Major oil investors say more efforts needed to tackle climate change

Oil and gas companies must take action on emissions if they want to survive the energy transition, according to leading fund managers

On May 22, Royal Dutch Shell’s shareholders will vote on a resolution that wants the company to set specific targets to tackle climate change.Ben Stansall  / AFP

Some of the world’s biggest fund managers are ratcheting up the pressure on oil and gas companies, expressing fear that a lack of action over tackling climate change could risk their investments.

The comments come days before Big Oil kicks off annual shareholder meetings, where they are already facing calls from smaller investors to set clear targets on climate change and even cut their investments in fossil fuels. That could now gain momentum with the nudge from large investors who manage trillions of dollars of funds.

Companies must take tougher action on emissions if they want to survive the energy transition and make a success of the Paris climate deal, according to a letter from a group of investors, including Standard Life Aberdeen and Legal & General Group, which together oversee about $10.4 trillion of funds.

They plan to take up the issue with the world's biggest oil companies at their upcoming AGMs, the investors said in the letter published in the Financial Times on Friday.

“Investors are embracing their responsibility for supporting the Paris agreement,” they said. “It is time for the entire oil and gas industry to do the same.”

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Royal Dutch Shell’s shareholders will on May 22 vote on a resolution that wants the company to set specific targets to tackle climate change. While the management has urged investors to reject the proposal, saying it is already investing in biofuels and clean power and working on cutting emissions, some smaller holders support the resolution.

Friday’s letter stopped short of pledging to support the initiative, but said companies should provide more clarity on climate change.

Oil companies are facing one of their biggest challenges. They have churned out trillions of dollars of profit over the the past century, and investors and pension funds often look to them for steady dividends. Yet, calls for decarbonisation are growing louder as the world attempts to limit temperature increases and tackle pollution.

The investor letter also said there could be increased regulation on carbon, creating extra costs for the companies. The impact on the environment could become serious enough to leave some oil and gas fields stranded and uneconomical to exploit.

Investors said companies should not just direct their focus on reducing greenhouse gas emissions from their own operations, but look at the emissions from their products once sold.

“Reducing the carbon impact of their products is the most effective strategy for these companies to move to a low-carbon world,” they said in the letter. “The capital allocation decisions they make today are important to determine how likely they are to survive that transition.”

Other signatories include BNP Paribas Asset Management and HSBC Global Asset Management.