Beyond divestment

Beyond divestment

by David Whyte

The fossil fuel industry remains gripped in an extended boom period. As we noted in our earlier report Carbon Profiteers, investment in BP and Shell has risen significantly since the Paris Agreement was agreed on the 15th December 2015, driven by a relatively small number of aggressive carbon profiteers at the top of the shareholder ranks.

Our new report, Beyond Divestment, reveals that a paltry 3% of BP and 4% of Shell shareholders in have completely divested since 2015. And although around 47% of BP who held shares in December 2015 and 54% of Shell shareholders have partially reduced their stake in those companies since December 2015, most of the large shareholder remain heavily invested. 

In the same period, net share ownership has risen by 10% in both companies.  The top 20 shareholders in both BP and Shell have increased their total number of shares by three quarters of a billion in BP, and half a billion in Shell, whilst the lower ranks appear to be very slowly divesting.

This analysis therefore reveals a process of ‘shareholder substitution’ that has allowed some big players to significantly increase their shareholding; even if there were an army of companies ready to completely divest, there is an even bigger army of BlackRock and Vanguards ready to snap up any shares that are sold.

On this basis, divestment is not divestment at all: it is reinvestment.

Photo: Joe Brusky

There is no evidence that they will stop, since we are in a period of guaranteed high earnings for oil and gas.  Shareholder earnings have accelerated at a pace that is simply too lucrative for investors.  Our earlier report, Carbon Cash Machine, found that the cash earnings in BP and Shell are around triple the amount they were in December 2015.

Both companies make bold announcements at every annual general meeting about their pivot away from oil and gas and their commitment to fossil fuels.   Yet behind the greenwash, they remain heavily committed to exploring for new sources of oil and gas. In February, BP announced a downgrading of its commitment to cut production from a target of 40% to 25% by 2030.  In July Shell completely abandoned previous plans to cut oil production.  Greenpeace’s 2023 report The Dirty Dozen, notes that BP’s capital expenditure on low carbon energy (solar, wind, geothermal, hydro power and green hydrogen) was 3% of total investment and Shell’s was 9% of total investment. All other investment was spent on fossil fuels and high carbon energy sources.

What worries the managers of BP and Shell, and the managers of the big investment funds alike is the possibility that their assets – in the form of the oil and gas reservoirs they have the rights to explore and develop – may be ‘stranded.’ Although this seems like a distant possibility, the people of Ecuador have just voted not to explore for oil in ‘Block 43’, situated within Yasuní National Park in the Amazon. Block 43 has just become a stranded asset for the Ecuadorian state oil company.

Neither oil and gas companies, nor their investors acting alone are capable of falling on their sword and stranding their own assets. This report therefore raises a more fundamental question about what fossil fuel divestment campaigns could do to move beyond those aims. What would a divestment strategy that actually stopped investment in fossil fuels need to look like?

The divestment movement has made great strides to get us to the point that all fund managers need to consider whether the assets and shares they invest in are toxic, not just in a financial sense, but whether they are toxic for the planet.  The great achievement of our movement is that it has successfully urged people to follow the money and to look to what we need to do to take the most effective action: the accumulation of profit.  In this respect, divestment campaigns have made huge inroads into taking the action necessary to tackle climate change head on.  Witness the current Stop Rosebank campaign, working in tandem with divestment campaigns to keep the oil in the ground.

Drastic conditions like this require radical solutions. If a target of limiting global warming to the levels necessary for planetary survival is to be kept within our reach, all of the evidence we have indicates that we need to stop producing oil and gas now. If shareholder divestment is not working fast enough to achieve this – as this report shows – then we need to pursue other forms of intervention that drastically scale back production.  If the planet is to have a fighting chance of survival, oil and gas assets must be decommissioned, and removed from the reach of predatory investors now.

David Whyte is the Co-Director of the Centre for Climate Crime and Justice. Read Beyond Divestment here