$6trn+ of investors commit to fossil fuel divestment, says study

Investors worth more than $6trn have now committed to some level of divestment from fossil fuels, according to a new report on divestment.

Nearly 1000 institutional investors, with $6.24trn of combined assets, have pledged to exit fossil fuels to some extent, compared with $52bn of investors four years ago, says the Global Fossil Fuel Divestment and Clean Energy Investment Movement report, compiled by Arabella Advisors.

It says the increase has been driven by the insurance industry, following major commitments to stop coal financing from many of its biggest names over the past 18 months. $3.trn of the $6.24trn is attributed to the industry.

In June, Ireland became the first country in the world to commit to divesting. Its €8.9bn sovereign wealth fund expects to sell off more than €300m shares in coal, oil, peat and gas in the next five years.

The movement has also seen commitments from key medical organisations – motivated by the public health threat posed by fossil fuels – and faith-based investors taking action on Pope Francis’ 2015 environmental encyclical, which called for changes in energy consumption to halt the “unprecedented destruction of the ecosystem”.

City pension funds in major financial hubs are also making decisive movements, with New York City targeting total divestment within five years and the London Pension Fund Authority looking to divest its remaining direct fossil fuel investments – currently less than 2% of its £5.5bn total.

Mayor of London Sadiq Khan and Mayor of New York City Bill de Blasio yesterday called on other city pension funds to follow their divestment lead, writing in The Guardian: “We believe that ending institutionalinvestment in companies that extract fossil fuels and contribute directly to climate change can help send a very powerful message that renewables and low-carbon options are the future.“

Khan and De Blasio are co-chairing the first ever Divest/Invest Cities Forum – a global network for sharing knowledge on and advocating divestment and green investment.

Last month, GMO co-founder and leading investor Jeremy Grantham set out a forceful argument for fossil fuel divestment in a white paper, challenging the “erroneous” idea that divestment entails loss of returns

He presented a GMO analysis testing the “long-held divestment hypothesis”, concluding that “it [doesn’t] make any difference”.

“When you divest from oil or chemicals, the starting assumption must be that it will cost you a few tiny basis points of deviation, and it’s just as likely to be positive deviation as negative,” he wrote. “If you’re messing around with oil stocks, you’re taking the serious risk of ending up with stranded assets.”

The report comes after oil giant Shell confirmed earlier this year that divestment had become a material risk to its business, and just days after a report by US body As You Sow claimed that engagement – the preferred approach for many mainstream investors – has yet to deliver any meaningful change to the transition to a low-carbon economy.

The As You Sow report found that the 160 climate change shareholder resolutions filed at 24 US oil and gas companies between 2012 and 2018 led to no progress in emissions reductions targets or plans – and the majority of the companies are maintaining or expanding production.