Divestment from oil companies to stop climate change will not work. But by being largely disinterested, the investment industry has given clients and NGOs nowhere else to go. So how should investors push back against divestment?

Divestment campaigns have a very strong foundation; we are on track for catastrophic climate change. Organisations as diverse as the IEA, World Bank and PwC all agree that:

• In the absence of government action, and particularly because of the blocking role played by fossil-fuel companies, owners have a duty to act now;

• The industry is immune to box-ticking engagement of the kind investors do; and

• Action to delegitimise the sector and reduce its political credibility is an urgent priority.

Hence the well-supported campaigns focused on university endowment funds, religious groups and national retirement funds, like AP4.

First, the arguments you should avoid:

• “You drive/fly, so isn’t it hypocritical to oppose investing in energy companies?” Transport is often essential. Profiting from unnecessarily ruining “a pleasant and currently very serviceable planet just to maximise… the profits of energy
companies and others” (Jeremy Grantham) is less so;

• “If we divest from UK oil, emerging market companies will take over and they are probably worse.” Fair point but just because someone commits rape or murder is not a good excuse for everyone doing it. Action in the UK will have ripple effects;

• “Divestment would harm the poor in developing countries.” This contradicts the previous point. And if we are so concerned, then let us build them renewables, including nuclear;

• “We can’t harm the fund’s performance just because of some polar bears.” Attempts to equate the risks of catastrophic climate change to soft environmentalism is a strategy that may have worked 10 years ago but could now land you in court for bad risk management.

So what arguments should you use?

• “Divesting from a whole sector will harm investment returns.” Your trump card. But expect to be pushed into a corner on coal and on economically ill-judged extraction activity;

• “We are good stewards now and we need to be at the table to protect our members’ interests.” Great, assuming you can prove you are doing more than the usual tummy-tickling engagement and that it is having impact.

Why am I giving away these insights for free? It is too late to be having this argument. Remember Shell’s plan to sink Brent Spar? It was technically the least environmentally damaging option. But once the public had lost trust in Shell, the technical case did not matter.

The investment industry is close to Shell’s situation, having been pretty tone deaf to climate change. Insurance companies, which know a lot about the risks, are prime culprits. And even in countries where the pension system is well governed and longer term, like Canada, the response has been insipid.

The Church of England is the bellwether fund to watch. Pressure is building but, so far, grassroots concerns are easy to ignore, and climate change has not yet made it on to the Archbishop of Canterbury’s agenda. Like other investors, perhaps the religious investors will also wait for really catastrophic events, popular outrage, panicked political responses, sudden bursting of the carbon bubble and (we all hope) a miracle techno-fix solution.

Or perhaps there will be a moment of realisation for the churches in the same way that Macondo finally alerted BP to its safety culture problem. And perhaps, unlike Macondo, this might trigger wider (investment) system change. We can live in hope.


Raj Thamotheram is an independent strategic adviser and co-founder of PreventableSurprises.com and president of the Network for Sustainable Financial Markets

• See ESG Briefing, page 54