Anti-ESG investing is based on a simple contrarian idea: when ideology cuts necessary industries off from capital, supply falls, prices rise, and the remaining producers can generate large cash flows. Coal, oil, gas, offshore drilling, and other disliked energy sectors may benefit from the gap between political narratives and physical energy demand.
The mainstream ESG narrative argues that coal, oil, and other carbon-heavy industries are in terminal decline. The opposing view is that wind and solar are not scaling fast enough to replace fossil fuels, especially in developing markets. If the world still needs energy but capital is withdrawn from the industries that provide it, prices can rise sharply.
This creates an “anti-ESG” trade: buy the sectors that are hated, underfunded, and still essential.
Coal as the most hated commodity
Coal is one of the most disliked commodities in mainstream investing. Many funds cannot invest in it because of ESG mandates, and public sentiment is strongly negative.
That is part of the investment case.
When a sector is necessary but cut off from capital, companies cannot easily finance new supply. They must rely on internal cash flow. If demand remains strong or even stable, prices can move much higher.
Coal prices rose sharply after late 2020. Some coal stocks became four- or five-baggers. The biggest upside came from companies that were priced for distress or bankruptcy.
One example discussed was Peabody Energy. It had already gone through Chapter 11 in 2016 and later faced fears of another bankruptcy. It provides more than 5% of US power, yet its equity was priced as though the company might not survive.
The issue was not that coal had disappeared from the energy system. The issue was financing. ESG pressure had made it harder for coal companies to roll debt or access capital.
Once Peabody’s debt was extended and bankruptcy risk receded, the stock had major upside because the free float was small and coal prices were rising.
Why coal demand did not disappear
Part of the coal thesis comes from energy switching.
Natural gas and coal compete in power generation. When gas prices are low, utilities shift toward gas. When gas prices rise, coal becomes more attractive again.
During the gas glut, cheap gas reduced coal use, especially in developed markets. Many people interpreted that as proof that ESG policy was working and coal was permanently declining.
But when gas prices rose, coal use increased again.
In the US, gas was expected to represent around 40% of the energy mix, but higher gas prices reduced its share by about five percentage points. That demand moved toward coal. For coal companies that had been priced for collapse, even a modest shift in demand created a major cash-flow windfall.
Coal as a tobacco-style trade
Coal may not receive large valuation multiple expansion because many investors still refuse to own it.
That makes the trade similar to tobacco. The sector may stay disliked, but the companies can generate large cash flows and return capital to shareholders through:
- dividends
- buybacks
- debt reduction
- self-funded projects
Companies such as Whitehaven and New Hope were highlighted as attractive because, at current coal prices, their enterprise value to EBITDA could fall close to one times. That means the companies could potentially earn back much of their enterprise value in a short period if prices stay elevated.
Coal prices may not stay at extreme levels forever. But even if they fall by one-third or half, some producers may still remain highly profitable.
Developed markets vs developing markets
The coal discussion depends heavily on geography.
In developed markets, coal use has clearly declined. Europe has been phasing it out, and the US has reduced coal use more gradually.
But this is not the whole global picture.
Coal demand in Asia can more than offset Western declines. China continues building coal capacity, and South Asia also relies heavily on coal.
Developing countries often have:
- growing power demand
- low wind speeds in some areas
- large domestic coal reserves
- limited ability to rely only on renewables
- strong need for cheap electricity
- energy-security concerns
Asking poor countries to abandon coal can mean asking them to give up cheap and reliable energy before they have an economic alternative.
China and coal financing
China announced that it would stop building coal plants abroad. This is negative for demand, especially in poor countries where Chinese financing supported coal projects.
The countries most affected are often among the poorest, including parts of Africa. Without Chinese financing, some projects may be delayed or forced to rely on domestic capital, which can be slower and more expensive.
However, the supply side may be shrinking even faster than demand.
Coal supply is increasingly constrained because many coal reserves are in countries with strong ESG pressure. Permits are harder to obtain in places such as Australia and Canada. Legal challenges and environmental activism can delay or block new coal projects.
In China, authorities have pushed domestic coal producers to increase output, but production has not responded strongly enough. This suggests parts of the system may already be close to capacity.
The core coal thesis is that supply destruction is outpacing demand destruction.
Oil: structural problem, not temporary spike
Oil is also being affected by ESG pressure.
Major oil companies such as BP and Shell have cut back on exploration and committed to energy-transition plans. Some are selling carbon-intensive assets and investing in renewables.
This can destroy shareholder value if companies sell productive assets cheaply and buy expensive renewable projects at peak valuations.
Oil companies face a basic problem: they must constantly replace declining production. Existing oil fields decline every year. If companies do not invest enough in exploration and development, future supply falls.
One estimate discussed was that oil majors would need to double capital expenditure just to stop their production decline, without adding growth.
The problem is not only capital. When companies fire workers and reduce investment, the sector loses specialized labor, equipment, and technical capacity. That makes it harder to ramp back up later.
Oil demand from the developing world
Before the pandemic, the world used roughly 100 million barrels of oil per day. Demand fell during Covid but has been recovering.
Long-term oil demand has historically grown by around 1% per year, or slightly over 1 million barrels per day annually.
The developed world has about 1.6 billion people and uses around 13 barrels per person per year. The developing world has around 6.5 billion people and uses around three barrels per person per year.
By 2050, the developing world could add around 2 billion people. Even if their oil use stays at today’s low level of around three barrels per person, that adds major demand. If more people enter the middle class and consumption rises to four or five barrels per person, the numbers become much larger.
