Fossil fuel companies and climate change: the case for divestment

Companies continue to ignore and deny

As proponents of divestment, we argue that shareholder engagement has achieved little with fossil fuel companies. According to the Interfaith Center on Corporate Responsibility, a coalition of organisations that view the management of their investments as a powerful catalyst for social change, 150 requests from various responsible shareholders asking fossil fuel companies to evaluate financial risk from climate change regulation over the past 23 years were ignored or met with a dismissive reply. One response from Exxon Mobil in 2014 said that it intended to discover further fossil fuels at least equal to its current reserves, while stating confidently that governments would not intervene with climate change regulation.8 Similarly, according to the chief executive of Shell, the company’s business model is set on ignoring global targets to reduce greenhouse gases and relies on continuing our fossil fuel dependence for decades to come.9 This provides further grounds for scepticism of the argument that dialogue with shareholders will stop fossil fuel companies promoting both the supply and demand of fossil fuels.

Additionally, fossil fuel companies, which have worked hard to distort and undermine climate science in the past, continue to hinder action on climate change by exerting a powerful influence over policy and legislative processes.10 A more fundamental weakening of the power and influence of fossil companies is needed before we can expect them to change their behaviour on ethical and ecological grounds. Parallels with the tobacco industry are salient: shareholder action was much less effective at bringing legislation and regulation to curb the tobacco epidemic than divestment and the erosion of the social legitimacy of tobacco companies.11

There is little evidence that fossil fuel companies are seeking to transform or are capable of transforming themselves. No major fossil fuel company has noticeably shifted its investment into renewables. On the contrary, 83% of oil and gas companies have made no effort to develop renewable sources of energy.6 As one example, BP sold its wind power assets in 2013 to “become a more focused oil and gas company,” simultaneously dropping its rebranded name of “Beyond Petroleum.” Given this reality, our emphasis should not be on transforming these companies but on investing in renewable energy companies.

In light of the growing evidence that the market may not fully reflect the risks involved in the ownership of fossil fuel stocks (raising the possibility that these stocks may become stranded assets12), divestment may be financially prudent as well as effective action on climate change. But if such arguments fail to convince, we ask proponents of shareholder engagement to take at least two additional steps. Firstly, they should do more to publicly explain their positions and actions on social and ethical investment. For example, the Wellcome Trust’s decision not to invest in coal and tar sands should be known more widely to strengthen its shareholder action. Secondly, their demands as shareholders should be clearer and more time limited. For example, the Wellcome Trust could demand that fossil fuel companies commit to ending the exploration of unconventional reserves (especially of tar sands and arctic oil) by a certain date. At this stage, transparent public engagement is more effective than quiet engagement behind the scenes. This would help the world move towards a low carbon future within our 23 year deadline and prevent runaway climate change and unprecedented harm to global health.