I have to admit my Self-Invested Personal Pension (SIPP) isn’t very green. It’s definitely lagging behind the move towards more ethical investing. For example, one of my holdings is Harbour Energy (LSE:HBR), the largest oil and gas producer in the North Sea.
I was first attracted by its dividend. The group intends to return 55% of its forecast free cash flow to shareholders this year by way of payouts and share buybacks. Currently (10 October), the stock’s yielding 9.6%. Although impressive, volatile energy prices means there’s no guarantee this will continue.
On the other hand…
However, despite the income I’ve generated, it’s been a disappointing investment. In recent times, successive cash-strapped governments have viewed the industry as an easy target. In May 2022, an energy profits levy of 25% was introduced. It’s now 38% and means everything earned from the UK’s waters is subject to an effective rate of tax of 78%.
Not surprisingly, share prices in the sector have tumbled. In particular, Harbour Energy’s has fallen around 60% since the windfall tax was introduced. Some ethical investors might be thinking that justice has been delivered. After all, my money is propping up an industry that’s polluting our planet.
But is it really? Surely everyone who drives a car, turns on their heating, or types a query into ChatGPT is causing the damage. I’ll admit I’m one of these people but — be honest — I bet you are too.
In my opinion, the difficult truth is that — whether we like it or not – oil and gas companies like Harbour Energy are only meeting a demand that already exists. However, this doesn’t stop me from feeling guilty. That’s why I feel I should try and ‘green up’ my SIPP.
The energy transition
Cleaner energy could be the answer. Overtaking coal for the first time, renewables were the world’s primary source of electricity in the first half of the year.
Interestingly, five of the ten highest-yielding stocks on the FTSE 250 are in investment trusts specialising in renewable energy assets. But some of their yields have been boosted by falling share prices. The sector has struggled with the higher interest-rate environment and many are trading at substantial discounts to their asset values. This makes me nervous but it could also be a sign of a good long-term investment.
SSE is one of the UK’s biggest developers of clean energy projects. However, its adjusted earnings per share was unchanged for its 2025 financial year and lower than it was in 2023. Over the same period, the group’s dividend has been cut by a third. I expect better from a FTSE 100 company.
Nuclear power is another option but the UK has a terrible record of delays and cost over-runs on large-scale projects. Rolls-Royce is leading the development of small modular reactors but these won’t be operational until the early 2030s.
It’s clear that I need to do more research.
In the meantime, I shall stick with Harbour Energy. A major acquisition in 2024 means the group now has a bigger presence in lower tax jurisdictions. It’s also reduced its operating costs by 30%. And the demand for oil and gas is still rising. For these reasons — along with its generous dividend — I think others might want to consider it too.
