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The Actuary The magazine of the Institute & Faculty of Actuaries

Fund managers want oil companies to shift business models

Oil companies will not remain attractive investments unless they adopt business models that support the climate goals of the Paris Agreement, a survey of 39 fund managers with $10trn (£7.8trn) of assets under management has found.

Oil firms to adopt climate targets ©iStock

A whopping 86% of the respondents said oil firms should align their business with the Paris goals, with just 18% saying they would still be attracted to those focused on fossil fuels in five years.

Two-thirds want oil companies to switch their investments to support a low-carbon transition, and a quarter actually want them to wind down their businesses and return cash to shareholders.

“The writing is on the wall for oil companies that do not support global efforts to avoid a climate catastrophe by phasing out fossil fuels,” said Simon Howard, chief executive of the UK Sustainable Investment and Finance Association (UKSIF), which carried out the research.

“The investment community recognises that these will make increasingly risky investments.”

UKSIF and the Climate Change Collaboration surveyed fund managers from the UK, France, Germany, Italy and Spain for their second annual report on fund managers’ attitudes to investment in integrated oil companies.

Nearly half want oil firms to adopt policies consistent with limiting global warming to 1.5°C while 43% are calling for a 2°C target.

However, the research also found that many fund managers are putting their investors at risk by failing to align their portfolios with the Paris targets.

Just 21% have a policy that does this across all their funds, while many are also failing to develop products that meet the growing demand for fossil-free investments.

And although 88% have a policy to engage with oil companies on climate change, only 18% have set deadlines for firms to take action, and these range from 2021 to 2030.

Aon UK head of responsible investment, Tim Manuel, said: “Asset owners are increasingly prepared to hold fund managers to account for their action, or inaction, on climate risk.

“Fossil fuel companies can play an important and positive role in the transition to a low-carbon economy, and it is vital that investors use their voice to highlight the importance of this issue, and to support companies’ efforts to evolve their business models to meet the challenge.”

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