic saves up to 8,000 litres of crude oil, its contribution on a global scale is not significant

due to low recycling ratios. Even biotechnologies which that are currently revolutionising the pharmaceutical industry

without a single drop of oil are reserved for the most sophisticated forms of medical treatments and cannot (yet)

replace petrochemicals.

 

Also, the plantations necessary for the industrial production of the base materials do not only harbour enormous

social risks, but they also put the environment at risk due to land use, genetic engineering, and monoculture.

Especially in the area of energy, which still accounts for two thirds of global oil consumption, agrofuels highlight

the fact that renewable does not necessarily translate into sustainable.

 

In summary, oil remains indispensable, even though longterm alternatives are not purely science-fiction

anymore. However, the emission of greenhouse gases varies between the best and the worst oil companies by

the factor nine, and fatalities by the factor five. It is this area where our responsibility as sustainable investors

is key, and where we must not be indifferent.

 

Status:

Instead of turning away from oil, we opt to funnel investments to the best companies of the sector. The research

of the Investment Board also points to the fact that (energy) efficiency has a bigger impact in the medium term

than alternative technologies. For Erste Asset Management, energy efficiency is one of the factors we scrutinise

when analysing a company.

 

(Dominik Benedikt)