(Bloomberg) — There is a growing list of institutional investors in Europe removing oil and gas stocks from their portfolios, a move they say reduces the risk of being left with stranded assets and financial losses.
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The latest to embark on this path is PFA, Denmark’s largest commercial pension fund with around $110 billion in assets under management. The investor has just dumped its $170 million stake in Shell Plc, based on an assessment that the company’s investment spending in renewable energy is worrying.
“They’ve been asked to be more engaged in the transition,” said Rasmus Bessing, head of ESG investments and co-chief investment officer at PFA. “But especially in the last year or so, maybe a little bit longer,” Shell has indicated that it wants to “move in a different direction,” he said.
A Shell spokeswoman referred to a comment made by chief executive Wael Sawan at the company’s annual general meeting on May 21, when he said shareholders “strongly supported” its strategy. “Our focus on performance, discipline and simplification allows us to invest to deliver the energy the world needs today and to help build the low-carbon energy system of the future. »
Click here to see Bloomberg data on Shell’s net-zero emissions trajectory.
Other institutional investors are also losing patience with oil and gas holdings. Stichting Pensioenfonds ABP, Europe’s largest pension fund with about $550 billion in assets under management, announced in May that it had liquidated all of its liquid oil, gas and coal assets, a portfolio worth about $11 billion. It announced plans to divest another $5 billion of less liquid fossil fuel assets.
In France, new sustainable investing requirements require asset managers using the label to purge their portfolios of about $7.5 billion in fossil fuel-related assets, a move that will hit companies like TotalEnergies SE and Shell.
In the United Kingdom, the Church of England Pensions Board and the Church Commissioners for England, which together oversee about $17 billion in assets, announced last year that they would begin to blacklist major oil and gas companies.
Sweden’s AP7 fund, which manages more than $100 billion, has implemented exclusion policies targeting a series of oil producers, including Saudi Aramco and India’s Oil and Natural Gas Corp. He blacklisted Exxon Mobil Corp.
AkademikerPension, a Danish pension investor, has cleared the last remaining oil and gas holdings from its $20 billion portfolio by the end of 2023 and is now in the process of shedding companies that provide equipment and services to fossil fuel producers.
So far, the impact on returns from these divestments has been “neutral to slightly positive,” says Troels Børrild, head of responsible investments at AkademikerPension.
But in the long term, there is a transition risk “which will materialize for a number of companies,” Børrild said. “This risk is not yet priced in,” but as regulation takes hold, low-carbon portfolios are poised to generate “even more positive” risk-adjusted returns, he said. he declared.
A number of major banks are taking similar steps. The European Union’s largest lender, BNP Paribas SA, has stopped underwriting conventional bonds for the fossil fuel industry as part of a broader crackdown within the group on oil and gas financing. Credit Agricole SA, another major French bank, said in early June that it was taking similar steps.
The development comes at a particularly tense moment in the financial sector’s relationship with fossil fuels. On Wall Street, banks are increasingly being targeted by angry protesters demanding an immediate withdrawal from financing oil, gas and coal. Wall Street has responded by warning that such a move would be economically irresponsible.
CEOs including CS Venkatakrishnan of Barclays Plc, Jane Fraser of Citigroup Inc., Jamie Dimon of JPMorgan Chase & Co. and David Solomon of Goldman Sachs Group Inc. insisted that the financial industry cannot turn its back on oil and gas customers.
Just this week, Venkatakrishnan called any calls for an abrupt end to fossil fuels unrealistic. KKR & Co. founder Henry Kravis recently accused climate protesters of failing to understand the economics of the energy transition.
Even within climate nonprofits, there are now prominent advocates for embracing some of the dirtiest assets. Among them is Climate Arc, backed by hedge-fund billionaire Chris Hohn. Other backers include Nicolai Tangen, a former hedge-fund manager who now runs Norway’s $1.7 trillion sovereign wealth fund, and Generation Foundation, a parallel to Al Gore’s company Generation Investment Management.
Critics of exclusionary policies say fossil fuel companies may simply turn to less scrupulous financiers, with fewer chances of committing to a green approach. They also note that it is important to distinguish between gas – which has even made it into the EU green taxonomy – and coal and oil, which emit much more CO2.
Meryam Omi, CEO of Climate Arc, says too many investors are turning away from the “murky part” of climate finance. In other words, the financial sector must move towards the highest emitting sectors to effectively achieve a low-carbon energy transition, she says.
Bessing points out that the PFA still owns oil companies whose transition plans it considers credible. This includes TotalEnergies.
Not everything TotalEnergies does is perfect, but unlike Shell, the company has set “a goal for 2030 to increase its investments in clean energy to 33%, which is what we have asked for,” he said. he declared.
“If I had the resources, I would work with more oil and gas companies to push them further into the green transition,” Bessing said.
As things stand, it is clear that even if PFA were to divest from all its fossil fuel exposures, “the world would not become greener,” he said.
–With help from Alastair Marsh.
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