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The Disinvestment Debate

The Disinvestment Debate

Thursday August 22

One of the major talking points at the last two General Assemblies of the Church of Scotland has been whether the Church should disinvest from companies making their money from fossil fuels. Each time, the Assembly voted to continue investing in such companies, but to engage with them to make the changes necessary in the climate emergency.

A minister campaigning for disinvestment and the chair of the Church of Scotland Investors Trust put the two sides of the argument.


“We must take urgent action now.”

The Rev Jenny Adams is minister of Duffus, Spynie and Hopeman Church of Scotland. She led calls for the Church to disinvest at the 2018 General Assembly, and was involved in protests this year.

Jesus said: ‘Where your treasure is, there your heart will be also.’

Guidance from the Scottish Charities Regulator (OSCR) highlights the importance of charities aligning their investments with their purposes. The Church of Scotland Investors Trust wants to avoid investing in any company substantially involved in activities ‘which are felt to harm society more than they benefit.’

The companies and activities from which we profit really matter, however we look at it.

We are facing a climate emergency which is already having devastating impacts on ecosystems and lives across the world. The urgent need for action is particularly highlighted by young people and our overseas partners, including at the General Assembly and in this magazine. The Scottish Government recently committed to reducing greenhouse gas emissions to net-zero by 2045, and the UK Government has now indicated it will do the same by 2050, to help meet the Paris Agreement to limit global warming to 1.5°C.This target is vital to minimise irreversible changes to the climate for people and planet.

The Church of Scotland has long recognised the importance of climate change, since we are called to care for creation and love our global neighbours, especially the poorest and most vulnerable. We need to disinvest from companies whose core businesses are in contradiction with that calling, instead investing to support a ‘Just Transition’ to low-carbon technologies using the skills of those currently employed in oil and gas.

General Assembly debates have considered how best to achieve that transition with the required urgency, with engagement instructed since 2016. Yet Total is launching eight major start-ups in 2018-19, having increased production by 8% in 2018. Shell and BP are also increasing oil and gas production. No major fossil fuel company spends more than 4.5% of total capital expenditure on renewables or low-carbon solutions.

Major oil companies have known the risks of climate change and the destructive impact of burning fossil fuels for more than 30 years. They have had plenty of time and resources to invest in developing alternatives, had they wanted to. Instead, these companies have spent $1 billion on lobbying and publicity since the Paris Agreement, to limit or delay action on climate change.

Opponents of disinvestment cite shareholder resolutions and public statements. Yet these evade responsibility and the pace of change is far too slow. BP recently accepted a resolution, backed by the Church Investors Group amongst others, to provide a strategy ‘consistent with’ the Paris Agreement - yet only for their operational emissions, not those from burning their products (85-90% of total emissions). BP opposed another resolution asking it to set targets to reduce its total emissions. Shell has announced ‘ambitions’ to reduce the carbon intensity of its products by 2050, rather than targets for overall carbon emissions.

Total’s CEO, Patrick Pouyanné, was quoted in the Financial Times in 2017 saying that investing in renewables was ‘part of the way to make oil and gas business acceptable. It’s only 5% of the strategy. We are an oil and gas company.’ As the 2019 Church and Society Council report acknowledged to the General Assembly of the Church of Scotland, ‘engagement may result in oil companies becoming aware of our concerns, but their core activity remains the damaging extraction of fossil fuels.’ The oil and gas industry is planning to spend $4.9 trillion on exploration and extraction from new fields over the next decade, with devastating consequences.

But will disinvestment lose us our voice seeking change? No. We engage about gambling and the arms trade without money invested. The Church Investors Group includes the Quakers, Church of Ireland and United Reformed Church, all of whom have agreed to disinvest from fossil fuel companies - their voices are still heard.

