Investing in response to climate change – from divestment to engagement

Limitations to divestment

For some time, RobecoSAM has been considering whether to join the list of investors committing to wholesale fossil fuel divestment. We see a variety of options that fossil fuel producers could take as they adjust to a more carbon-constrained world. One of the key factors we have considered has been the effect of divestment on our ability to engage with fossil fuel producers, understand the changes they face, and apply our knowledge to good investment decision-making.
 
In looking at what a consistent approach to divestment looks like, and in assisting some of our institutional clients and other partners in meeting their own intentions on fossil fuel divestment, we have encountered a number of factors that need to be considered before commencing a divestment policy.
 
For one, a significant number of fossil fuel companies are classified in other sectors. The following chart illustrates how a simple exclusion screen based only on the Global Industry Classification System (GICS) sub-industries that relate to fossil fuel production risks excluding companies with no involvement in fossil fuels. Our screening for fossil fuel producers has required us to review a range of public domain sources across a number of other sectors.

Figure-1.jpg | GSImage 

A second consideration concerns the definition of the boundaries of the exclusion. Alongside companies in the upstream segment of the fossil fuel chain, companies that operate downstream or provide support to the sector also have an interest in fossil fuels production. Deciding just where to draw the line is a further challenge we have had to address.
 
Given that one of RobecoSAM’s guiding principles is to proactively manage sustainability investing issues, we favor a more nuanced approach that is based on more selective and measured decision-making. While we will continue to invest in fossil fuel companies we are also keenly interested in their response to tightening constraints on global carbon emissions.

Figure-2.jpg | GSImage