Shareholder activism or divestment?

In a couple of weeks the inaugural Global Divestment Day will take place, calling on investors and organizations to divest from fossil fuels. Universities have been the main target of the divestment campaign so far, and I was pleased to see that my local Bedfordshire University is the second in the country to sign up.

As I’ve said before, the calls to divest don’t believe that they can strip the fossil fuels industry of their funding. They’re about publicly renouncing the idea of profiting from something that is destroying the atmosphere. It’s more about shifting our ethics than changing the economics of the industry.

And of course, there are other approaches to changing the fossil fuel industry. One of them is shareholder activism, and a group called the Aiming for A coalition have recently won a potential victory at Shell. The coalition is managed by CCLA, a wealth management group owned by a range of charities, faith organisations and public authorities. Rather than pull their money from fossil fuels, they are using the combined might of their holdings to press for positive change within the corporations.

There are different levels of shareholder activism. At one end you get campaign groups that buy shares and propose resolutions at AGMs, but it’s often as an awareness raising stunt. Truths are spoken and investors are embarrassed, but nothing changes because it doesn’t get past the vote. Far more powerful are the major investors with a stewardship mission, a role Norway’s pension fund has played on occasion. Aiming for A is shaping up to be another powerful voice. The coalition includes heavyweights such as the Local Authority Pension Fund Forum, with £150 billion at stake. When a group like that gets in touch, you have to listen. They’ve sent letters to a few people recently.

CCLA have a target list of ten UK based energy and extraction companies that are underperforming on the Climate Performance Leaders Index. They encourage them to strive for the ‘A’ rating on the index, through ‘supportive but stretching’ shareholder resolutions to be voted on at the AGM. That means greater transparency, more reporting, changes to incentives, and longer-term planning.

Shell are one of the companies on the list, and last week they responded to the coalition’s letter. They have written to investors advising them to support the resolution and pass it at the AGM. Should it go through, Shell will be compelled to confront their contribution to climate change much more directly.

It will be interesting to see which way this goes. Shell know that the divestment campaign is gunning for them. If they can make some tangible steps forward, they may be able to defuse the threat a little. If they do, they may inspire other energy and extraction companies to start thinking about the postcarbon transition too. By recommending the resolution, the company has made a move in the right direction, and we’ll have to wait and see if the shareholders follow.

If they don’t, it will still highlight the tiny cracks beginning to appear in the titanic alliance between big finance and big energy. The improving economics of renewable energy, the risk of fossil fuel stranded assets, and the warmest year on record are all making their mark. We’re nowhere near the tipping point just yet, but the oil companies don’t look as untouchable as they used to.

Trackbacks/Pingbacks

  1. It’s time to stop digging | Make Wealth History - October 3, 2016

    […] movement. Some investors have looked at the issue and decided not to divest, but to use a shareholder activism model instead. ‘Aiming for A‘, for example, is a coalition of investors pushing […]

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