Climate activists, such as Extinction Rebellion, say the only way to dramatically reduce global carbon emissions is to eliminate fossil fuel production but investors favour engagement

In the battle to curb greenhouse gas emissions institutional shareholders are forcing some of the world’s biggest energy companies to take greater responsibility for their role in global warming.

From setting emissions targets to greater disclosure on climate-change related risks, this new breed of environmental activist is pushing the majors through behind-the-scenes discussions to align their businesses with the Paris climate goals.

But are there limits to their efforts? Critics say the scope, scale and timeframe in which investors have to enact change at oil and gas companies is undefined. They also have competing concerns and measure success differently.

“There is rapidly growing interest in using financial assets as an instrument to reduce the environmental footprints of companies,” said Ben Caldecott, Director of the Oxford Sustainable Finance Programme at the University of Oxford. “[But] what is considered good engagement differs hugely by investor, geography, and asset class,” he added, saying such initiatives were “nascent”.

Meanwhile, traditional climate activists say the only way to dramatically reduce global carbon emissions is to eliminate fossil fuel production and investment into hydrocarbons. Talk is cheap, they say, and the world is running out of time.

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However, these investors disagree. They say engagement is the only option to first push companies to be more transparent, then instil trackable and enforceable emissions targets and later shift their businesses towards cleaner fuels and greener investments. Divestment would only pass on the problem to others who may be less socially conscious, they add.

“For us this is not the end result, this is just the starting point,” said Valeria Piani, director of responsible investing at UBS Asset Management. She led shareholder dialogue with Norway’s Equinor to firm up its commitment to the Paris climate goals as part of Climate Action 100+, a coalition of some of the world’s largest investors that manage $32tn in assets.

Eldar Saetre, chief executive of Norway’s Equinor, reluctantly backs this form of engagement. “If you divest you don’t have a dialogue with us, obviously”. Difficult conversations help to “shape the company and challenge us”.

Equinor held its annual meeting last week, with BP and Royal Dutch Shell’s this week. Oil companies, particularly in Europe versus their US counterparts, have managed to head off shareholder rebellions by cutting deals with their biggest and most vocal investors.

BP has agreed to back a CA100+ shareholder resolution this week and pledged to disclose how its investment strategy aligns with the Paris climate goals. Shell has committed to introduce targets on emissions from the burning of fuels sold to millions of its customers after facing investor pressure last year.


Oil and gas demand, for now, remains robust, and asset managers, pension groups and sovereign wealth funds can still continue to generate returns today for their beneficiaries.

However, energy companies present a two-fold concern for the future. In a world that shifts towards cleaner fuels, shareholders want to make sure the oil and gas companies they invest in can thrive and their assets do not become uneconomic.

They also want to protect other parts of their portfolio from the collateral damage of oil and gas company activities — such as real estate groups that could be hit by the worst effects of global warming including flooding.

A survey of fund managers overseeing $10.2tn of assets by the UK Sustainable Investment and Finance Association found that 86 per cent were calling on oil companies to align their business with the Paris goals.

This goes hand in hand with CA100+’s three asks of the 100 ‘systemically important’ polluters that account for two-thirds of annual global industrial emissions. These are: first, to implement a strong governance framework, that includes board accountability and oversight of climate risks. Second, to provide better disclosures on how resilient business plans are to climate risks. Third, to take action to reduce greenhouse gas emissions.

But there is a pervasive collective action problem. Investors do not agree on what this looks like in practice and which strategies must be implemented to force change at energy majors. This has meant that dialogue with investors differs from company to company.

Mark van Baal, at Dutch shareholder group Follow This, said: “CA100+ is creating their own deals with each company. It’s a mystery. With Shell they insist on making scope three emissions [those from their products and customers] part of any deal. But with BP and Equinor this is not necessary.”

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Mr van Baal has drawn up separate resolutions at BP and Equinor that compete with those of the CA100+, demanding that the companies set firm targets, including on these third-party emissions. Neither BP nor Equinor back these proposals.

Bruce Duguid, head of stewardship at Hermes EOS, which is leading discussions for CA100+ with BP, said there could not be a “one size fits all” template for encouraging change at each company. In his view, the CA100+ resolution does include consumer emissions, although not explicitly.

He added that the softly-softly approach, where the companies themselves work to find solutions for their businesses, has its merits — cajoling rather than bullying the world’s biggest, yet most indispensable, corporate polluters into submission.

“Investors want the company to set their strategy,” said Mr Duguid. While he was clear about the urgency required to tackle the world’s climate emergency, he said shareholders did not want to “micromanage” what this looks like.

Some say part of the reason why CA100+ and other investors want the companies themselves to take the lead, is because they are hindered by access to the right data to drive informed and timely discussions with oil and gas companies.

“Investors need to have clear views about the energy transition and whether a company’s business model is resilient,” said Nick Mabey at E3G, an environmental non-profit, who added that new technologies, the rise of alternative energy sources, consumer preferences and government policy would all dictate change.

“All [of these] four are arriving at the same time . . . This is not going to be a linear rate of change,” he said. “But the machinery isn’t in place to do that level of analysis.”

The UKSIF poll also highlighted the uncertainty about how far investors were prepared to go and their use of the suite of available tools — from dialogue to voting against management and divestment. Only 18 per cent of the groups surveyed said they had set deadlines for oil companies to take action, and 57 per cent had not decided on what action to take if they did not meet their demands.

A lack of coherence among shareholders about outcomes — and even between investors and their beneficiaries — could, if not remedied, result in greater blanket regulation by governments, the outcome of which may have unintended consequences for companies and their investors.

“Regulators will go down mandatory avenues, which may not be necessarily the right way to do this,” said Mr Mabey. “There needs to be a serious, granular, next phase of engagement. Agenda-setting is the first step, but people shouldn’t take this as winning the war.”

There is also a question over whether the action of investors alone will have a widespread enough impact to prevent the large scale economic losses that even central bankers such as the Bank of England’s Mark Carney have vehemently warned about.

“We can’t work in a vacuum,” said Stephanie Pfeifer, chief executive of the Institutional Investors Group on Climate Change, which works with CA100+ on shareholder collaboration to tackle global warming.

Still, she said, collective investor action since 2017 had been “unprecedented”. “We need to give it some time to show it can work,” said Ms Pfeifer who said setting out ultimatums with companies would backfire.

“It’s a failure of engagement if you have to go to that next stage.”

Letter in response to this article:

Every business must have a plan for when net emissions are zero / From Myles Allen and Cameron Hepburn

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