Ten international shareholders have the potential to move the fossil fuel industry in a more sustainable direction, according to new research.
Collectively, these investors – made up of major investment advisers, governments and sovereign wealth funds – represent a significant portion of the emissions potential of the world’s 200 largest oil, gas and coal companies.
If existing fossil fuel reserves are burned, these companies – the Carbon Underground 200 – will generate an additional 674 gigatonnes of carbon emissions: 20 times more than global emissions in 2019 and three times more than the global carbon budget.
This has led a group of academics to call on them to positively engage in a low-carbon transition or be held accountable for spreading climate instability.
University of Otago Lecturer Dr. Sebastian Gehricke from the Department of Accounting and Finance is co-author of the paper, “Ten Financial Players Can Accelerate a Transition Away from Fossil Fuels”.
Dr Gehricke supported lead author Truzaar Dordi, University of Waterloo, Canada, with research and methodological design, data collection and interpretation of results.
The results show that ten investors have the greatest potential impact on the future use of most of the world’s carbon reserves, based on the number and size of ownership and the companies’ associated emissions potential.
Using a new scoring mechanism that links investors’ influence to their emissions exposure, the researchers found that they held 49.5% of the CU200’s emissions potential.
Some of the fossil fuel companies have only one major shareholder – often a government entity – who could influence the company to support a low carbon transition.
“For some, it’s a large group of many shareholders that should work together to engage effectively,” says Dr. Gehricke.
“Engagement can take many forms, from simply voting on proposals in a way that supports a transition, to meeting with management to influence business operations, raising formal concerns or shareholder proposals, and up to legal action against the company.”
Investors who claim to be part of the transition but own shares in these companies and do not use their influence to affect the company’s operations are “greenwashing”, he says.
Greenwashing occurs when an organization makes false, unsubstantiated, or misleading claims about the sustainability of its products, services, or business operations.
“If these investors don’t make such claims, but affect corporate change, then they don’t agree with the global mission of transitioning to a low-carbon world.”
How companies are held accountable, in both cases, is up to regulators.
“A good starting point is to require these entities to disclose climate risks and opportunities within their portfolios, similar to the climate-related disclosure standards that come into force in New Zealand next year or the regulation guidelines on sustainable finance disclosure, so that investors and owners of these entities can make good decisions and hold the entities to account,” says Dr Gehricke.
We need sweeping changes to be pushed by all influential entities, including these investors, relying solely on government action to address climate change, which is an even slower process, and may be too little, too late, he said.
“If investors were to withdraw their funding, it would send a clear message to companies and impact their cost of funding.
“For us, as a global civilization, to meet the challenge of climate change, we need the action of all those with power and influence.
“Investors have a huge role to play in this global mission and our research shows the huge influence of a small group of investors.”
Dr. Gehricke argues that the more power and influence an entity or person has, the more responsibility they have to support the transition, for current and future generations of living beings on the planet.
“Financial actors who perpetuate and profit from the exploration, extraction or transportation of fossil fuels should be held directly responsible for the climate instability caused by the resulting production.”
Ten financial players can accelerate a transition away from fossil fuels
Truzaar Dordi, Sebastian Gehricke, Alain Naef and Olaf Weber
Environmental innovation and societal transitions