Ed’s note: Counterintuitive investing


What if we didn’t pull investment from companies that produce fossil fuels?

Would this allow institutional investors an opportunity to work ‘from within’ to drive combat climate change and speed up transformation, or is this just whitewashing to justify continued investment into an ‘un-politically correct’ sector?

Activism and investment have been covered by Smart Energy International before; but an article written by Adrian Bell and Chris Brooks of Reading University’s Henley School of Business, questions some of the established interventions.

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Ed’s note: It’s investment that will determine fossil fuel’s future
The secret sauce: Five things stopping institutional investors putting more capital into renewables

Earlier this year the Swedish national pension fund AP1 was the first in that country to announce a divestment of all fossil fuel companies. The reason, according to Urban Hansson Brusewitz, AP1 chair, was because: “Divesting from fossil fuels is an efficient way for the fund to manage the financial risk associated with a transition in line with the Paris agreement.”

Yet, Bell and Brooks have a theory that more could be achieved by working from within and pushing for change. They use the example of the University Superannuation Scheme (USS) which has Shell as its largest holding of £500 million.

“Recent changes to the USS investment strategy ended its investment in a number of controversial holdings, including tobacco manufacturing, coal mining, cluster munitions (a form of explosive) and landmines. But USS continues to invest in a number of fossil fuel companies saying they intend to engage with them as a ‘force for good’.”

The authors posit that investors hold a lot of power and while divesting “from fossil fuel companies is likely to make investors feel morally cleansed, having washed their hands of dirty investments that make profits from environmental damage” – what has actually been accomplished to combat climate change?

They raise the question: What if someone else gains the same level of influence in said divested asset – but without the same level of commitment to combatting climate change?

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Instead, Bell and Brooks suggest that “shareholders can put pressure on companies they part own to introduce more sustainable ways of doing business. Although there is still much to be done, there is growing evidence that this kind of activism is having a positive effect on fossil fuel companies.”

It’s an interesting proposition, isn’t it? I’ll admit I did some research to see if there were any connections between the university and fossil fuel companies, but nothing leapt off the pages of my Google search. That then leads to the next question: Just how plausible is this theory?

It would appear it may have some legs after all. Research published in The Economist [20 June 2020] highlights that while there is a correlation between investor inputs and a decrease in carbon emissions by companies, the impact should not be overstated.

The article, How much can financiers do about climate change? suggests that this is more than just a matter of reducing climate impact by one company – that supply chain and lifecycle emissions need to be considered too for the impact to be truly meaningful.

What position to do you hold when it comes to investment into fossil fuels? Do you favour complete divestment, or do you believe that investors can and should use their economic muscle to drive change from within? What role do you believe companies have in addressing supply chain emissions and encouraging active change from its suppliers?

We’d love to hear from you as you share your thoughts on this and other topics that interest you.

Wishing you a climate conscious week

Until next time!

PS: On a more personal note, we wanted to thank so many of our readers for their very kind words on the passing of Gerald Schreiner. Your thoughts, prayers and good wishes have been of great comfort and we will be sharing these with his family. Thank you.