The ability of oil and gas giants to transition to low-carbon businesses has been one of the core debates within the responsible investment world for years. But recent months have seen some champions of engagement lose faith in this approach, as timelines for progress came and went unfulfilled.

As a result, many investors are increasingly shifting their stewardship focus away from oil and gas firms that resist efforts to embrace the necessary transition. Instead, they are looking to engage oil and gas sector clients to reduce demand for fossil fuels, hoping that these companies will be more receptive to change.

“A moment of reckoning” is how Brynn O’Brien, executive director of the Australasian Centre for Corporate Responsibility (ACCR), describes the past few months. “Until now, a lot of engagement with oil and gas has been premised on the assumption that the transition efforts of supermajors are genuine or sincere. It’s clear that those efforts have not been sincere, that they have been performative.”

While slightly more muted in his criticism, Mads Steinmüller, interim head of active ownership at Danske Bank Asset Management, which has a target of engaging the 100 largest emitters in its portfolio by 2025, is “troubled” by the sluggish pace of progress in the oil and gas sector. “It is disconcerting to consider that our engagement efforts may have reached a limit, prompting concerns for the future,” he says.

Among asset owners, perhaps the most outspoken on the issue is the Church of England Pensions Board (CoEPB). Chief responsible investment officer Adam Matthews said in May that engagement with producers was “at a crossroads” and should no longer be a top priority for Climate Action 100+.

Matthews’ comments came the day after Shell’s AGM, which saw significant shareholder resistance to the firm’s climate plan and directors. The following month, the CoEPB announced it was divesting all remaining oil and gas majors from its portfolio and would focus its engagement efforts on the demand side.

Danish pension fund Velliv also announced last month that it was booting out oil and gas exploration and production companies that are not on a clear path towards a green transition and turning to their clients, in particular utilities and auto manufacturers.

Sandra Metoyer, Velliv’s head of sustainable investments, tells Responsible Investor: “None of the upstream companies made the cut, based on fact that they continue to have expansion plans, and there was no point in continuing engagement, as they had proven time and time again, they weren’t moving.”

She adds: “Until the supply side can see the writing on the wall from the demand side, they won’t change their business models.”

In the Netherlands, PGGM – which will divest from oil and gas companies that are not convincingly aligned with the Paris Agreement at the beginning of next year – is set to engage eight to 10 firms in each of the utilities, materials, and transportation sectors. Some examples of target companies are utilities Engie, Naturgy and Sempra and transport companies IAG and Lufthansa, the investor told RI.

Demand-side strategies

The universe of companies with large energy demand is vast, so company selection will be key in pulling off nascent engagement strategies. CoEPB’s director of climate and environment, Laura Hillis, tells RI the pension fund has conducted an analysis on the “sector-level demand drivers” in order to identify which companies to focus on.

The firms chosen are mostly from the automotive, steel and utilities sectors, and many are already engaged via collective initiatives such as CA100+ and the Net Zero Engagement Initiative (NZEI), she explains.

While the CoEPB has been engaging demand-side firms on climate since 2021, Hillis says the new strategy will have “a more dedicated clear focus, a clear list of focus companies/sectors, with milestones”. She adds that exiting oil and gas has enabled the fund to “take a strategic view” on tackling demand for fossil fuels.

The big asks of the selected companies – Hillis declines to give names as a full list of targets has yet to be finalised – will be on Paris-alignment, including targets, transition plans as well as production and capex plans. Disclosure on climate lobbying will also be in focus, she adds.

For Andres van der Linden, senior adviser for responsible investment at PGGM, “the name of the game is collaboration”. He notes that the Dutch Climate Coalition, a collective engagement group including names such as ACTIAM and NN Investment Partners, is scoping out which demand-side companies to focus on.

Utilities and automotives have also been the focus of AkademikerPension, an early mover that took the decision to divest from oil and gas majors in 2019.

Troels Børrild, head of responsible investments at the Danish pension fund, says it is also engaging banks as a way to push the supply side to act. Specifically, it is focusing on engaging banks on their financing of new oil and gas projects.


Investors are keen to use the lessons learned from engagement with the supply side. Accelerated efforts with clear plans for escalation when engagement goals are not met are seen by some as key for success.

“Engagement without forceful public escalation won’t win,” says ACCR’s O’Brien. “In order to win, engagement needs to have clear objectives that are situated in real world emissions reductions.”

Van der Linden agrees that investors should set clear milestones and focus on outcomes. At the same time, he says, “it shouldn’t be antagonistic”. “The supply-side has often been demonised and that is not the best approach.”

Alongside engaging the companies themselves, investors have to up the ante when it comes to policy advocacy, says Hillis.

“We believe there are a whole range of advocacy levers with governments that investors like us could be using more – for example, engaging directly with governments on the phase down of fossil fuels including oil and gas, and sovereign engagements.”

And no one appears to believe that the oil and gas sector should be completely abandoned by responsible investors.

“Of course, there should still be a focus on supply side,” says Børrild. “So, for those who remain in supply side, the onus is on them to step up and show that active ownership is effective, as I don’t think resolutions at majors have been effective enough.”

He adds: “I think it makes a good mix for there to be a combination of investors divesting and other simultaneously increasing pressure. We don’t want to cause less pressure on the majors.”

Steinmüller is concerned about divestment as a strategy. “If climate-minded asset owners continue to divest, we will likely never see majority support for climate proposals at the AGM.”

And O’Brien says some investors have given up too easily. She argues that there has been insufficient escalation through tools such as shareholder resolutions, board renewal and legal strategies. “A lot of what right now is being positioned as ‘failed’ engagement is better viewed as engagement with insufficient escalation.”

Indeed, when the CoEPB announced its divestment, O’Brien posted on LinkedIn: “Giving up on shareholder strategy having only used engagement [non-combative techniques] is like giving up on filleting a fish having only used a butter knife. The fish is still dead and everyone’s hungry.”

PGGM’s van der Linden agrees that a mixture of supply and demand engagement is needed. But, he says, the “opportunity cost of engagement” needs to be considered.

“Once we divest laggards – yes, the shares will just go to another investor, but we will get our capital back and be able to put that and our engagement resources into other, more willing companies.”