Letter: Be wary of investment portfolios that claim green credentials

Anjli Raval asks excellent questions about the consequences of oil production passing into private or state-owned hands (“The $140bn asset sale: Big Oil’s push to net zero”, The Big Read, July 7).

She is right to highlight the fact that climate activist pressure on listed oil majors may result in their emissions shifting to companies that face much less scrutiny over their activities.

Research we helped carry out, and which was published earlier this year, shows that while the divestment movement has successfully reduced financial flows to oil and gas companies in the countries where divestment pressure is greatest, we can also see investment shifting towards “pollution havens” abroad, that is countries which heavily subsidise fossil fuels.

We compiled and analysed a comprehensive data set of oil and gas sector fundraising across all major capital market asset classes (equity, bonds and syndicated loans) in 33 countries from 2000 to 2015.

At a global level, investment in the oil and gas sector has continued to grow at over 8 per cent per year since the divestment movement started in 2008. This is in direct conflict with evidence that society already has more proven reserves than can be used without exceeding climate change targets.

This does not necessarily mean that divestment has failed entirely. However, if it simply shifts emissions from one sector of the investment universe to another, we should be highly suspicious of the climate benefit of “fossil-free” or “low-carbon” investment portfolios.

There is a parallel here with the growing “creative accounting” practice of high-profile companies claiming progress towards net-zero by purchasing the zero-carbon attributes of existing renewable energy generation.

Climate change is a systemic problem, which requires us to think more carefully about the systemic consequences of our actions, however well meant they may be.

Francisco Ascui
Centre for Business, Climate Change and Sustainability, University of Edinburgh Business School, Edinburgh, UK

Theodor Cojoianu
Lecturer (Assistant Professor) in Finance, Queen’s University Belfast, UK
Member, EU Platform on Sustainable Finance (2020-22), European Commission, Brussels, Belgium
Member, Green Technical Advisory Group, UK Treasury, London SW1, UK