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Oil companies not attractive without climate commitment, say managers

Oil companies will not remain attractive investments unless they adopt business models supporting the Paris climate targets, according to a survey of fund managers.

The poll, conducted by the UK Sustainable Investment and Finance Association (UKSIF) and the Climate Change Collaboration, found that just 18% of fund managers believed oil companies would be good investments if their businesses were still focused on fossil fuels in five years’ time.

However, 68% believed such companies would still be attractive if they adopted business models aligned with the Paris targets – in particular to keep the average global temperature rise to less than 2°C above pre-industrial levels.

Nearly a quarter of respondents did not see oil companies as good investments in any timeframe, according to the ‘Oil pressure gauge 2019’ survey of fund managers’ attitudes to climate risk and fossil fuel companies.

The survey covered 39 fund managers with $10.2trn (€9.1trn) worth of assets under management, with three-quarters of responses coming from UK-based managers and the rest from France, Germany, Italy and Spain.

The report also warned that many fund managers were putting investors at risk by failing to align their portfolios with the Paris targets. Only 21% had a policy to do this across all their funds, the report claimed.

Effective engagement

Managers were also failing to develop effective engagement strategies to change oil companies’ behaviour, UKSIF and the Climate Change Collaboration said.

Of the fund managers surveyed, 86% had called on oil companies to align their businesses with the Paris goals. Two-thirds wanted the companies to switch to supporting a low-carbon transition consistent with these targets, but a quarter had argued for companies to wind down their businesses and return cash to shareholders.

However, the survey warned that the lack of coherence in strategies was undermining efforts to lobby oil companies and mitigate financial risks.

While only 12% of the fund managers did not have a policy to engage oil companies on climate change – down from 41% last year – just 18% had set deadlines for oil companies to take action, the survey found. These deadlines ranged from 2021 to 2030.

In addition, most managers (57%) had not decided what action to take if oil companies did not meet their demands.

The survey also found that managers had failed to develop products to meet the growing demand for fossil-free investments, with only a slight growth in the proportion of low-carbon funds on offer since last year.

Duncan Whitfield, strategic director of finance and governance at Southwark Council and its £1.5bn (€1.7bn) pension fund, said: “The availability of suitable investment products that reflect our investment strategy ambitions is improving over time.

“However, more could be done by investment managers to provide pension fund and other asset owners with access to low cost, high quality investment products to assist in achieving their sustainable investment objectives.”

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