In light of the rapid progress of the divestment movement, and created from the structure of our investigation into hydraulic fracturing (fracking) which we began in 2013, we have drawn up criteria to address our client's concerns on the issue of fossil fuels.
We have looked extensively at the options available to investors and the divestment decisions being made by organisations and institutions which are released on an almost weekly basis. We are especially interested to hear from those of you who have received requests on this issue from clients, in order to gain further insight into the type of information being sought.
We have developed a range of criteria, covering coal (mining and power station operation), unconventional oil and gas (allowing the exclusion of companies involved in the Arctic, deep water, oil sands and shale gas), and the option of excluding all conventional oil and gas exploration and production. These comprehensive criteria cover the most commonly excluded activities of the fossil fuel divestment movement, but also allow screening beyond this if a client wishes to go further. Our intention for the future is to further develop these criteria, alongside our ongoing project of database development.
Over the last year the fossil fuel divestment movement has really burst out of the activist consciousness and onto the main stage of public debate, with a noticeable increase in media coverage and a ramped-up moral and economic rhetoric from campaigners.
The debate continues on exactly which path to take towards a lower carbon portfolio, a debate so often presented as a false dichotomy between divestment and engagement. In reality the overwhelming majority of the 'divestment' decisions of global institutions in the past few months have focussed on coal and tar sands only, with revenue thresholds applied and further research launched into remaining fossil fuel holdings, including commitments to engage with remaining extractives in portfolios on the issues of climate change and stranded assets.
The concept of stranded assets (fossil fuel reserves which will become devalued if climate change deals and targets are set unilaterally, for example at COP21 in Paris in December 2015) has moved those previously uninvolved in the movement to look seriously at the ramifications of two degree legislation. The Bank of England and the G20 have announced research projects and aimed resources at unpicking the potential impacts, demonstrating that the issue is being taken incredibly seriously in some quarters. The economic argument, posited logically and forcefully by the Carbon Tracker initiative, appears to have drawn the attention and concern of some who would not otherwise have been engaged in the debate. The announcement by BP at their 2015 AGM, prompted by a shareholder resolution from ShareAction that won 98% support, commits the company to publishing more information on whether the value of its oil and gas reserves will be damaged by limits on carbon emissions. Importantly, it also commits the company to increased transparency on lobbying activity. Similar resolutions were successful at other oil and gas major AGMs.
Universities and student groups have been at the forefront of the divestment movement, with the Guardian newspaper throwing its weight behind the campaign and other high-profile groups such as the Rockefeller Brothers Fund, Norwegian pension funds and the British Medical Association paving the way with policy announcements. Recently the focus has shifted towards faith groups, perhaps due to the growing emphasis on the moral dimension of the debate, drawing comparisons with the apartheid disinvestment movement of the 1980s.
In April, the Pope held a summit at the Vatican entitled 'Protect the Earth, Dignify Humanity: The Moral Dimensions of Climate Change and Sustainable Development', bringing together scientists, economists and leaders from different faiths to discuss the issues. The press covered the attempted derailment of the conference by climate change deniers, but also highlighted the increasingly strong language deployed by Pope Francis on ecological issues, encapsulated in his encyclical on Catholic action to combat climate change. Pope Francis has been especially keen to emphasise the nexus of the environment and human rights, repeatedly drawing attention to environmental justice, inequality and the weighted impacts of climate change predominantly on the poorest in the world.
The Church of England's Church Commissioners, the Church of England Pension Fund and the CBF Church of England Funds announced in April their decision to divest from companies deriving more than 10% of revenue from coal or tar sands, equating to £12million of investments. No future investments will be made in companies where more than 10% of revenue comes from the extraction of thermal coal or the production of oil from tar sands. Tom Joy, Director of Investments at the Church Commissioners, said:
"We want to be at the forefront of institutional investors seeking to address the challenge of energy transition. This will predominantly be achieved through strategic engagement, as seen by recent shareholder resolutions at Shell and BP. But this new policy rightly goes beyond to incorporate investment exclusions for companies focused on the highest carbon fossil fuels where we do not think engagement would be productive."
The full press release can be found here. This echoes a common thread in the debate from activist investors, i.e. 'we will engage until it becomes clear that engagement will not work, at which point we will divest'. For other investors, the crux of the issue has been defining activities and applying appropriate thresholds for divesting immediately and outright. The familiar refrains relating to fiduciary duty and potential alternative investments have also been heard and continue to rumble on. Although the PRI aims to silence doubters, claiming that the consideration of environmental and social factors is central to fiduciary duty and to ignore the impact on investments of issues such as climate change would be a breach of fiduciary duty.
In the meantime, informed investors have begun to look for answers to their questions on fossil fuels from managers, advisors and researchers and we hope our screening criteria will provide one way in which to outline various options to them going forward.