The COP26 meeting next week will likely be the largest divestment party ever seen. Investors with $39.2 trillion in investments under management have already committed to divest from oil and gas and the list of anti-hydrocarbon policies and divestment strategies will only grow from here. The largest Dutch pension fund ABP, which mainly represents government and civil servants and holds more than EUR530 billion of assets, has announced that it will divest its oil, gas, and coal holdings before 2023. ABP chairwoman Corien Wortmann-Kool confirmed that “ABP will not be investing anymore in oil and gas companies”. She also indicated that the reports of the IEA, the energy watchdog of the OECD in Paris, and the UN IPCC reports have been a wake-up call and fundamental in ABP’s decision-making process. At the same time, some analysts have said that this is a move to quell any possibility of the expected lawsuit against ABP by activist shareholders and pensioners, such as ABP Fossielvrij (Fossil Free). The move from ABP, a company that made a hefty margin on oil and gas futures in the 1990s-2000s, is seen by anti-fossil groups as a major coup. The new move shows that even Dutch pension funds, legally forced to take a prudent investment view long-term, are now susceptible to political and societal pressure groups. To set up a new anti-fossil fuel strategy based on reports such as those from the IPCC and the IEA is rather strange, as both reports are unclear and come from organizations that continue to contradict one another. The IEA’s Fatih Birol, for example, first called for an end to all investment in upstream oil and gas before asking oil and gas companies to increase their production substantially due to the ongoing energy crisis. Despite this lack of clarity, Wortmann-Kool indicated that there is a strong desire within the group for divestment.
It remains unclear what the real impact of the ABP decision will be. With only around EUR15 billion invested in oil and gas, the move is unlikely to have a material impact on markets. The fund also has given itself until Q1 2023 to put it all in place.
The ABP move is in-line with other statements by international pension funds, especially in the USA and the Netherlands. ABP’s decision to divest comes after several other Dutch pension funds did the same. A new report published by DivestInvest states that around 1,500 investment institutions overseeing a combined $39.2 trillion of assets under management have now committed to divest from fossil fuels. Big names that joined this year include the $16 billion Ford Foundation, Harvard University with its $42 billion, and the U.S. state of Maine. Most of these funds claim, just as ABP does, that hydrocarbon divestments are a quick win for funds wishing to decarbonize portfolios. They all claim that this is a major step forward in the battle against climate change.
In reality, these moves are far from effective. Divested equity and bonds of major international listed oil and gas companies, or oilfield services, will not drive lower oil and gas production or lower global demand. In reality, global demand for hydrocarbons is going to increase further, with some observers believing demand won’t decrease until 2050. The reality of demand will not be changed by pension funds and investors taking a stand. Instead, the equity and asset divestments will quickly be picked up by others, especially non-OECD investment funds, such as Saudi PIF, Abu Dhabi’s ADIA, or Russian-Chinese combinations. At the same time, private equity funds are very keen to grab the available stocks, bonds, and assets, as the margins in oil and gas, and even coal, are very impressive and will remain so for longer. National oil companies and non-Western oil and gas giants will be happy to produce every last drop of oil, gas, and even coal they can. Private equity funds, with a much shorter investment horizon than funds, will be pushing for higher production sooner, which will not only produce higher emission levels but will constrain the price competitiveness of renewables.
Political activism and sustainability are definitely not a marriage made in heaven. While activists are currently cheering in the streets, even in the Netherlands, all riding the same COP26 bandwagon, there will be little to no tangible result. Hydrocarbon and energy experts understand that global energy demand is going to increase exponentially in the coming years. Whatever multitrillion investments are being made in renewables, hydrogen, or even nuclear energy, fossil fuels have not lost their shine at all. Global economies are hooked and addicted to oil and gas and will be for years to come.
By Cyril Widdershoven for Oilprice.com
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