New findings from a major survey of 39 fund managers responsible for US$10.2 trillion of assets worldwide suggest oil companies will cease to be attractive investments unless they quickly adopt low carbon business models that support the United Nations sponsored Paris Agreement’s climate targets.
The shock findings are the result of a survey carried out by the United Kingdom Sustainable Investment and finance Association (UKSIF) and charity the Climate Change Coalition.
The British environmental news website BusinessGreen reports the findings lay bare the scale of rising investor concerns over the long term viability of high carbon companies.
They also suggest increasing investor pressure on oil firms to shift away from fossil fuels is set to intensify.
In total 86 per cent of respondents to the survey called on oil firms to align their businesses with the Paris Agreement’s goals, with nearly half calling to policies consistent with a 1.5 degree Celsius global warming pathway, while the remaining 43 per cent called for a 2.0°C target.
Only 18 per cent said they believed oil companies would remain good investments if their businesses were still focused on fossil fuels in five years’ time, although 68 per cent indicated such companies would still be worth investing in if they adopted Paris Agreement-aligned strategies.
just under a quarter of fund managers in the survey said they did not see oil companies as good investments in any timeframe.
BusinessGreen reports looking forward, more than two thirds, 67 per cent, said they wanted oil companies to switch their investment to support the low carbon transition in a way that was consistent with the Paris Agreement targets.
At the same time 24 per cent cited a preference for oil firms gradually winding down their businesses and returning cash to shareholders.
A number of leading oil majors have recently unveiled plans to step up clean energy investment and develop strategies that are compatible with the Paris Agreement.
However, critics have argued the promised strategies look like they will be narrowly focused on emissions from their direct operations and will largely ignore emissions from the fuels oil majors provide, meaning they will still be exposed to ‘stranded asset’ risks as economies decarbonise.
The new survey follows a report last week by Global Witness which estimated oil and gas companies have altogether earmarked US$4.9tn towards new oil and gas fields in the 2020s, but that none of this spending would be compatible with limiting global warming to 1.5°C.
Such oil and gas exploration would blow a hole in the Paris Agreement targets, while also leaving the industry exposed to stranded assets, the study warned.
Meanwhile, the latest survey findings also suggest fund managers are putting investments at risk by failing to align their portfolios with Paris Agreement targets, as only 21 per cent of respondents said they have a policy to do so across all of their funds.
Simon Howard, chief executive of UKSIF, said the writing “is on the wall” for oil firms which do not support global efforts to combat climate change and which fail to rapidly transition their businesses to low carbon.
“The investment community recognises that these will make increasingly risky investments,” he said.
“But most fund managers need to do much more to protect asset owners, and asset owners more to protect savers, by driving oil companies to change.
Both should publicly commit to aligning investment portfolios with the Paris targets and managers should make more fossil free investment products available.
They should also coordinate their engagement policies and give them real teeth by setting oil companies deadlines and spelling out the consequences if they fail to take action.”
BusinessGreen reports the survey highlighted rapid changes in investor sentiment over the past year, with only 12 per cent of fund managers indicating they do not have a policy to engage oil companies on climate change, down sharply from 41 per cent in a similar survey last year.
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