Does Funding Fossil Fuel Businesses Make Economic and Environmental Sense? Business News

EEnvironmental activists have increased pressure on banks in recent months to stop funding fossil fuel companies. Campaign groups have highlighted the trillions of dollars in financing made available to the sector by global financial institutions since 2016, despite these banks insisting that they take the Paris Climate Accord. seriously.

And a recent analysis by Greenpeace and WWF claims that UK banks and asset managers, through their international investments in fossil fuels, are responsible for nearly double the UK’s total domestic emissions.

An increasing number of financial institutions and pension funds are being urged to divest their stakes in these companies, depriving the fossil fuel industry of the capital it needs to function.

Over 1,000 have in fact done so, taking an estimated $ 14.5 trillion out of the industry.

But the move to financial divestment from fossil fuels has been criticized by some as unrealistic and potentially counterproductive.

Bill Gates suggested to Financial Time in 2019 that the divestment campaign “reduced approximately zero tonnes of emissions”.

The Microsoft founder and pioneering philanthropist argued that it was more efficient to invest in new green businesses, such as companies developing zero-carbon meat substitutes, than trying to deprive companies of money. fossil fuels.

Some have also warned that by depriving listed multinational oil companies of funds, there is a risk that their place will be taken by state-owned oil producers who are not subject to such market pressure and whose production operations could well be more polluting.

Finally, the oil companies themselves generally claim that they are moving “beyond oil” and that depriving them of capital will only slow or delay this beneficial process of technological adaptation.

So: is this a selfish “greenwash” on the part of companies that hope to maintain the polluting status quo? Or does the fossil fuel divestment program really risk being a clean environmental and economic goal?

Fossil fuel companies are certainly a massive force in global stock markets, accounting for around 3% of stocks by value. Their share of UK markets is 9 percent.

This means that anyone who has their pension in those ubiquitous funds that passively track national or global markets will most likely own a slice of BP, Shell, Exxon, and Total.

The activities of fossil fuel companies are also extremely ‘capital intensive’, which means that they require a large initial financial investment. So anyone whose pension includes corporate bond funds – which invest in corporate debt securities – will almost certainly fund fossil fuel companies as well.

Stefan Andreasson of Queen’s University Belfast pointed out that listed multinational oil companies in which people might find their pensions invested – like Shell, Total, Exxon and BP – produce only about 25 percent of the world’s supply of oil. oil.

About half are from state-owned national oil companies, such as Saudi Aramco, NationalIranian Oil Company, National Petroleum Corporation of China, and Petroleos of Venezuela to name a few.

These behemoths tend to be more polluting in their extraction process than multinationals and most do not have a net zero transition plan. If a divestment campaign were to destroy publicly traded fossil fuel companies, there is indeed a danger that these state-owned oil companies will step into the created gap.

“The future of [state-owned companies] is brilliant, ”says energy analyst Cyril Widdershoven. “Without worrying about militant shareholders, easy access to financial markets and sovereign wealth funds, [they] are not only able to reap the benefits of the current [divestment] assault, they are also willing.

The Independent’s Stop Fueling The Climate Crisis campaign calls for an end to investments in fossil fuel projects.

Tim Lord, a senior net-zero fellow at the Tony Blair Institute agrees that divestment, on its own, cannot be invoked to ensure the transition to net zero.

“Demand is the key,” he says. “Ultimately, if there is a demand for these products, the supply will come to meet that demand.” This means that governments will need to continue and intensify their efforts to reduce the demand for fossil fuels through a combination of carbon taxes, regulations and subsidies for zero carbon alternatives.

However, Lord argues that divestment campaigns targeting listed companies can nonetheless play an important role in terms of pressure on fossil fuel companies that fail to meet their public commitments.

“A lot of them talk more and more about a good game, but when you look at what they are doing in terms of investment strategies, in terms of the detail and ambitions of their net-zero strategies, in in most cases the credibility is much lower, ”he said.

Shell, for example, has a 1.5C “way” in its internal planning, but there is …