How to become a fossil-free investor
The world has to stop using fossil fuels, but investment in the sector continues unabated. Investors of all kinds, including banks, insurance companies and pension funds, are hesitant about making the change to sustainable energy and are not sure where to start. In the autumn of 2019, together with the DivestInvest Network and Sustainable Energy (Denmark), Both ENDS published a report entitled ‘Managed Decline of Fossil Fuel Businesses’. The report describes five criteria to test whether companies in the fossil sector are actively taking steps to wind down their fossil activities. The criteria are helping investors to choose investments that are in line with the Paris goal of restricting global warming to a maximum of 1.5 degrees Celsius. We spoke to Lars Jensen, Senior Analyst at Sustainable Energy and lead author of the report.
“This report helps investors to assess to what extent fossil fuel companies are already engaged in the energy transition”, Jensen tells us. “They can then decide to divest their shares in companies that do not meet the criteria. And they can specify clearly in their policies that they will only reinvest in fossil companies when they do meet the five criteria.”
The five criteria that companies in the fossil sector have to meet are:
1. No lobbying for policies that reduce the probability of the 1.5°C goal.
2. No exploration spending.
3. No approval or acquisition of new fossil fuel infrastructure or projects.
4. A clear plan for wind down of fossil fuel extraction.
5. Remuneration policies that support managed decline of fossil fuel extraction.
If you write a report like this, you must have been involved with this material for many years
I began just as a climate concerned participant in a pension fund. I’m an economist and worked in Denmark as a civil servant. It wasn’t until 2014, when I saw an item in the news on television about a fossil fuel divestment campaign in my pension fund, I asked myself the question: “What are those campaigners doing to my money?” So I visited the Danish campaign website, which had a link to CarbonTracker’s seminal 2013 stranded assets report [now obsolete], which is why I became especially curious about the relationship between investment and climate change. I registered for a newsletter and later became a volunteer with the campaign that had made the website. In that period, I came into contact with Both ENDS and we decided to work together.
And now it’s become your full-time job
Eventually, I was given the opportunity to turn my interest into my work, as there aren’t many economists occupied with the financial side of divesting from the fossil sector. The question we were concerned with at Sustainable Energy was ‘what would I do if I woke up one day and found I was the director of an oil and gas company?’ In other words, how would I make sure my company made the change to sustainable working? We didn’t have a good answer, so we made a start on the five criteria, as a sort of road map for the fossil sector.
But you aim mostly at shareholders and investors in the sector. Shouldn’t fossil companies themselves be changing course radically?
Yes, in theory, but the only example of a company that has really done that is Danish Oil and Natural Gas. They have gone over completely to sustainable business and become a world leader in the field of offshore wind energy. They’re now called ORSTED and are the only example of company that has dared make the transition. The normal discourse of oil and gas companies is that the world needs oil and, especially, gas.”
How much impact do you think that the five criteria will have? Do you think that investors will use them?
“There has traditionally been a discussion between whether it is better as an investor to withdraw from the fossil sector or try and change the companies you invest in from the inside. We are saying now that if you believe as a shareholder that you can change things in a company, you can use the five criteria to say ‘I’m not going to invest in your company until you meet these criteria’. If you don’t believe you can really change a company, you can sell your shares, put it on the blacklist and look for companies that do meet the criteria. The criteria can be used for both a ‘divest’ and an ‘engage’ strategy. We will know for a year or so whether investors really do use them. Of course, I hope so.
Who has to initiate the change?
The supply of energy has to be fossil-free. Energy companies will continue to exist in a fossil-free world. If Shell sells me green electricity that I can use to drive my car, that’s a good business model. That change must be given a boost by those who have the formal power, and that is the shareholders in the fossil industry – the investors. If they say ‘we don’t want our money to be invested in the extraction of new oil and gas’, the directors of oil and gas companies will have to take notice. Pension funds and other investors have not only the money but also the formal power and influence as shareholders to push a company in a different direction.
What is necessary to persuade oil and gas companies to change course?
