(May 7): TotalEnergies SE’s CEO has plenty of reasons to antagonise the French government with the possibility of moving its stock listing to Wall Street. When measured in dollars, there are tens of billions of them.

Investors are typically willing to pay much less for European stocks than those in the US, and that valuation discount is especially notable in Big Oil: European companies in the industry are 40% cheaper than those across the Atlantic.

If TotalEnergies were valued in line with the average big US crude producer, its €160 billion (RM816.2 billion) equity market capitalization would be boosted by US$115 billion (RM544.95 billion), based on earnings multiples calculated by Bloomberg.

TotalEnergies CEO Patrick Pouyanne says a growing part of the problem stems from a three-letter acronym: ESG. He told a French Senate hearing last week that his stock’s discount results partly from the growing pressure on European asset managers to invest using environmental, social and governance standards.

The latest example: A proposed French rule would only let funds use a national ESG label if they blacklist fossil-fuel companies that are still expanding production.

BNP Paribas SA’s asset management arm will have to reduce its holdings in oil and gas companies under that rule, Laurence Pessez, the bank’s corporate social responsibility director, said at another session of the Senate hearing on Monday (May 6). Lawmakers from an environmental party organised the hearing to look at whether the state is ensuring that TotalEnergies complies with France’s climate obligations.

“BNP Paribas Asset Management’s goal is to keep these labels as much as possible, which will require a divestment of some shares in the oil and gas sector in which TotalEnergies is part of,” Pessez said.

Even as demand for oil rises globally, European producers such as TotalEnergies, Shell Plc and BP Plc have diversified into renewables, which generate lower returns than hydrocarbons during times of high crude prices. At the same time, their rivals, including Exxon Mobil Corp and Chevron Corp have pursued an aggressive growth strategy in oil and gas, including through major acquisitions.

A third of European mutual funds exclude fossil fuels, whereas a negligible number of their US peers take that view, Deutsche Bank AG analysts wrote in a March note, citing Morningstar Inc data.

The controversy points to a broader problem for Europe, according to Gilles Guibout, a fund manager at Axa Investment Managers: the lack of deep capital markets like those in the US. For TotalEnergies, 47% of its institutional shareholder base is now from the US against 18% for France, according to the company.

“It would be a mistake only to look at this from the ESG angle; one has to step back and realise that there’s a much wider issue with Europe’s equity capital markets,” the AXA IM manager added, noting the scarcity of European pension funds and the continent’s limited pool of retail investors.

For years, that has driven smaller companies — especially in growth industries like technology and biotech — to list in the US in search of higher valuations and easier access to capital.

But losing a national champion — even if its headquarters and incorporation would remain in France — would be a bigger blow to European markets, one that French Finance Minister Bruno Le Maire said he wants to avoid.

The fragmentation of the continent’s capital market remains a structural issue for the European Union and TotalEnergies’ move has put it right back at the top of the agenda ahead of the European elections in June.

“We’re going to set up a capital markets union so that you can raise much larger sums on a European scale, particularly for your activities in the energy transition,” Le Maire said last week in an interview with BFM TV, pledging to fight to keep Total’s main listing in Paris.

While unifying the European Union’s capital markets has long been discussed, agreement has been elusive, and any fix may not come in time for TotalEnergies. Pouyanne is studying the potential move of the company’s primary listing to New York and will present his findings to the company’s board in September.