Climate change is the single largest motivation of investment institutions to decide to exclude companies from their portfolios, a newly launched ‘exclusion tracker’ shows.
Investors have become increasingly wary of investing in ‘sin industries’, which for many now include fossil fuel companies alongside the weapons and tobacco sectors.
Pension funds and other institutional investors in Europe have excluded some major oil and gas companies from their portfolios, while some European banks have scaled back financing for fossil fuel projects.
But in the United States, there has been growing pushback against ESG investing, and fossil fuel-producing states have blacklisted and vowed not to do business with funds they believe are “boycotting” their oil and gas industries, which finance large parts of the state programs including for schools.
Despite the recent shift of the market narrative from ESG to energy security after the Russian invasion of Ukraine and the energy crisis, investors continue to push for more transparent emissions disclosures and for credible action plans to reach net zero by 2050.
Not all investors are dumping fossil fuels—some believe that owning stocks could help them influence decisions at oil and gas firms regarding emissions reductions. Not all banks are ditching financing for oil and gas, either.
Yet, many investors have excluded stocks of oil and gas companies in recent years due to concerns about the impact the business of fossil fuels has on climate.
Climate Is The Most Common Reason For Portfolio Exclusion
The most common motivation for excluding companies is climate/fossil fuels, with 40%, or 13,929 out of 34,882 investors and banks citing this reason for dumping a particular stock, according to the Financial Exclusions Tracker launched this month by several NGOs.
The second most common reason for exclusion is controversial weapons at a distant 17%, and tobacco is third, accounting for 12% of exclusions, according to the research and the dynamic tracker the NGOs have published.
In the climate change category, the top 5 companies most excluded by investors and banks are Canada’s Cenovus Energy and Suncor, China Energy, ExxonMobil, and Shandong Energy, according to the tracker. Energy companies are also being excluded in the human rights and business practices categories. Energy Transfer and ConocoPhillips are among the companies most excluded in the human rights category, while Gazprom and China National Petroleum Corporation (CNPC) feature among the top 5 excluded companies for business practices because of suspected corruption or tax evasion, the research showed. Related: U.S. Oil Exports Hit Record In H1: EIA
Commenting on the launch of the tracker, Peer de Rijk, campaigner Paris-proof corporations at Milieudefensie (Friends of the Earth Netherlands), said, “We welcome the fact that several financial institutions exclude companies due to the links with detrimental climate impacts from financing.”
“It demonstrates that some financials are willing to take steps to reduce their financed emissions, and we hope more financial institutions follow this example,” de Rijk added.
European Funds Dumps Oil Stocks
In Europe, Norway’s $1.4-trillion sovereign wealth fund, the world’s largest, excluded in 2020 the biggest Canadian oil sands producers – Canadian Natural Resources Limited, Cenovus Energy, Suncor Energy, and Imperial Oil, due to “unacceptable greenhouse gas emissions.” The fund’s Council on Ethics recommended excluding the companies because of carbon emissions from production from oil sands— the first time this criterion was applied at the Norwegian fund, which owns, on average, 1.3% of all listed companies in the world.
The fund, which is commonly referred to as ‘Norway’s oil fund’ because it was created with Norway’s oil and gas revenues, is a shareholder in many large oil companies, including stakes in Exxon, Chevron, BP, Shell, and TotalEnergies, valued at billions of U.S. dollars each.
Last month, the fund updated its expectations to companies on climate, highlighting the need for companies to move from target setting to transition planning.
“Many companies now need to move on from disclosures and target setting to the execution phase. They need to show investors credible transition plans and explain how they will ensure delivery,” said Lead Investment Stewardship Manager Tim Smith.
While the Norwegian fund still holds stakes in Big Oil, the Church of England said in June that it is dumping all remaining oil and gas majors from its portfolio for failing to align with the 1.5 degrees Celsius pathway.
The Church of England decided to exclude from its portfolio BP, Shell, ExxonMobil, TotalEnergies, Eni, Equinor, Ecopetrol, Occidental Petroleum, Pemex, Repsol, and Sasol, “after concluding that none are aligned with the goals of the Paris Climate Agreement, as assessed by the Transition Pathway Initiative (TPI).”
Banks in Europe are also reducing funding to oil and gas projects. The most drastic measure yet was taken earlier this year by France’s biggest bank, BNP Paribas, which said in May that it would no longer provide any financing for developing new oil and gas fields regardless of the financing methods. The bank also pledged to reduce its financing for oil exploration and production by 80% by 2030 as part of its energy transition goals.
U.S. Pushback Against ESG Mania
But in the United States, there is growing pushback against hasty and economically harmful decisions to reduce financing to conventional energy projects.
Last month, Goldman Sachs’s CEO refused to yield to pressure from climate activists calling for the bank to stop financing oil and gas companies.
“Traditional energy companies are hugely important to the global economy, they are hugely important to Goldman Sachs,” David Solomon said at the American Energy Security Summit in Oklahoma in September, as quoted by Bloomberg. “We are all going to continue to finance traditional companies for a long time.”
In addition, U.S. states with large fossil fuel industries, such as Texas, West Virginia, Louisiana, Montana, and Oklahoma, have blacklisted funds managed by the world’s biggest asset manager BlackRock and other major banks and financial institutions, which, the states say, show that those financial firms are boycotting the oil and gas industry.
By Tsvetana Paraskova fo Oilprice.com
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