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Goldman Sachs has identified a number of energy stocks to own ahead of an expected turn in the market’s sentiment toward the oil and gas sector. The Wall Street bank said it had observed greater ownership of the energy sector due to a change in the way ESG investors — or those who take environmental, social and governance factors into account — approach investing. Instead of divesting from fossil fuels altogether, they’re focusing more on engaging with these companies for better environmental outcomes, according to the bank. Goldman’s analysis comes after the energy sector posted stellar gains last year. The S & P 500 Energy Index returned 66%, while the broader benchmark index nearly fell into a bear market over the same period. “We believe this shift towards greater Energy ownership has not solely been driven by 2022 sector performance, but rather a confluence of the expanding focus on engagement, growing passive ESG share and rising ESG debates,” said Goldman Sachs analysts led by Brendan Corbett in a note to clients on May 3. The change in investor sentiment can be seen in the dramatic decline in fossil fuel divestment announcements made in 2022. According to Goldman, there were no net divestments recorded last year. In contrast, ESG funds increased their exposure to fossil fuel companies by 8 percentage points in the first quarter of this year, the bank said. Goldman Sachs’s list of energy stocks to buy in the United States and Europe included the following: According to the investment bank, European energy giants like BP , Shell and TotalEnergies have attracted higher levels of ESG investment because they are perceived to be transitioning toward cleaner operations with comprehensive climate plans. The three stocks are also traded on U.S. exchanges. Goldman expects a 10% increase in revenue from green investments at these companies this year compared to last year. The trend also indicates that a turning point may be approaching where larger energy companies could attract even more investment if they continue transitioning toward greener practices, the analysts added. Oil and gas companies have also been particularly attractive to investors over the past year thanks to their bumper profits. On Thursday, British oil giant Shell posted a stronger-than-anticipated first-quarter profit of $9.6 billion , extending record bumper results after commodity prices surged in 2022 following Russia’s full-scale invasion of Ukraine. Big Oil executives have sought to defend their profits amid a barrage of criticism, with opponents pointing out that the burning of fossil fuels such as coal, oil and gas, is the chief driver of the climate emergency. The execs argue, however, for the importance of energy security in the transition away from fossil fuels and suggest higher taxes could deter investment. Shell, which is aiming to become a net-zero emissions business by 2050, said that first-quarter adjusted earnings for its Renewable and Energy Solutions unit came in at $389 million, up from $293 million for the final three months of last year. — CNBC’s Michael Bloom and Sam Meredith contributed to this report.
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