Fossil fuel divestment movement ‘backed by $6trn in assets’

Channels: Investors, Stranded Assets, Insurance

Companies: Arabella Advisors, Axa, Lloyd’s of London, Zurich, Swiss Re, Scor, Storebrand, The California State Compensation Insurance Fund

Investors with a combined $6.24 trillion in assets have publicly committed to divest from fossil fuels, according to a study by Arabella Advisors.

The figure, which is up from about $5 trillion when Arabella last conducted the study in 2016, has been driven by large asset owners including pension funds and sovereign wealth funds, said the report’s authors.

The number of institutions that have publicly committed to divest has grown to 985, up from 688 in 2016.

Arabella’s figures did not include companies which have committed to stop future investments in fossil fuels, but which have stopped short of divesting existing holdings.

Insurers have led the divestment charge, with organisations with more than $3 trillion in combined assets having committed to divest, Arabella said. 15 insurers have divested from coal companies and/or are no longer underwriting coal projects, it said, citing a November report by pressure group UnfriendCoal.

These include Axa, Lloyd’s of London, Zurich, Swiss Re, Scor, Storebrand and the California State Compensation Insurance Fund.

Arabella, which provides consulting services focusing on philanthropy and impact investing, said the growing support for divestment, and the broader movement to keep fossil fuels in the ground, “is now having a negative material impact on the fossil fuel industry”.

“Over the past year, divestment pressure and related ‘keep it in the ground’ campaigns have inspired a number of high-profile decisions by major banks to stop financing new fossil fuel projects, including a commitment from the World Bank Group to stop funding oil and gas development. In addition, several major insurers have decided to stop underwriting fossil fuel projects,” said Arabella.

“While not divestment per se, these actions impact the industry by increasing the costs of capital and compliance,” it said. “These actions also directly reduce fossil fuel emissions by slowing the expansion of the industry.”

Increasingly, fossil fuel companies are listing divestment as a material risk factor in their annual reports and securities filings, and climate litigation around the world is deepening the risk for fiduciaries, the report said.

Meanwhile, sovereign wealth funds are increasingly taking steps to “address exposure to carbon risk in their portfolios”. This includes the $1 trillion Norwegian Government Pension Fund Global, which follows a divest/invest mandate to foster alignment with the UN Sustainable Development Goals (SDGs).

Ireland “demonstrated global leadership in the divestment movement” when its lower house of parliament voted in July for it to become the first country to formally divest from fossil fuels, Arabella said.

Michael Hurley