It really isn’t in the interests of shareholders to continue to invest in the fossil sector. If you change direction in the right way – by that I mean making the change gradually – it will make money. Most oil and gas fields have a useful life of 10-15 years. What comes after that is not reflected in the current share price. The route of gradual winding down that I describe in this report will take 20 years. By the time the last oil and gas fields that are now in use have been depleted, companies could have nearly completed the transition. So they don’t need to stop all fossil activities immediately, but can do it step by step. It is up to investors to persuade them to do that.
I hear that fossil extraction would no longer be profitable in the long term anyway
Oil and gas companies should indeed realise that continuing with fossil extraction constitutes a serious business risk: there is more and more legislation on climate, and they need to anticipate that. The fossil lobby is focusing all its efforts on stopping that legislation, but that is a lost cause in the longer term. They would be better advised to make sure they are ready for the future. And investors like pension funds can play a role in that by exerting pressure.
Do consumers have a role to play in persuading pension funds to move towards fossil-free investments?
Yes, pension funds do listen to their participants. It is their money after all. On the other hand, they do have to make money on their investments and they still believe that fossil investments are necessary to ensure the necessary return. That’s why it is very important that pension fund participants continue to draw attention to the long term and to the profitability of investing in sustainable energy. It will take some time, but pension funds will eventually withdraw their investments more and more from the fossil sector.
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Themes
Read more about this subject
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Dossier
Making pension funds more sustainable
Pension funds have a lot of influence because of their enormous assets. Both ENDS therefore wants pension funds such as the Dutch ABP to withdraw their investments from the fossil industry and to invest sustainably instead.
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Publication / 14 May 2017
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Publication / 9 May 2018
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Publication / 14 May 2017
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Press release / 6 May 2020
Press release: Fossil investments by pension funds aggravate economic blow
The value of ABP's pension fund investments in fossil fuel companies has fallen by 44% from end of last year to its lowest point on March 16 this year, while the value of the rest of the portfolio decreased by 26%. This impact can be seen in simulations based on the publicly available equity portfolios of Dutch pension funds ABP and Zorg en Welzijn (PFZW), carried out by research agency Profundo on behalf of Both ENDS. The simulations show that the risks of investing in the fossil fuel sector are increasing.
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Publication / 24 October 2019
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Publication / 9 May 2018
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Press release / 24 October 2019
Press Release: These five criteria help investors go green
Press release 24 October 2019
Starting today, investors can use five criteria to test whether companies in the fossil sector are actively working on phasing out their fossil activities. Too many investors still seem hesitant to switch to a profitable future of sustainable energy and these criteria should help them do this. The organisations DivestInvest Network, Sustainable Energy (Denmark) and Both ENDS (the Netherlands) publish the report "Managed Decline of Fossil Fuel Businesses" today, which describes these five criteria. The criteria aim to help investors choose investments that are in line with the Paris goal "stay below 1.5 degrees Celsius warming." The recommendations are presented at the World Pension Summit deliberately, because pension fund investors in particular can take more responsibility in this.
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News / 1 May 2019
ABP still on collision course with Paris climate goals
Amsterdam 1 May 2019 - Dutch pension fund ABP's 'sustainable and responsible investment report’ today suggests that the pension fund is well on track in terms attaining its internal sustainability goals. However, an analysis by Fossielvrij NL, Both ENDS, urgewald and Greenpeace shows that ABP remains on a collision course with the Paris climate goals. At the end of 2018, ABP still invested 16.5 billion Euros in the fossil industry. ABP's investments in the world's 44 largest climate polluters even increased between 2016 and 2018.
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Press release / 14 May 2017
Criticism of Dutch pension fund ABP’s investments in coal, oil and gas
The Dutch pension fund, ABP, invested about two billion euros more in the fossil energy industry at the end of 2016 than the year before. This is announced by the report "Dirty & Dangerous: the fossil fuel investments of Dutch pension fund ABP," published today by Both ENDS, German urgewald and Fossielvrij NL. The report criticizes these investments because of the impact on the climate and the catastrophic consequences for the people in the areas where coal, oil and gas are being produced.
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Press release / 22 June 2020
Press release - Climate movement: “Pension funds, stop investing in fossil gas”
Amsterdam, Copenhagen 22 June 2020 – In these times of increasing climate crisis, corporate social responsibility also means that investments in fossil gas must be phased out as quickly as possible. In a world in which a maximum temperature rise of 1.5 Celsius is the norm, fossil gas cannot be a 'transition fuel' towards sustainable energy. This is the message from five European environmental organisations (Both ENDS, the Danish AnsvarligFremtid, Fossil Free Sweden, Fossil Free Berlin and the Italian Re:Common) to pension funds in their countries that still invest in fossil gas companies. They are promoting that message with a new campaign called "Gas Free Pensions", which is being launched today.
