Ten international shareholders have the potential to shift the fossil fuel industry in a more sustainable direction, new research shows.
Collectively, these investors – comprised of large investment advisors, governments and sovereign wealth funds – account for a sizeable share of emissions potential in the 200 largest oil, gas, and coal companies internationally.
If existing fossil fuel reserves are burned, these companies – the Carbon Underground 200 – will generate an extra 674 gigatons of carbon emissions: 20 times greater than global emissions in 2019 and three times greater than the global carbon budget.
That has led a group of academics to call for them to positively engage with a low-carbon transition or be held accountable for propagating climate instability.
Dr Sebastian Gehricke.
University of Otago Senior Lecturer Dr Sebastian Gehricke, from the Department of Accountancy and Finance, is a co-author on the paper, "Ten financial actors can accelerate a transition away from fossil fuels".
Dr Gehricke supported lead author Truzaar Dordi, of the University of Waterloo, in Canada, in research and methodological design, data gathering, and interpretation of results.
Results show ten investors have the greatest potential impact on the future usage of most of the world's carbon reserves, based on the number and size of ownership and the related emissions potential of the firms.
Using a novel scoring mechanism which blends the investors' influence with their emissions exposure, researchers found they owned 49.5 per cent of the emissions potential from the CU200.
Some of the fossil fuel firms only have one major shareholder – often a government entity – that could influence the company to support a low-carbon transition.
"For some, it is a large group of many shareholders that should collaborate to engage effectively," Dr Gehricke says.
"Engagement can take on many forms from simply voting on proposals in a way that supports a transition, meeting with management to influence the activities of the company, raising formal concerns or shareholder proposals, and all the way to legal action against the company."
Investors which claim to be part of the transition yet hold ownership in these companies and do not use their influence to affect the company's activities are "greenwashing", he says.
Greenwashing is when an organisation makes false, unsubstantiated, or misleading claims about the sustainability of its product, service, or business operations.
"If these investors are not making such claims, but are not affecting change within the companies, then they are not on board with the global mission to transition to a low-carbon world."
How companies are held responsible, in either case, depends on the regulators.
"A good starting place is to make these entities disclose the climate risks and opportunities within their portfolios, similar to the Climate-related Disclosures standards that are coming into effect in New Zealand next year or the EU Sustainable Finance Disclosure Regulation, so that investors and owners of these entities can make good decisions and hold the entities to account," Dr Gehricke says.
We need vast changes to be pushed by all influential entities, including these investors, as purely relying on government action to combat climate change, which is an even slower process, and may be too little, too late, he says.
"If investors were to withdraw their funding, it would send a clear message to companies and impact their cost of financing.
"For us, as a global civilisation, to meet the challenge of climate change we need action from all that have power and influence.
"Investors have a huge role to play in this global mission and our research shows the huge influence of a small group of investors."
Dr Gehricke argues the more power and influence an entity or person has, the more responsibility they have to support the transition, for current and future generations of living beings on the planet.
"Financial actors that perpetuate and profit from the exploration, extraction, or transportation of fossil fuels should be held directly responsible for the climate instability caused by the resulting production."
Publication details
Ten financial actors can accelerate a transition away from fossil fuels
Truzaar Dordi, Sebastian Gehricke, Alain Naef, and Olaf Weber
Environmental Innovation and Societal Transitions