Neither does disinvestment prevent us from caring for those working in the oil and gas industry. Because we care for them – a decreasing number, facing declining terms and conditions – we need to invest positively in alternatives for them, our communities, and the Earth. Our engagement efforts could also be better directed where core business can transition to low-carbon alternatives, eg transport, construction and agricultural industries.

Some argue that, while we still use oil and gas, it is hypocritical to disinvest from companies supplying what we demand. Yet no-one is suggesting that disinvestment is sufficient on its own – we must also change political policy frameworks and our lifestyles, to tackle what the convener of the Church and Society Council has described as our ‘addiction’ to fossil fuels.

The Church of Scotland is already taking action, as are many congregations and members. Eco-Congregation Scotland supports congregations making important changes. The latest congregational electricity contract negotiated by the General Trustees is 100% renewable. The Church’s Church and Society Council is working on these issues, including discussions on the Just Transition in the north-east of Scotland and nationally. Moderators have repeatedly called for more ambitious governmental action. Yet we must do more, as communities of faith and individuals – and fast.

Disinvestment is also a prudent financial choice, given that most fossil fuel reserves on companies’ books must remain in the ground if we are to meet the Paris targets. Increased litigation and regulation also bring significant risks to future profitability. Even past performance data suggests minimal financial risk from disinvesting – the 2018 report of the Church and Society Council cited an investment study which concluded that removing fossil fuels from a share portfolio would have had no long-term impact for the period 2004-2015.

However, we are a Church, following Jesus, and that should be the main factor in all our decisions, whether costly to finances or comfort. Christian Aid, which is calling on churches to disinvest, says, ‘As with every part of the churches’ mission, their investments must be guided by radical and sacrificial love.’ Having listened to our sister churches, the World Council of Churches has been calling for churches to disinvest from fossil fuels since 2014, while Desmond Tutu reminds us: ‘People of conscience need to break their ties with corporations financing the injustice of climate change.’

Disinvestment is a practical, legal and responsible way for the Church of Scotland to respond to the climate emergency. It sends a clear signal to the companies most responsible, and to political and business leaders, who must take urgent action now.


“Why weaken a lobby group that is working?”

Brian Duffin is the Chair of the Church of Scotland Investors Trust

The Church of Scotland Investors Trust manages the investments held centrally and by individual congregations.  The Trustees oversee the investments in their own time as unpaid professionals.  We care passionately about the Climate Change emergency and support the framework of the 2015 Paris Agreement, particularly the stronger target of limiting the global temperature increase to 1.5% in 2050. The Trustees do not believe that disinvesting indiscriminately from fossil fuel companies is the best way to force the transformations in corporate behaviour needed to address the catastrophic effect of climate change. Why weaken a lobby group which is working?

The fundamental cause of Climate Change is rising greenhouse gas levels, due to our greater use of fossil fuels and a surging world population.  Richer countries (like Scotland) and poorer countries have different demands but richer countries ultimately consume more fuel per head, because we have higher incomes but also because we have outsourced heavy industries to developing nations yet we still buy their steel and other goods to make our lives more comfortable.  Clearly, half our challenge is to find ways to cut down on our own total consumption of fossil energy while the other half is to develop alternative sources of energy to replace fossil fuels.

The Paris conference set a framework using voluntary initiatives from each of the 195 participating countries.  The next stage is a convention in 2020 to consider how these plans add up compared to the size of the problem, but the inevitable conclusion will be that much greater effort is needed.

To date, governments have announced high level strategies alongside a few specific proposals, but detailed plans with milestones are missing.  Governments hold the most important levers, including regulations and financial incentives to accelerate change and taxes to make carbon fuels uneconomic.  Without such detail, businesses cannot make long term plans, such as whether to give budget priority to new technologies or to focus on higher efficiencies from their existing processes. 

