ESG Feature – Divestment v engagement
Getting a place at the University of Oxford is not easy. To main- tain its reputation as one of the world’s leading seats of learn- ing, the institution only admits the brightest academic minds into its lecture halls. The university is equally selective in deciding what stocks to hold in its £4.5bn endowment fund. Yet reputation does not drive the Oxford Endowment Fund’s investment strategy, fighting climate change does. In April last year, the endowment announced that it would no longer invest in fossil fuels in a bid to assist the transition to a carbon-neutral economy. Oxford’s endowment is not the only institutional investor that has opted to divest from oil and gas to help save the world from life-threatening extreme weather patterns. It is one of around 1,200 pension schemes, universities and charities collectively managing $14trn (£9.8trn) of assets that have made a divest- ment pledge. This includes £17bn workplace pension scheme NEST, which announced last year that it would no longer invest in coal mines, oil from tar sands and arctic drilling. Their concern is understandable. Parts of the world will be uninhabitable if average temperatures continue to rise. “Sci- ence tells us that if we want to mitigate the most severe risks of climate change, we need to limit global warming to 1.5 degrees,” says Margaret Childe, head of ESG, Canada for Manulife Investment Management. “Another way of looking at that is a carbon budget of 1.5-degrees, which means cutting 450 giga- tons of CO₂ by 2050.
“This means we need to rapidly decarbonise the global economy,” she adds. “A 50% reduction in CO₂ emissions by 2030 is needed to stay on track for the net zero goal by 2050.” Denying high greenhouse gas emitters capital could make the global economy net-carbon neutral within the next 30 years. However, some investors believe that the opposite approach could produce better results. Indeed, by investing in fossil fuel extractors, investors can use their influence as shareholders to reduce a company’s harmful emissions or get them to invest in cleaner technologies. Childe prefers the latter route. “It is not going to be an easy road for oil and gas companies in the transition to net zero,” she says. “It is going to be a bumpy road, but believe divestment is not the solution. “Investors need to double down on their engagements with the oil and gas sector to provide the real-world decarbonisation we are looking for,” she adds.
It appears that voice strategies are the preferred route to pro- tecting the planet from extreme weather patterns. “In our expe- rience, investors lean towards engagement as a preference over divestment,” says Ian Burger, head of responsible investment at Newton Investment Management. “Engagement comes in various forms,” he adds. “As an active investor, in our due diligence conducted prior to investing, we may engage with businesses to understand the long-term
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