The New ESG: Energy, Security and Groceries

For much of the past decade, ESG (environmental, social and governance) considerations became a defining lens for investors, corporations and policymakers. Capital was directed toward decarbonization, corporate accountability and social outcomes. Energy producers faced a higher cost of capital as governments set increasingly ambitious emissions targets, and investors were encouraged to view traditional energy exposure as a risk to be minimized. We previously wrote about the "greenwashing" of passive investment funds to appeal to this shift in public sentiment.

The direction of travel seemed clear. Then reality quickly intervened.

A global pandemic exposed the fragility of supply chains. Wars disrupted energy markets and agricultural exports. Inflation surged to levels not seen in decades. Households confronted higher costs for gasoline, natural gas, electricity and food, while governments were reminded that affordable, reliable energy and secure food supplies are not abstract policy questions. They are foundational to economic stability and social cohesion.

The conversation moved abruptly to the new ESG: energy, security and groceries*. Or, more plainly, food.

This does not mean environmental considerations have disappeared. Climate risk remains financially relevant, the energy transition is still underway, and the long-term shift in the global energy system continues. But the priorities of consumers, businesses and governments have broadened. It is not a transition that is being pushed out of image but rather one being driven out of necessity. The immediate concerns of affordability, reliability and supply security have moved to the front of the line.

The pendulum has swung rapidly.

Only a few years ago, the prevailing view in many circles was that reducing fossil-fuel investment was an essential step toward a lower-carbon future. Today, governments on both sides of the Atlantic are supporting domestic production, expanding liquefied natural gas infrastructure, reconsidering nuclear power, and placing greater value on dependable conventional energy supplies. Efficiency, reliability, and policy (or political) stability are being seen again as utmost importance to countries and their sovereignty. Canada’s resource base, once frequently viewed through a narrow emissions lens, is increasingly recognized as strategically important to global energy security.

The same reassessment is taking place in agriculture.

Food inflation has become one of the most visible and politically sensitive consequences of economic disruption. Weather events, geopolitical conflict, fertilizer shortages, transportation bottlenecks and trade restrictions have all highlighted the interconnected nature of the global food system. Reliable crop production, fertilizer supply, agricultural technology, water access and transportation infrastructure are no longer simply sector-specific concerns; they are central to national resilience.

For investors, this shift reinforces an important principle: durable portfolios should not be constructed around a single narrative.

Markets and policy priorities can change faster than long-term capital can be redeployed. Companies that were out of favour under one set of assumptions can become essential under another.

Our key themes put forth at OUTLOOK for this decade of transition are at the forefront of the pendulum pattern.

Energy infrastructure, pipelines, natural gas, uranium, fertilizers, agricultural inputs and transportation networks have all benefited from a renewed focus on security of supply. At the same time, renewable power, grid modernization, storage and efficiency technologies remain important components of a diversified energy future.

The lesson is not that ESG was wrong, nor that the energy transition has been abandoned. Rather, it is that successful policy and successful investing must account for trade-offs.

Energy must become cleaner over time, but it must also be available and affordable today. Food systems must become more resilient and sustainable, but they must also produce enough calories at a price households can bear. Social objectives require stable employment, reliable infrastructure and manageable living costs. These realities are connected.

BOTTOM LINE

The most constructive path forward is unlikely to be found at either extreme. It will require a pragmatic balance between environmental progress, energy reliability, food security and economic affordability.

At SANDSTONE, that means looking beyond labels and headlines. It means focusing on businesses with essential assets, durable cash flows, pricing power and a role in meeting the world’s basic needs. In a period marked by geopolitical uncertainty and shifting public priorities, the ability to provide energy, food and critical infrastructure may prove every bit as important as the ability to satisfy the investment narrative of the moment.

Markets are uncertain. Your strategy shouldn't be.

Find confidence during confusing times by meeting with one of our wealth professionals.