Fossil engagement: if you won’t divest, at least do this…

5 minute read

Many investors are acutely aware of the risks generated by global warming, including rising sea levels, storm surges, droughts, wildfires, extreme heat and other extreme weather events.

As a result, many ethical and sustainably orientated investors have focused on the reduction of industrial carbon emissions, among other measures, to hasten progress to a carbon-neutral economy. Fossil divestment is one approach, although some investors argue that engagement with fossil companies is more effective in promoting essential change.

Quintin Rayer explores the form of engagement with fossil firms should take and questions how long investors should keep talking with companies if there are no meaningful signs of progress.

Q G Rayer (2019), Fossil engagement: if you won’t divest, at least do this…, Citywire Wealth Manager®, issue 478, p41, 14th March 2019.


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Many investors are acutely aware of the risks generated by global warming [1], [2], including sea-level rise, storm surges, droughts, wildfires, extreme heat and extreme weather events [3], [4], [5], [6].  As a result, many ethical and sustainably-orientated investors have focused on reduction in industrial carbon emissions among other measures to hasten progress to a carbon-neutral economy.  Fossil divestment is one approach [7], although some investors argue that engagement with fossil companies is more effective in promoting essential change.


This article explores what engagement with fossil firms should involve and suggests limits to the length of time spent talking with companies if there are no meaningful signs of progress.

What is Fossil Divestment? 

Fossil divestment involves severing ties with firms that extract fossil fuel reserves, selling or refusing to own stock in fossil extractors and producers, and was backed by the UNFCCC in 2015 [8].  2012 estimates suggested that to keep global warming below 2°C no more than around 565 gigatons of additional carbon dioxide could be released by mid-century; yet proven underground coal, oil and gas reserves amount to 2,795 gigatons [7].  Far more than the climate can tolerate staying below 2°C warming.  More recent estimates indicate that at least two-thirds of known fossil fuel reserves must remain unburned [9]. The logic is simple – the vast majority of this carbon needs to stay in unused fossil reserves underground.

At the 2018 IPCC meeting in South Korea the world’s scientific community re-emphasised the need to keep global warming contained, making it clear that to avoid the worst consequences, it must be kept below 1.5°C above pre-industrial levels [10].  Current warming is estimated at 1.069°C [11] and on track for 3.3°C or more by 2100 [12].

Why Not Fossil Divest? 

Some investors fear that restricting investment may reduce diversification and impact performance, although many ethical investors disagree (see, e.g. [13], [14], [15], [16]).  However, others accept the need to reduce CO2 emissions but feel engagement with fossil extractors and producers is more likely to achieve that goal [17].  They point out that a shareholding is needed to influence a firm, so divestment removes the possibility of company engagement to encourage movement away from fossil fuels to renewables [18].  Critics suggest that engagement is most effective when backed up with a credible threat to divest [19].  These investors have the same goal – a low carbon or carbon-neutral future – but differ whether engagement or divestment is a more effective tool.

What should Engagement look like?

Fossil fuel protest engagingGiven the carbon emissions risks that fossil fuels pose, engagement must be robust.  It could lack teeth unless backed by a realistic likelihood of divestment if targets are not met [19].  An end is required to deliberate climate science obstructionism and continued fossil expansion.  Resulting minimum engagement criteria might include:

  • Commitment to divest if minimum engagement targets are not met within defined timescales, perhaps two or five years.
  • Major oil and gas companies must cease funding trade associations or activities that lobby against climate action[19].  If membership of trade associations is to continue, the companies must ensure those bodies do not work to obstruct climate action.
  • Executive remuneration packages and bonuses must no longer be based on fossil production volumes. Ideally, they should be based around increases in renewable energy volumes [19], or emissions reduction.  Royal Dutch Shell has recently agreed to set carbon emissions intensity targets, tying them to executive pay [20], although this permits them to expand fossil production providing renewables are increased more.
  • Exploration of new fossil fuel reserves should be stopped with no further capital allocated[18].

Other engagement measures are possible, but the points above would seem a useful starting point.  The second addresses one of the fossil companies most perverse actions – to invest in renewable energy and headline ‘green’ initiatives while still financially supporting global warming deniers, or other activities that obstruct climate action appears deeply hypocritical and cynical.

What Can Investors Do?

Ethical and sustainable fund managers can either divest or ensure their engagement policies are as robust as possible.  By taking early action, they can show leadership and accrue reputation with their clients.  Advisers and fund selectors can identify those managers taking active steps in this area and guide their clients accordingly.  The science is clear, strong action to prevent dangerous climate change needs to be taken quickly.  Media commentary shows that many sections of the public understand this message, even if the finance sector has been slower to adjust.  Perhaps fund managers should listen – early movement could reap significant reputational benefits.


[1] J. Porritt, “The world in context: beyond the business case for sustainable development,” Cambridge: HRH The Prince of Wales’ Business and the Environment Programme, Cambridge Programme for Industry, 2001.
[2] N. Stern, “Stern Review executive summary,” New Economics Foundation, London, 2006.
[3] National Academies of Sciences, Engineering, and Medicine, “Attribution of Extreme Weather Events in the Context of Climate Change,” The National Academies Press, Washington, DC, 2016.
[4] C. Krosinsky, N. Robins and S. Viederman, Evolutions in sustainable investing: strategies, funds and thought leadership, John Wiley & Sons, 2012.
[5] Q. G. Rayer and R. J. Millar, “Investing in Extreme Weather Conditions,” Citywire Wealth Manager®, no. 429, p. 36, 8 February 2018.
[6] Q. G. Rayer and R. J. Millar, “Investing in the climate,” Physics World, vol. 31, no. 8, p. 17, August 2018.
[7] B. McKibben, “Global warming’s terrifying new math,” Rolling Stone, 2 August 2012.
[8] D. Carrington, “Climate change: UN backs fossil fuel divestment campaign,” The Guardian, 15 March 2015.
[9] C. McGlade and P. Ekins, “The geographical distribution of fossil fuels unused when limiting global warming to 2°C,” Nature, vol. 517, pp. 187-190, 2015.
[10] IPCC, “Global warming of 1.5°C,” Intergovernmental Panel on Climate Change, Switzerland, 2018.
[11] “Global Warming Index,” [Online]. Available: [Accessed 29 January 2019].
[12] Climate Action Tracker, “Temperatures, 2100 warming projections,” [Online]. Available: [Accessed 24 January 2019].
[13] Q. G. Rayer, “Why clean money matters,” The Actuary, pp. 18-19, 12 April 2018.
[14] Q. G. Rayer, “Ethical investing: the unlikely route to alpha?,” Citywire New Model Adviser®, no. 585, p. 25, 26 March 2018.
[15] Q. G. Rayer, “Why ethical investing matters,” Personal Finance Professional,, pp. 44-46, 7 December 2017.
[16] J. Grantham, “The mythical peril of divesting from fossil fuels,” Grantham Foundation for the Protection of the Environment, 13 June 2018. [Online]. Available: [Accessed 14 December 2018].
[17] E. Howard, “A beginner’s guide to fossil fuel divestment,” The Guardian, 23 June 2015.
[18] S. McGee, “Is divesting from fossil fuels the best tactic for tackling climate change?,” The Guardian, 24 April 2016.
[19] Operation Noah, “Fossil Free Churches, Accelerating the transition to a brighter, cleaner future,” Operation Noah, London, 2018.
[20] BBC, “Royal Dutch Shell ties executive pay to carbon reduction,” 3 December 2018. [Online]. Available: [Accessed 3 December 2018].