For the past several years, the mantra of divestment echoed through the halls and walls of investors with regard to fossil fuel companies. The goals were to decarbonize investment portfolios and constrain capital availability to those industries – forcing them towards a low carbon economy. The strategy does indeed achieve the first goal, but has zero impact on actual global emissions or fossil fuel production or demand. With regard to constraining capital, I’ve questioned how effective that is, given that there must be a buyer on the other side of the divestment fence. An article published by Net Zero Investor proves this point:
“Despite dozens of investors parting ways with oil giants BP and Shell in recent months, their divestments have little impact on the two oil giants. Any divestment from BP and Shell by investors is cancelled out by their top 20 shareholders increasing their stakes in oil and gas firms. Since signing the Paris Agreement, the top 20 shareholders in both firms have increased their total number of shares by three quarters of a billion in BP, and half a billion in Shell.
A new report that was shared with Net Zero Investor this morning, which focused on the impact of growing demands made upon shareholders to divest from fossil fuels, found that although 47% of BP shareholders and 54% of Shell shareholders have reduced their stake in Shell and BP, net share ownership has risen by 10% in both BP and Shell.
Moreover, what might look like divestment ‘can not always be read as such,’ the researchers said.”
Outside of ESG or Net Zero window dressing, divestment of heavy CO2 emitters isn’t particularly effective. While it may have posed a concern in the past, companies should not worry about these strategies. Instead, fossil fuel companies and other heavy emitters should focus on positive shareholder engagement, work toward meaningful emissions reductions and not get distracted by divestment narratives or threats.
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