Investors are using their shareholdings to force polluting companies to change their ways and cut carbon emissions.
LONDON, 9 December, 2019 − Two strands of action are being taken by investors against the planet’s biggest and most polluting companies to try to coerce them into complying with climate targets.
One group, known as the divest/invest movement, and including forty of the world’s largest cities, is acting on ethical grounds, simply selling members’ shares in polluters and investing in green alternatives.
Members of the second group are hanging on to their profitable holdings but attempting to use their financial clout to persuade companies to stop killing the planet.
The first group began in 2012, basing themselves on the principles so successful in achieving divestment in South Africa during the apartheid era, which Nelson Mandela acknowledged put great pressure on the regime. DivestInvest says the number of organisations involved has grown to 1,101, which between them promise to withdraw US$8.8 trillion (£6.7tn) from fossil fuel companies.
It is a diverse group of organisations from 48 countries including banks, insurance companies, trade union and other pension funds, universities, cultural organisations and local authorities, which are unloading their shares in oil companies and other heavy polluters that profit while making little effort to curb their contribution to climate change.
Seeking maximum return
The second group, Climate Action 100+, represents more than 370 investors with over $35tn in assets. Many of these “investors” are managed funds held on behalf of thousands of individual shareholders who expect maximum return on their investments.
The managers of these funds say this duty to their investors means it is difficult to sell off shares in profitable companies, so the sensible option is to get the companies to reform.
They think this is also in the best interests of their funds, because climate change is a long-term threat to companies’ financial health and therefore to their investments. So, the argument runs, persuading polluters to change their ways to protect the planet is in everyone’s interest.
Both groups are claiming success. The trump card for the first group is that they believe fossil fuel companies, particularly coal and oil producers, will have to leave most of their “reserves” in the ground if the planet is not to heat by more than 2°C above pre-industrial levels, the internationally agreed limit.
The group argues that when the big oil companies like Shell, BP and Exxon count these reserves as assets they are deluding themselves and their shareholders, and the true worth of their companies is far less than they claim. DivestInvest calls them stranded assets.
“We are now at a tipping point. A significant number of companies have made bold commitments to achieve net zero emissions”
There is already strong evidence that this argument is having an effect on coal companies, with a string of bankruptcies in the US because sales have slumped as the power stations they supply have been unable to compete.
The movement cites some influential backers. “The fossil fuel industry is set to lose $33tn in revenues by 2040, including $27.9tn in oil and gas alone,” says Mark Lewis, global head of sustainability research at BNP Paribas Asset Management.
Sarah Butler-Sloss, founder director of Ashden, which supports sustainable energy enterprises worldwide, says: “Through DivestInvest, you can avoid the risks facing the fossil fuel sector, limit the wider climate risks, and make attractive returns from the clean economy.”
Among the lessons it draws from the experience so far of the campaigners, the Rapid Transition Alliance stresses two. It says:
“Finance is the lifeblood of the global economy. Withdrawing it from the coal, oil and gas sector pulls the plug on the fossil fuels that drive climate change. That leaves a challenge to ensure that divested funds get reinvested into low carbon transition, such as renewable energy.
Controversy continues
“Investors understand the language of risk and increasingly recognise that putting money into a potentially unusable commodity – fossil fuels which cannot be safely burned due to climate targets – runs the risk of their ‘assets’ being stranded, and therefore the loss of their investment.”
There is still controversy, though, because many in the oil industry predict that demand for their product will continue to rise for a decade or more. Others argue that there is already over-production of oil, keeping the price at less than $60 a barrel, and meaning that even setting aside the arguments about climate, extracting a large proportion of the “assets” in the ground is unlikely ever to be economic.
But although BP and Shell are said to be already “cooperating” with Climate Action 100+, fossil fuels are only part of the story. Steel, mining, and all sorts of manufacturing industries are also heavy polluters. The investors are focusing on 161 of the world’s largest polluting companies in which they are shareholders.
Apart from getting them to curb emissions, obviously a core issue, the investors are demanding that companies stop campaigning to cast doubt on the science of climate change, funding climate deniers and attacking campaigners.
The group says it has secured record support for action on climate at company meetings, with many companies committing to reaching net zero emissions. Carbon emissions are already falling, it says, although acknowledging that progress is nowhere near fast enough.
Improving on Paris
Already 70% of the 161 companies have emission reduction targets, and 9% have targets that are in line with or better than the maximum 2°C rise agreed at the Paris climate talks in 2015.
Stephanie Maier, director of responsible investment at HSBC Global Asset Management and a steering committee member at Climate Action 100+, said: “We are now at a tipping point. A significant number of companies have made bold commitments to achieve net zero emissions, with others increasingly following suit.
“Given the urgency of the situation, the role of investor engagement is critical in ensuring we build on this momentum.”
However Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change and also a steering committee member at Climate Action 100+, was more cautious.
“We have much more to do before business is on track to meet the goals of the Paris Agreement”, she said. “We must now build on the momentum achieved to date if we are to succeed in addressing the climate crisis and safeguarding investments on which the futures of millions of pensioners depend.” − Climate News Network
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