Faith-based Investors and the Oil and Gas Sector

By Frank Sherman

The Intergovernmental Panel on Climate Change (IPCC) recently issued a special report on the impacts of global warming of 1.5 °C above pre-industrial levels and related global greenhouse gas (GHG) emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty (see FAQ). This was done in anticipation of the UN Climate Change Conference in Katowice, Poland (COP24) in December.

Under the 2015 Paris Agreement, countries agreed to cut GHG emissions with a view to ‘holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels’. Human-induced warming has already reached about 1°C above pre-industrial levels and the impacts have already been felt. If the current warming rate continues, the world would reach human-induced global warming of 1.5°C around 2040.

Limiting warming to 1.5°C rather than 2°C can help reduce the risks of severe climate disruption. While some cities, regions, countries, businesses and communities are transitioning towards lower GHG emissions, few are consistent with limiting warming to 1.5°C. Meeting this challenge would require a rapid escalation in the current scale and pace of change. This report brings a new urgency and increased demands in our corporate engagements.

Another report (2020: A Clear Vision For Paris Compliant Shareholder Engagement) was also issued by our partners at As You Sow. Given that the global oil and gas companies contribute 50% of GHG emissions, they must become part of the solution if we have any chance of effectively addressing climate change. After decades of engagement, none of the U.S. oil & gas companies has adopted a plan or a target to limit the GHG emissions associated with their products. This report, written before the IPCC 1.5 degree report was issued, concludes that ‘shareholder engagement must focus on one last, fit for purpose demand, seeking 2-degree assessments from companies in year one and 2-degree action plans by 2020….or investors must divest’.

Given the call for urgent action by the IPCC, we no longer have the luxury of time.

The Decade We Stopped Climate Change

By Aaron Ziulkowski, Walden Asset Management

A New York Times Magazine published in August included one single article: “Losing Earth: The Decade We Almost Stopped Climate Change.” The title contains the spoiler that we all already knew: We are not stopping climate change. But the focus of the article by Nathaniel Rich—a whopping 30,000 words—is a historical recounting of how close the U.S. and global community came to establishing a binding framework that would have set us on a path to limit warming to what scientists consider manageable. Several decades later, we have still not accomplished this feat.

While some readers likely found the article depressing, it gave me a bit of hope. Rich chronicled a time when the risks of climate change were appreciated and regulations to limit emissions were recognized as the prudent action to take. This knowledge was accepted and embraced by conservatives and liberals as well as leaders of business and advocacy groups. While this promising response eventually derailed, investors may be able to help return the U.S. to a 1980s context—poised to act to mitigate the worst impacts of climate change.

Here’s what we can do.      

Ask companies to set emissions reduction goals that align with climate science. While this may sound outlandish, it is not. Many companies recognize that climate change presents both risks and opportunities and are committed to doing something about it. Forty-eight percent of Fortune 500 companies have set public targets to reduce greenhouse gas emissions, improve energy efficiency, source more renewable energy, or some combination of the three. While some of these targets are not science-based (i.e., aggressive enough to reach carbon neutrality by the second half of the century), nearly five hundred companies from around the globe have publicly committed to set science-based targets, and over one hundred have already done so.

Ask companies to be more transparent about their political spending and lobbying, as well as lobbying done on their behalf by trade associations such as the U.S. Chamber of Commerce. The business community wields significant influence over public policy, for better and for worse. Transparency breeds accountability. As investors, we need to know how a company is lobbying, both because the reputational risk it might entail for the companies we invest in, as well as the risks that lobbying may create for the broader economy. According to AFSCME, more than 40 companies engaged by investors have strengthened their corporate lobbying policies, practices (e.g. a decision to end ties with a third party involved in controversial lobbying activities), and transparency.

Ask companies to proactively advocate for comprehensive climate legislation. While at the federal level it is unlikely there will be an opportunity in the near-term to pass comprehensive climate legislation, there is important groundwork that needs to be done to prepare for when the political moment is right. There are also numerous opportunities to influence state- and local-level policies related to climate change. We should ask companies, especially those that are setting their own goals and targets to reduce emissions, to support legislative and regulatory efforts that are consistent and indeed facilitate achieving their goals. For example, recently, in my home state of Massachusetts, the business community successfully mobilized to support strengthening climate legislation, including the sourcing of renewable energy. Groups like the Business for Innovative Climate and Energy Policy (BICEP), organized by Ceres, can help companies identify and participate in such efforts.

What we did not achieve in the past provides us our current goal and focus. The business community can be a supportive partner in fighting climate change, and investors have an important role in catalyzing that action.