Ethos Foundation has updated its exclusion policy to formally blacklist fossil fuel companies after the organisation failed to stem oil and gas majors’ backtracking on low-carbon goals.
Companies involved in the development of new gas and oil projects for exploration and extraction will now be automatically excluded, regardless of the proportion of turnover generated by these activities. The same applies to companies involved in coal mining.
Until now, Ethos excluded companies generating at least 5% of their turnover from coal or from unconventional fossil fuels.
In 2022, as part of its climate strategy, the Swiss pension fund-backed responsible investment specialist committed to excluding from its investment solutions all companies in the fossil fuel sector that had not set science-based targets (SBTi) for reducing their greenhouse gas emissions by 2025. The approach was intended both to allow time for dialogue to encourage companies to embrace the transition and invest heavily in renewable energy, while also establishing clear escalation measures in advance in the event of failure.
Calling time
Three years later, Ethos chief executive officer Vincent Kaufmann said the organisation’s efforts had failed and it must now act accordingly.
“We tried with dialogue, with voting, with shareholder resolutions and when we fail we must say that we failed,” he told IPE. “We could also have a mitigated approach and say we don’t refinance new debt issuance but for the sake of clarity we think the equity part needs to be covered.”
He emphasised that the exclusion policy still includes a revenue threshold criterion, so if oil and gas majors started ramping up low-carbon energy Ethos could review its exclusions.
“But that’s not currently the direction of travel,” said Kaufmann.
The Swiss organisation, which has been getting tough on governance, has been involved in several shareholder resolutions aimed at encouraging change in the oil and gas sector. This year, for example, it co-filed a resolution at BP that the company refused to put to the vote, contributing to a shareholder revolt; the oil and gas major had also asked its shareholders to approve the abandonment of climate reporting commitments that had been endorsed in 2015 and 2019.
The situation at BP, in addition to actions taken by TotalEnergies and Exxon Mobil in 2024, are examples that reinforced Ethos’ decision to take the next step and formally exclude fossil fuels from its investment solutions, said Kaufmann.
“They have shown that these companies are currently neither open to dialogue nor inclined to change.”
In practice, the updated blacklist will not have a big impact on Ethos’ investment universe as most of the companies concerned were already excluded, either because they generated more than 5% of their turnover from unconventional fossil fuels, or because of their involvement in major environmental controversies, or their insufficient ESG and climate ratings.
Ethos said the updated exclusions mean that its investment solutions are now aligned with the EU rules on Paris-aligned Benchmarks.
“There was some incoherence between our Swiss funds and our EU funds, which didn’t really make sense,” said Kaufmann.
Ethos will now work to apply the new exclusions to all its investment solutions as soon as possible. Members of the Foundation and clients of Ethos Services – the vast majority of whom are Swiss pension funds – remain free to decide whether to apply the exclusion criteria, and Ethos will also continue to engage in dialogue and participate in engagement campaigns targeting companies active in the fossil fuel sector on behalf of the members of its engagement programmes.
