Reece Birtles of Martin Currie Australia says ESG inflation’ threatens energy transition

Reece Birtles, chief investment officer of Martin Currie Australia, predicts an inflationary burst from the shift away from fossil fuels.

Over the past few months, Reece Birtles, a fund manager running one of Australia’s largest listed equity portfolios, has leafed through rosy declarations from companies such as BHP and Boral pledging lower carbon emissions to help stave off the climate disaster sweeping the world.

Reece Birtles, chief investment officer of Martin Currie Australia, worries businesses committing to net zero emissions targets may face higher costs. Simon Dallinger?

“Lots of companies are signing up to [net zero] without having the technology to achieve it,” says Birtles, who is chief investment officer for Martin Currie Australia, an arm of global fund manager Franklin Templeton, where he oversees the $4.5 billion Martin Currie Australian Equity Income portfolio.

Businesses in carbon-intensive industries from chemicals and fertiliser manufacturers to resources and industrial companies face a sharp rise in costs as they shift away from fossil fuels, says Birtles.

“The aluminium metals process is very energy intensive and it’s very hard to reduce the carbon emissions and grow supply in the current environment to meet the demand for aluminium growth,” Birtles says.

“We think it is one of the companies that will really facilitate the energy transition, but it’s also been caught up with the weak prices on energy-related names,” Birtles says.

The equity income fund Birtles runs targets the steady, dividend-paying stocks that form the bedrock of the Australian sharemarket to help investors preserve capital and for many to support a comfortable retirement.

Investors have looked to dividend-focused equity funds to buoy income streams dented by the near-zero interest rate environment around the world, denting returns on low-risk bond portfolios.