Momentum Builds for Fossil Fuel Divestment, But Is 2050 Too Late?

As expected, leading corporations leveraged last week’s 2020 World Economic Forum in Davos to announce ambitious new climate action initiatives. So far, though, little has been done to stem the flow of oil, gas, and coal into the global economy. That could be about to change, as the world’s leading pension funds begin the process of divesting their fossil fuel holdings.

More financial firepower aimed at fossil fuel divestment

For now, the overall fossil divestment strategy is coalescing around a deadline of 2050.

Last Thursday, for example, the Church of England and the Italian insurance group Generali announced a commitment to decarbonize their investments by 2050, with the Church of England commitment applying to all three of its national investment arms: the Church Commissioners for England, the Church of England Pensions Board and the CBF Church of England Funds.

The new commitments enroll Generali and the Church of England in the United Nations Net-Zero Asset Owner Alliance, which has set a collective goal for fossil fuel divestment of 2050.

With the two new members added, the Alliance now consists of 18 members that collectively manage $4.3 trillion in assets.

The Alliance launched just last fall under the coordination of the Finance Initiative and Principles for Responsible Investment of the United Nations Environmental Program (UNEP). It is also supported by WWF.

The current roster includes the founding members Allianz, Caisse des Dépôts, La Caisse de dépôt et placement du Québec, Folksam Group, PensionDanmark, and SwissRe, along with additional founding members Alecta, AMF, CalPERS, Nordea Life and Pension, Storebrand and Zurich as founding members.

Along with Generali and the Church of England, other recent joiners are Aviva, AXA, CNP Assurances, and Fonds de Réserve pour les Retraites.

Why does fossil fuel divestment take so long?

The 2050 timeline for fossil fuel divestment may seem rather relaxed, considering the urgency of climate action.

However, the Alliance is not primarily focused on dropping fossil companies from its members’ portfolios. Under the Alliance plan, divestment is the stick that is meant to motivate all portfolio companies, not just fossil fuel stakeholders, to transition into net zero models.

All else being equal, the Alliance members could arrive in 2050 with essentially the same asset portfolios, but those assets would be operating under net zero principles.

That may still be a somewhat modest goal. Some companies are already looking at net zero as a step toward a carbon-negative business model. Microsoft, for example, announced a carbon-negative plan last week, with the goal of wiping all of its carbon emissions off the books, going back to the company’s founding in 1975.

Picking fossil fuel divestment winners and losers

The Alliance net zero plan does not venture into carbon-negative company, but it will require a radical shift for fossil fuel producers.

That shift is all but inevitable. Over and above the recent spate of investor activism, recent bottom-line trends suggest that a business model based on increasing the production of fossil fuels is no longer sustainable.

ExxonMobil, for example, is seeing profits decline over last year, even though it has increased oil and gas production. Weakness in the refinery and chemical sectors has been blamed for the losses, despite the company’s strategy of ramping up its petrochemical business.

While ExxonMobil has also lagged behind the renewable energy transition, other fossil fuel stakeholders have already made serious moves into renewable energy and electrification technology, including electric vehicles and EV charging stations.

In one significant development last year, Royal Dutch Shell released a new set of scenarios under which a low carbon economy would be in place by 2070, with the help of policy shifts that require 100 percent renewables in the global electricity grid.

Fossil fuel divestment policy is the missing link

The Alliance does make government policy an important element in its strategy. However, to the extent that moving policy is a chicken-or-egg exercise, the organization appears to have determined that its members have the power to influence policy, rather than waiting for policy to come around.

During the Davos meetings, the Alliance put the finishing touches on its governance objectives for 2020. Those include enhancements in measurement and reporting, steering its portfolio companies toward science based net-zero targets in accord with the Paris Agreement on climate change, and working with policy makers to support net-zero goals.

To emphasize the message, last week at Davos the Alliance also held a private session with dozens of top executives.

The Alliance plans to follow up by exercising guidance — or pressure, as the case may be — through collaborations with other decarbonization initiatives for businesses. That includes the UN Global Compact Business Ambition for 1.5°C, the Investor Agenda, the Science Based Targets initiative, Climate Action 100+, and the WEF Mission Possible Platform, among others.

The bottom line on fossil fuel divestment

All of this could add up to swift action in the near term, as opposed to slow-walking toward the 2050 deadline.

“Asset owners…are committing to action—to transition their entire portfolios to net zero by 2050 with metrics, targets and regular reporting to hold themselves accountable,” explained Fiona Reynolds, CEO of the Principles for Responsible Investment.

The Davos event ended with government policy makers seemingly paralyzed on climate change, but over the next few years the fossil fuel divestment movement may help move the needle on corporate action.

That is all well and good, but governments are still not off the hook. Considering the need for urgent, coordinated action on a global scale, the real question now is whether or not the nations of the world can agree on a course of action that leads to global sustainability by 2030 and beyond.

Image credit: Plflcn/Wiki Commons