Monday 29 April 2019 12:01 am

Fund managers say oil companies need to go green to remain attractive investments

Fund managers overwhelmingly say oil companies will not remain attractive investments unless they make their businesses more green.

A survey of fund managers responsible for $10 trillion (£7.7 trillion) of assets by the UK Sustainable Investment and Finance Association (UKSIF) found 86 per cent wanted oil companies to align their businesses with the Paris Agreement's goals on global warming.

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Nearly half want them to adopt policies consistent with limiting global warming to 1.5°C while 43 per cent called for a 2°C target.

Two thirds want oil companies to switch their investment to support a low-carbon transition consistent with these targets, while a quarter want them to wind down their businesses and return cash to shareholders.

Only 18 per cent of fund managers think oil companies will be good investments if their businesses are still focused on fossil fuels in five years’ time, but 68 per cent think they will still be attractive if they adopt business models in line with the Paris targets.

Just under a quarter do not think oil companies will be a good investment in any timeframe.

UKSIF chief executive Simon Howard said: “The writing is on the wall for oil companies that do not support global efforts to avoid a climate catastrophe by urgently phasing out fossil fuels and transitioning to a low-carbon world. The investment community recognises that these will make increasingly risky investments.

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“But most fund managers need to do much more to protect asset owners, and asset owners more to protect savers, by driving oil companies to change. Both should publicly commit to aligning investment portfolios with the Paris targets and managers should make more fossil free investment products available. They should also coordinate their engagement policies and give them real teeth by setting oil companies deadlines and spelling out the consequences if they fail to take action.”

Louise Dudley, global equities portfolio manager at Hermes Investment Management, said: “Capital markets have a key role to play in turning ambition into action on climate change and it remains a critical element of our broader strategy to integrate ESG factors across our funds.

"We not only assess climate-change related risks using our ESG proprietary tool, but favour companies that support the transition to a low-carbon economy and focus on minimising further climate change. Stewardship plays a crucial part of our approach and engaging with companies has created a powerful force for change.”

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