Responsible Investment Officer - ACTIAM
According to ABP, excluding investments in the oil and gas industry is crucial in order to take the major steps forward needed to combat climate change. Moreover, by doing so, ABP has acceded to the wishes of participants who have united in the action group Fossielvrij NL in the quest to eliminate investments in the oil and gas industry. But, as you rightly say, should participants be so happy about this if we look at the actual impact of the decision on the world around us? Not to mention the fact that they may be missing out on returns as a result.
Nearly all Dutch pension funds, which together account for more than €2,000 billion in assets under management, are under pressure from participants and from climate action groups to sell their stakes in fossil fuel companies. Their position, for which there is no evidence, is that divestment will depress those companies’ share prices, thus creating an incentive to invest more in the energy transition.
Pension funds can also make more progress with their own climate goals if they exclude companies with high carbon emissions. Consider, for example, PME's goal of halving its carbon emissions by 2025 compared to 2015.
Shell’s CEO Ben van Beurden called ABP's decision to withdraw from fossil fuel an example of gesture politics. There is some truth in that when you look at the impact its decision will have. Indeed, selling positions in oil and gas companies will not remove a single barrel of oil from the market nor indeed any CO2 from the atmosphere. Shares in Shell and other companies will simply be snatched up by investors who are probably less bothered about environmental issues. That will actually reduce the pressure on oil companies to become more sustainable, precisely when shareholders who put a premium on sustainability are finally beginning to achieve results.
“Investors in oil companies should ask themselves whether those companies can, may and actually will make the transition.”
For example, at ExxonMobil's annual meeting, three climate experts nominated by the activist investor Engine No. 1 were appointed to the board with the support of the company's largest shareholders, BlackRock, Vanguard and State Street.
A lot of investors are therefore agitating against exclusion as a strategy as it removes the possibility of using engagement to persuade oil companies to become more transparent about their strategy, policy and actual investments aimed at achieving climate goals. Investors also lose the opportunity, as shareholders, to support sustainable resolutions.
However, the influence shareholders are able to wield should not be a reason for them to hold on to their investments. Investors in oil companies should ask themselves whether those companies can, may and actually will make the transition. For example, although British BP has already set a net-zero target, not even 5% of its entire investments is in renewable energy sources. One therefore needs to carefully consider how likely it is that a company will make progress. Because if that is not likely, then, despite all the best intentions and openness to shareholders, that company poses a financial risk and exclusion may still be the best option.