New Fossil Fuel Screening Criteria
Raechel Kelly, Senior Researcher
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16 September 2015
Ethical Screening is excited to announce the launch of four new fossil fuels criteria, in addition to our
existing qualitative environmental data. The new criteria will enable clients to lower the exposure of
their portfolio to fossil fuels, exclude specific fossil fuels issues under a bespoke strategy (such as
coal or tar sands), or fully divest from fossil fuels.
In light of the rapid progress of the divestment movement, and created from the structure of our
investigation into hydraulic fracturing (fracking) which we began in 2013, we have drawn up new
criteria to address our client's concerns on the issue of fossil fuels. We have looked extensively at the
options available to investors and the divestment decisions being made by organisations and
institutions which are released on an almost weekly basis. We are especially interested to hear from
those of you who have received requests on this issue from clients, in order to gain further insight into
the type of information being sought.
We have developed a range of four criteria, covering coal (mining and power station operation),
unconventional oil and gas (split by location and by resource/technique allowing the exclusion of
companies involved in the Arctic, deep water, oil sands or shale gas), or the option of excluding all
conventional oil and gas exploration and production. These comprehensive criteria cover the most
commonly excluded activities of the fossil fuel divestment movement, but also allow screening beyond
this if a client wishes to go further. Our intention for the future is to further develop these criteria,
alongside our ongoing project of database development.
BACKGROUND INFORMATION
Over the last year the fossil fuel divestment movement has really burst out of the activist
consciousness and onto the main stage of public debate, with a noticeable increase in media
coverage and a ramped-up moral and economic rhetoric from campaigners.
The debate continues on exactly which path to take towards a lower carbon portfolio, a debate so
often presented as a false dichotomy between divestment and engagement. In reality the
overwhelming majority of the 'divestment' decisions of global institutions in the past few months have
focussed on coal and tar sands only, with revenue thresholds applied and further research launched
into remaining fossil fuel holdings, including commitments to engage with remaining extractives in
portfolios on the issues of climate change and stranded assets.
The concept of stranded assets (fossil fuel reserves which will become devalued if climate change
deals and targets are set unilaterally, for example at COP21 in Paris in December 2015) has moved
those previously uninvolved in the movement to look seriously at the ramifications of two degree
legislation. The Bank of England and the G20 have announced research projects and aimed
resources at unpicking the potential impacts, demonstrating that the issue is being taken incredibly
seriously in some quarters. The economic argument, posited logically and forcefully by the Carbon
Tracker initiative, appears to have drawn the attention and concern of some who would not otherwise
have been engaged in the debate. The announcement by BP at their 2015 AGM, prompted by a
shareholder resolution from ShareAction that won 98% support, commits the company to publishing
more information on whether the value of its oil and gas reserves will be damaged by limits on carbon
emissions. Importantly, it also commits the company to increased transparency on lobbying activity.
Similar resolutions were successful at other oil and gas major AGMs.
Universities and student groups have been at the forefront of the divestment movement, with the
Guardian newspaper throwing its weight behind the campaign and other high-profile groups such as
the Rockefeller Brothers Fund, Norwegian pension funds and the BMA paving the way with policy
announcements. Recently the focus has shifted towards faith groups, perhaps due to the growing
emphasis on the moral dimension of the debate, drawing comparisons with the apartheid
disinvestment movement of the 1980s.
In April, the Pope held a summit at the Vatican entitled 'Protect the Earth, Dignify Humanity: The
Moral Dimensions of Climate Change and Sustainable Development', bringing together scientists,
economists and leaders from different faiths to discuss the issues. The press covered the attempted
derailment of the conference by climate change deniers, but also highlighted the increasingly strong
language deployed by Pope Francis on ecological issues, encapsulated in his encyclical (a letter
addressed by the pope to all bishops of the church intended for wide or general circulation) on
Catholic action to combat climate change. Pope Francis has been especially keen to emphasise the
nexus of the environment and human rights, repeatedly drawing attention to environmental justice,
inequality and the weighted impacts of climate change predominantly on the poorest in the world.
The Church of England's Church Commissioners, the Church of England Pension Fund and the CBF
Church of England Funds announced in April their decision to divest from companies deriving more
than 10% of revenue from coal or tar sands, equating to £12million of investments. No future
investments will be made in companies where more than 10% of revenue comes from the extraction
of thermal coal or the production of oil from tar sands. Tom Joy, Director of Investments at the Church
Commissioners, said:
"We want to be at the forefront of institutional investors seeking to address the
challenge of energy transition. This will predominantly be achieved through
strategic engagement, as seen by recent shareholder resolutions at Shell and
BP. But this new policy rightly goes beyond to incorporate investment exclusions
for companies focused on the highest carbon fossil fuels where we do not think
engagement would be productive."
The full press release can be found here. This echoes a common thread in the debate from activist
investors, i.e. 'we will engage until it becomes clear that engagement will not work, at which point we
will divest'. For other investors, the crux of the issue has been defining activities and applying
appropriate thresholds for divesting immediately and outright. The familiar refrains relating to fiduciary
duty and potential alternative investments have also been heard and continue to rumble on. Although
the PRI's latest report aims to silence doubters, claiming that the consideration of environmental and
social factors is central to fiduciary duty and to ignore the impact on investments of issues such as
climate change would be a breach of fiduciary duty.
In the meantime, informed investors have begun to look for answers to their questions on fossil fuels
from managers, advisors and researchers and we hope our new criteria will provide one way in which
to outline various options to them going forward.