The Swiss Association for Responsible Investments (SVVK-ASIR) has recommended that its members exclude major oil and gas companies from debt financing following what it described as unsuccessful engagement efforts.
The association’s first “Deny Debt” recommendation applies to Chevron, ExxonMobil, Marathon Petroleum, PBF Energy, Phillips 66, Saudi Aramco and Valero Energy Corp.
SVVK-ASIR said members, including pension funds, should avoid new investments in the companies’ debt securities and gradually phase out existing debt holdings over time.
Members will continue to hold the companies’ equities to exercise voting rights at annual general meetings (AGMs) and encourage the firms to transition towards sustainable business models.
SVVK-ASIR believes denying debt financing can influence both the process and volume of debt issuance, reducing companies’ ability to finance new projects, managing director Tamara Hardegger told IPE.
Investment banks seek highly oversubscribed debt issuances on the primary market, she added.
If this cannot be guaranteed, she said, banks will start to lower the size of tickets, and of the issuance, in order to make sure there’s still an oversubscription. She added that the University of Cambridge also came to this conclusion.
Research by the University of Cambridge on fossil fuel divestment inspired SVVK-ASIR’s decision to adopt the deny debt recommendation.
According to SVVK-ASIR, the move follows several years of engagement with fossil fuel companies that failed to deliver substantial progress against agreed transition objectives.
“Companies set up to 10 targets relating to disclosure, target setting, and Capex allocation, showing a credible path towards transition. In some cases, none of the targets were reached; in other cases, one was reached - a very limited progress,” Hardegger said.
The association plans to extend the deny debt approach to other high-carbon-emitting companies within its engagement universe.
“We don’t expect companies to transform overnight, but we do expect to see a credible road map for change. Companies that aren’t showing progress here are acting contrary to the agreed climate targets and increasing systemic risks, and we have to respond to that,” said Manuela Guillebeau, SVVK-ASIR president and sustainability specialist at Publica.
