Australia’s fossil fuel companies have ranked as some of the worst performing share-market investments over the last decade, significantly underperforming the rest of the market, according to a new analysis of share-market returns.
The findings have been detailed in a new analysis report published by The Australia Institute., which found that an investment portfolio that included the top 300 companies on the ASX, but excluding companies involved in the fossil fuel industry, would have improved annual returns by 8.6 per cent over the last decade.
Over the last ten years, the Energy segment of the ASX 300, which includes some of Australia’s largest coal and gas producers, was the worst performer, significantly underperforming the market.
The underperformance of energy stocks was not just limited to the recent period impacted by Covid-19 related economic disruption, but was also a clear trend exhibited consistently over the last decade.
The report found that $100 invested in energy companies included in the ASX300 index in 2010, would have been worth just $104 by the start of 2020, and this would have fallen to $51 during the Covid-19 triggered market rout.
This was compared to the same investment made in the wider ASX300 index, which would have been worth $237 by the start of 2020, and retained a value of $169 during the Covid-19 market shock.
The ASX300 is an important benchmark index for the Australian stock market, reflecting a weighted average of Australia’s 300 largest and most widely traded publicly-listed companies. It is also one of the key indexes used by investment managers, including Australia’s superannuation funds, to build portfolios that tracks the performance of the wide Australian economy.
The Energy segment of the ASX300 index includes major oil and gas producers, but generally excludes some of Australia’s largest energy companies that are mostly consumers of fossil fuels, such as large electricity retailers, which fall under a separate “utilities” index.
“The poor performance of fossil fuel companies is probably surprising to most Australians, who are routinely told by industry and political leaders that coal is the “bedrock” of Australia’s prosperity, or that gas will “fire” the recovery from COVID19,” the report says.
“In fact, comparison of the fossil fuel-dominated ASX 300 Energy Index to the whole ASX 300 Index understates the underperformance of fossil fuel companies. As fossil fuel companies are in the ASX 300, they drag down its growth with their index’s losses.”
“Fossil fuel companies lost value in absolute terms over that period and at most points over the period. Returns peaked in 2011, but modest gains were soon lost. Returns were negative over most of the decade and for almost all of the last five years.”
The Australia Institute’s climate and energy program director Richie Merzian said that findings clearly highlighted the misleading claims of advocates for the fossil fuel sector that the coal and gas industries were core drivers of the Australian economy.
“Fossil fuels have not only damaged the climate over the last decade, but have damaged most Australian’s superannuation savings,” Merzian said.
“Coal and gas supporting politicians and lobbyists routinely claim that fossil fuels are contributing to the financial wellbeing of Australians, yet the data shows that fossil fuels have been a poor investment over a long period.”
The Australia Institute singled out major oil and gas producers, including Santos, Origin Energy, Woodside Petroleum and Whitehaven coal as particularly poor performers, which have left investors worse off while being some of Australia’s largest contributors to greenhouse gas emissions and environmental pollution.
“Australian companies such as Santos, Origin, Woodside, Whitehaven, and New Hope have all cost investors dearly, while also damaging the climate and dividing communities with controversial gas and coal projects,” Merzian added.
“Australian investors and governments should realise the risk that fossil fuels present to savings and the climate and take action to protect both.”
The report noted that the underperformance of fossil fuel stocks was not unique to the Australian market, with several overseas based oil and gas producers getting slammed by investors in recent months. This includes energy giant Exxon Mobil, which has historically ranked as one of the world’s most valuable publicly listed companies, whose shares have dropped by almost one-fifth since the start of the year.
In comparison, shares in US electric vehicle manufacturer Tesla have more than doubled in value since the start of 2020, with the company now ranking as the world’s most valuable car maker at US$208 billion (A$300 billion).