She explained: “When you look across the market there is not a standard definition of fossil fuels. We have seen examples where people have chosen to divest and targeted pure-play thermal coal companies and also tar sands as the main emitters of fossil fuels, so there is a spectrum of responses. If you are going to consider divestment or how to manage the risk posed by fossil fuels, take an informed and considered approach rather than think it is easy to respond to the pressure.”
Commenting from the audience, Faith Ward agreed, adding she was concerned that some people in the divestment campaign believe the job is done simply by excluding tar sands or pure-play coal from their portfolios when they continue to hold firms such as Rio Tinto and Glencore.
“[Rio Tinto or Glencore] are pulling more out the ground and have considerably greater carbon risk than pure-play coal companies in terms of future carbon dioxide [emissions],” she explained. “It is complicated, which is why we support active management.”
McIndoe added: “My active managers are far better resourced and equipped to look at the carbon risk than I am, which is why I would never seek to have them divest. The passive side I find a little more concerning because the index is a big dumb thing unless you believe it is efficiently priced, which I don’t think I do.”
Jupiter Asset Management head of strategy, environment and sustainability, Charlie Thomas warned there was a scale issue around divestment which could potentially push up asset prices.
“The MSCI World is roughly 7% oil and gas and a staggering 0.02% for renewables, so there is huge delta in terms of your ability to divest and invest at the same time,” he said. “There is a scale issue as it stands. That will change over time, but that is one of the big challenges around divestment.”
But Impax Asset Management chief executive Ian Simm argued the capacity available increased significantly if one also took into account the opportunities around climate change such as saving energy and reducing consumption.
“Our estimate is there is something like $3trn of capacity in the listed energy efficiency markets,” he said.
KPMG UK head of renewables, Adrian Scholtz said despite current divestment trends, the government is trying to create a sufficient revenue stream for new combined cycle gas projects, which will need investment from institutions and fund managers.