This is why the idea that oil demand will quickly roll over may be unrealistic.
Why oil ETFs and majors may not be ideal
A broad oil ETF may include large oil majors that are under ESG pressure and actively shifting away from their core businesses.
That may not be the best way to play the oil thesis.
Large Western oil companies face:
- pressure from BlackRock, Vanguard, and other major passive investors
- activist campaigns such as Engine No. 1 at Exxon
- board-level pressure to reduce fossil fuel exposure
- reduced reinvestment in reserves
- expensive renewable investments
- asset sales at poor prices
For investors who want direct exposure to oil scarcity, these companies may be less attractive than smaller, more focused producers or oil-linked instruments.
Offshore oil as a leveraged oil trade
The offshore sector may offer stronger upside.
Offshore companies were heavily damaged during the oil downturn. Many had asset-heavy balance sheets and high debt. Several went through Chapter 11, including companies such as Valaris, Tidewater, and Noble.
After restructuring, some emerged with less debt. That makes them potentially lower-risk than before, while still offering significant upside if offshore activity returns.
The argument for offshore is straightforward: about half of the oil majors’ proven reserves are offshore. If the world still needs oil, offshore production will be needed.
Because offshore companies were priced for death, a recovery in oil demand and offshore activity can create a large re-rating.
Other names mentioned included MMA Offshore and companies with strong option markets.
Canadian oil cash-flow plays
Another way to play oil is through Canadian producers.
Some Canadian oil companies can generate strong cash flow at $60 to $70 WTI. At those oil prices, certain companies may be able to pay down debt, buy back shares, and return capital rapidly.
This makes them “cash-flow cows” rather than pure speculative turnaround plays.
For investors who do not want to use futures or options, these producers may offer a simpler way to gain exposure to oil strength.
Oil futures and backwardation
A more complex oil trade involves WTI futures options.
The oil curve was described as heavily backwardated. The front-month oil price was in the $70s, while prices further out in 2023, 2024, and 2025 were in the $50s.
This creates a possible opportunity: buy longer-dated bullish call spreads on WTI where the market prices future oil much lower than the current price.
One example discussed was a $95/$105 bull call spread for December 2024, with a potential payoff of around 14 times.
The logic is that the market is pricing high future oil prices as unlikely, even though structural supply problems may make them more likely.
This is more complex and not suitable for everyone, but it removes some company-specific risks such as debt, management, and operational execution.
Russian oil companies
Russian oil companies were discussed as another anti-ESG option because they operate in a country that is not strongly driven by ESG policy.
Companies such as Lukoil and Gazprom may suit more conservative or pension-style energy exposure. They can drill, explore, export, and operate without the same Western ESG constraints.
However, individual country and operational risks remain. For an aggressive strategy, direct commodity exposure through WTI options may offer a better payoff than taking on company-specific and country-specific risks.
OPEC spare capacity may be overstated
A common argument against higher oil prices is that OPEC+ has spare capacity, especially Russia and Saudi Arabia.
The counterargument is that spare capacity may be exaggerated.
Russia has struggled to meet higher quotas, suggesting old fields, underinvestment, and decline rates may be limiting production.
Saudi Arabia has long claimed large spare capacity, but when production rises toward those levels, inventories appear to draw down quickly. That raises questions about whether the spare capacity truly exists.
If the supposed extra 2 to 3 million barrels per day of spare capacity is not real, then the oil market is much tighter than consensus assumes.
Because oil demand is relatively inelastic, a tight market can lead to sharp price moves.
China risk and energy markets
A major slowdown or crisis in China could delay the energy thesis by reducing demand in the short term.
However, the structural supply-demand issue would remain. The world still needs oil, coal, gas, uranium, and other energy sources once growth resumes.
The view discussed was that China-related fears may be ring-fenced because policymakers are focused on the problem. The greater risk may come from energy itself. When oil becomes too large a share of global GDP, it can trigger recession.
That means energy prices may not just react to economic stress. They may help cause it.
Volatility and conviction
Anti-ESG energy trades can be volatile. Uranium, coal, oil, offshore drilling, and smaller energy equities can move sharply in both directions.
The argument is that volatility should not automatically scare investors out of a position if the underlying supply-demand thesis remains intact.
The key is conviction and position sizing. Waiting in cash for perfect entry points may mean missing large moves. But these trades are not low-risk, and they require tolerance for drawdowns.
Practical takeaways
The anti-ESG thesis is based on the mismatch between political narratives and physical reality.
Wind and solar are not scaling fast enough to replace fossil fuels. Developing countries still need cheap and reliable power. Oil demand remains tied to population growth, urbanization, and rising living standards. Coal and gas still compete in power markets. Offshore oil remains necessary if global oil supply is to be maintained.
At the same time, ESG pressure is reducing capital investment in exactly the sectors still needed by the economy.
This creates opportunities in:
- coal producers with strong cash flow
- distressed or post-bankruptcy energy companies
- offshore oil service companies
- Canadian oil producers
- longer-dated WTI call spreads
- non-Western energy producers less constrained by ESG
- companies benefiting from supply shortages
The main risks are:
- political intervention
- recession
- China slowdown
- demand destruction
- regulatory pressure
- project delays
- commodity volatility
- company-specific debt or operational problems
The core idea is that when necessary industries are starved of capital, the remaining producers can become highly profitable. ESG may reduce investment, but it does not eliminate the world’s need for energy.