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Press release / 23 September 2019
World's 5th largest pension fund ABP increases fossil fuel investments
Amsterdam, 23 September 2019 - The world's 5th largest pension fund, with assets of over €430 billion, Dutch ABP is continuing to invest in companies that are on a collision course with the Paris climate goals, such as coal and oil companies.
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Press release / 9 May 2018
ABP promises to go green but sticks with fossil fuels
New research by Both ENDS, Fossielvrij NL and urgewald shows that, in 2017, pension fund ABP invested 500 million euros more in coal, oil and gas than in the previous year – a total of 10.9 billion euros. These investments in fossil fuels not only stand in sharp contrast to ABP's claim that it has achieved substantial successes in its climate policy, but are also in flagrant violation of the Paris climate agreement. Unlike international forerunners among pension funds, ABP continues unabated to invest in the fossil energy sector.
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Publication / 23 September 2019
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Press release / 3 February 2020
Climate movement: ABP takes steps on coal and tar sands, but oil and gas remain blind spot
Amsterdam, 3 February 2020 - A step forward, but oil and gas remain a blind spot in Dutch pension fund ABP's new investment policy published today. That's what environmental organisations Both ENDS, Fossielvrij NL, Greenpeace Netherlands and urgewald say in response to the new climate policy of the EU's largest pension fund, with assets over 442 billion euros. Although ABP is taking first steps to invest sustainably, more is needed to stop the climate crisis.
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Press release / 26 August 2020
Dutch pension funds invest in deforestation in the Brazilian Amazon
Dutch pension money is invested heavily in companies that contribute to deforestation in the Amazon region and the Cerrado savanna in Brazil, such as soy, animal feed and beef companies. This is concluded in a report published today by Profundo, commisioned by the Fair Finance Guide, Hivos and Both ENDS. All ten pension funds that were examined invest in these types of companies, with the ABP pension fund and Pensioenfonds Zorg en Welzijn on top with investments worth EUR 580 million and EUR 383 million respectively.
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Publication / 26 August 2020
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Press release / 26 March 2019
Wealthy Dutch investors to disinvest personal capital worth 200 million euros from the fossil industry
Joint press release from Both ENDS and Fossielvrij NL - 26 March 2019
A group of 22 wealthy Dutch investors have decided to disinvest all their personal capital, worth a total of 200 million euros, from the top 200 oil, gas and coal companies. The investors have pledged to disinvest all their capital from the fossil industry within three to five years. By doing so, they are giving a clear signal that they do not want their capital to contribute to disastrous climate change.
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Press release / 8 July 2021
After Shell ruling, banks, pension funds and insurance companies now have to take action
Civil society organisations send urgent letter on climate to financial sector
Amsterdam, 8 July 2021 – The Shell ruling has consequences for the financiers of major climate polluters. That is the message in a letter from a number of civil society organisations, including Oxfam Novib, Eerlijke Geldwijzer, Milieudefensie, Greenpeace and Both ENDS, to the biggest banks, pension funds and insurance companies in the Netherlands. In the letter, they call on the financial institutions to reduce CO2 emissions from loans and investments in line with the 1.5 degrees goal laid down in the Paris climate agreement.
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Blog / 19 September 2019
A forgotten opportunity worth 1.5 billion euros
Reward high-risk international business projects investing in a green future and stop support for the international fossil industry
The climate is 'hot'. Everyone is talking about it. 'Everyone needs to do something' calls the government in its recently started public campaign. Good plan. Let's really do something. For a start, we can stop supporting international trade in fossil energy by our own multinationals. That would free up 1.5 billion euros which we could use to combat climate change on an international scale and at the same time give our own innovative businesses a boost. Today's Vergeten Klimaattafel (Forgotten Climate Roundtable) will discuss the opportunities for the Netherlands to have a real impact. And those opportunities are enormous. Because our big money and our influence lie beyond our borders.
