Viral divestment pledges tank gas, oil major shares

Disclosures of divestments that go viral on social media platforms have a disproportionate impact on carbon intensive companies by causing gas and oil major shares to tank, which could support climate change efforts, researchers found.

However, divestments from fossil fuels could have the unintended effect of hampering the energy transition by taking away power from responsible investors, according to shareholder activist groups.

In recent years a growing number of investor groups have made pledges to stop investing in fossil fuel projects, with those commitments often going viral on social media resulting in an impact far greater than the value of the divestments alone, researchers at the Solvay Brussels School of Economics and Management, Stockholm School of Economics and Harvard University said.

A notable case is that of Ireland, which was one of the first countries to divest from fossil fuels through the Fossil Fuels Divestment Act adopted by Parliament in 2018. On the back of that, the Irish Strategic Investment Fund (ISIF) sold between 2018 and 2019 its shares in 38 fossil fuel companies, for a total portfolio value of €72 million.

Amid these announcements going viral on social media, the stocks of the 40 biggest U.S. oil, gas and coal companies fell 3.1%, losing a whopping $14 billion in market value, the researchers said.

Divestments are the preferred tactic of climate campaigners and responsible investor groups with the go-fossil free movement receiving increasing attention on social media, leading to reputational damage for a wide range of organizations as well as a sense of urgency to shift away from fossil fuel reliance, the researchers said.

“More and more investors are deciding that they should decarbonise their portfolios on pure risk management grounds,” Marco Becht, professor of finance at Universite Libre de Bruxelles, and co-author of the research told Gas Outlook.

In that respect, social media has two main effects, to “put moral pressure on an institution” and “increase stranded asset risk.”

“If the decision is principle based, institutions that put risk before principles will not divest,” he said.

“There are many institutions that resisted calls for divestments based on risk management arguments, like the Nobel Foundation, despite heavy campaigning,” he continued.

“If the decision is risk based, it depends on the evaluation of stranded asset risk.”

The narrative that a large number of oil and gas projects cannot be developed if the world is to remain in line with global warming targets, thus leading to a significant risk of stranded assets started to develop in the last decade, leading to calls from environmental groups to stop investing in fossil fuel projects altogether.

Viral divestment pledges have preceded net zero commitments from divested entities and countries where the divesting institutions have social influence, the researchers said, adding that voice through divestment had an impact beyond fossil fuel companies and increased the carbon premium for all high-level emitters such as cement companies.

“Social media play an important role in making the general public aware that big oil companies are not part of the solution,” Mark van Baal, founder of shareholder activist group Follow This told Gas Outlook.

This creates “pressure on pension funds and institutional investors to divest.”

The “unintended consequence is that shares come into the hands of less responsible shareholders,” he argued.

Moreover, the effect on share price is only temporary and “long term the price of an oil maker is defined by dividends,” he argued.

“We encourage responsible investors to keep their shares and use the only power they have, the power of the vote.”

“The world depends on fossil fuels for a while but need to invest the money (of oil majors) in renewables… So that’s why many responsible investors don’t divest,” he added.

While this argument “has merits…the divestment pledges often came from eminent institutions with relatively small holdings, so in terms of voting power the opportunity cost is quite small,” Becht argued.

Moreover, activist shareholder groups “do not need a large holding to put on pressure and they can buy shares to campaign, that is different from a long term investment.”

“Fossil fuel companies clearly feel threatened by divestments” resulting in attempts by major oil companies to shift the narrative on social media and the web.

Furthermore “conditional divestment” such as “‘we divest unless you change’ can be more effective than point blank divestment, but at some point it requires divestment to be credible,” he added.