Democratic governments have a specific problem as France and Australia found earlier this year when they tried to introduce environmental measures which impacted jobs and prices.  If one government forges ahead of others it risks making its own industries uncompetitive and its electorate will vote against the immediate pain of higher taxes and lost jobs.  Instead collaboration between countries is vital as well as converging policies – but not easy to achieve.  Carbon taxes will be essential, but will economies like Saudi Arabia join in?  Even such obvious steps as international taxes on aircraft and shipping fuel will only happen if all countries participate.

Fossil fuel companies have grown to meet the demand we have created by our appetite for better housing, more consumer goods, long distance foods, global transport and rapidly changing fashions.

Accepting our own share of the blame, we need to consider how all industries and services can work together in tackling a hugely complex issue.  The Paris Agreement does not demand a sharp rupture in economic activity because of the damage which would be caused to vulnerable people and populations. For example, 80% of homes in Scotland are heated by gas, because it is cheap and clean.  How would the poorer section of our population pay for the costs of installing other forms of heating and the higher running costs involved?

We all want a just transition, built on new technologies while not leaving people stranded, but requiring integrated collaboration at all levels.  Working constructively with oil companies is just part of the massive challenge we must tackle together, listening - not shouting from separate rooms.

Oil companies are a big part of the energy supply market, although they only control 10% of total fossil fuel reserves, with the bulk held by sovereign states. Like other industries, they must make long term plans without knowing how governments will regulate them – such as the level of carbon taxes to expect.  As shareholders in three major oil companies – Royal Dutch Shell, BP and Total – we can exert very little influence by voting as a single investor at company meetings.  But as members of larger organisations, such as the Church Investors Group, Climate Action 100+ and the Institutional Group on Climate Change we have much greater influence.  Already this year, BP and Shell accepted and endorsed resolutions to publish their plans to transform in line with the Paris Agreement and to report publicly on progress made (linking executive remuneration to meeting these targets).  Total, a French company, already publishes plans for its energy realignment (building sustainable power generation) and will report against these in future years.

Most experts forecast only a gradual reduction in total fossil fuels is needed in the run-up to 2050.  But there must be a massive change in the composition of fuels used, with natural gas growing at the expense of coal and heavy oil.  This explains why oil companies continue to invest in shorter term exploration and production projects.  Nonetheless their Research and Development budgets are already switching to sustainable sources of energy and to achieving greater carbon efficiency in their own operations and in how their products are used by their customers.

Not all companies respond satisfactorily to engagement activity.  From our limited resources we cannot independently track the behaviour of all oil companies.  Instead, through our collaboration with other investors we have access to the research performed by independent experts globally, such as CDP, which analyses a wide range of companies and sectors worldwide, impartially, comprehensively and non-selectively. (Climate Change concerns are not confined to energy companies.)  For example, as the result of this data we do not invest in Exxon due to its poor Climate Change behaviour.

It is unjust to publicly disinvest without paying any attention to those companies which are changing in response to Climate Change, thereby condemning them and their employees on behalf of the Church.  However if oil companies (and other major carbon producers) do not accept the need for change, criticism and disinvestment should follow. 

Disinvestment from oil companies would produce an immediate drop in income to church funds of £500,000 while increasing the riskiness of the portfolio.  But this issue should be determined by our Christian ethics rather than by financial arguments, even if there is disadvantage in removing access to shares in large, successful, companies.

We are very concerned by the slow progress by governments worldwide in tackling Climate Change (we have sympathy with the impatience of Climate Change protesters), but this year has been a triumph for the principle that engagement at company level works much better than disinvestment.  The positive way BP and Shell co-operated with collaborative investor groups has been extremely heartening.  Maintaining constructive engagement with oil companies, thereby exerting pressure effectively, will be essential as Climate Change plans and targets develop.  This principle must extend to other key sectors as well – airlines, engineers, cement and power companies, for example.

Indiscriminate disinvestment may create a few headlines in the short term but would also destroy our ability to influence these companies and would weaken our investor alliances just as they are working.  Instead we believe in conditional investment – putting the church’s money to work with companies which listen but avoiding those that don’t.