Engagement is not working. Despite a reported increase in shareholder activism in recent years, it appears that only a tiny amount of the huge revenues generated by oil and gas companies is spent on tackling global warming, research shows.
Shareholders are only squeezing 1% out of energy companies’ investment pots this year to fund low carbon projects, according to environmental-focused investment researcher CDP.
Oil and gas companies account for more than half of all greenhouse gas emissions globally, a stat that means the industry and sustainably-led investment funds should not make natural bedfellows.
Yet institutional investors following such strategies are taking positions in energy giants such as Shell and BP. The idea, they argue, is to work with the polluters to fund cleaner power sources.
The picture is brighter in Europe where 7% of energy companies’ capital expenditure funds cleaner energies. Equinor, Total and Shell sit at the top of the list, while ExxonMobil and Rosneft are just two of the companies that have brought the global average down.
Investor pressure and regulation has led to 15 of the 24 oil and gas companies examined by CDP to set climate targets. Yet the success of engagement strategies has been pitiful in investment terms. Only $22bn has been invested in alternative energies by oil and gas companies since 2010, the report says.
It is understandable why sustainably-focused institutions are investing in such high polluters. The oil and gas giants sitting at the top end of the FTSE 100 are high yielders. At the time of writing, Shell and BP yield 5% and 5.7%, respectively. These are attractive returns for blue chip companies.
The prime mission of pension schemes is to pay members’ benefits in full and on time. Principles are good to have when you are investing, but you cannot eat them if they are not making an adequate return. You cannot sacrifice return for your principles if you are responsible for other peoples’ money.
