A senior academic at Queen's University Belfast has warned shareholder activism against major oil and gas firms could boost the influence of less-accountable state-owned entities
Increasing numbers of shareholders are putting pressure on fossil fuel companies to reduce their environmental impact
A campaign among activist investors to strongarm major fossil fuel companies into greener business strategies through the divestment of assets could prove counterproductive, according to a senior academic.
A reported $11tn has been withheld globally by shareholders in a coordinated effort to starve heavy emitters of the funds required to survive, but such a strategy risks moving the problem elsewhere — or even increasing greenhouse gas emissions.
Despite efforts to integrate more renewable sources into the global energy mix, demand for fossil fuels such as oil and natural gas continues to rise – meaning there remains a market for these firms to satisfy.
Fossil fuel divestment strategies could have ‘unintended consequences’
Stefan Andreasson, a senior lecturer in comparative politics at Queen’s University Belfast, argues that, despite the apparent logic of the fossil fuel divestment strategy, the end result is likely to give more influence to less-accountable state-owned firms that do not face the same obligations to shareholders as publicly-listed counterparts.
Writing for the academic website The Conversation, Andreasson said: “The push for oil and gas divestment is likely to have unintended consequences.
“The primary targets of the movement are international oil companies (IOCs) – private corporations headquartered in western countries and listed on public stock exchanges.
“Recent research suggests that divestment can reduce the flow of investment into these companies – but even if this were successful in reducing their economic power, IOCs currently only produce about 10% of the world’s oil.
“The rest is mostly produced by national oil companies (NOCs) – state-owned behemoths such as Saudi Aramco, National Iranian Oil Company, China National Petroleum Corporation and Petroleos de Venezuela, located mostly in low- and middle-income countries.
“Given that NOCs are less transparent about their operations than are IOCs, and that many of them are also headquartered in authoritarian countries, they are less exposed to pressure from civil society.
“They are also not directly exposed to pressure from shareholders. Even the imminent public listing of Saudi Aramco will only offer 1.5% of the company, and this will mainly come from domestic and emerging markets, which tend to impose much less pressure to value environmental issues.”
Shifting demand to state-owned oil companies could increase carbon emissions
A recent investigation by The Guardian news organisation found that of the 20 fossil fuel companies responsible for 35% of global greenhouse emissions since 1965, more than half are state-owned.
Such a track record could result in a rise in global carbon dioxide (CO2) emissions, argues Andreasson, if pressure from investors inadvertently directs demand for oil and natural gas towards these national entities.
He adds: “This means that while global demand for natural gas and oil is still rising, and investments are insufficient to meet future demand, divestment pressures are unlikely to impact the business plans of NOCs.
“As a result, instead of reducing global fossil fuel production, the divestment movement will simply force IOCs to cede market share to NOCs.
“If anything, this would cause CO2 emissions to rise. The carbon footprints of NOCs per unit of fuel produced are on average bigger than those of IOCs.
“IOCs are also generally better placed and more willing than are NOCs to reduce the carbon intensity of their products and support the transition to renewable energy.
“They have, for example, led the way among oil companies in research into capturing and storing carbon, even if results have so far proven elusive.
“In a nutshell, the divestment movement will not reduce demand for oil and gas. It will transfer the supply of fossil fuel to companies that are more polluting, less transparent, less sensitive to societal pressures, and less committed to addressing the climate crisis.”
Coordinated regulatory strategy is needed to reduce demand for oil and gas
With this prospect in mind, Andreasson suggests a different approach to lowering demand for fossil fuels.
He calls for a regulatory environment that forces both IOCs and NOCs to redefine their strategies – either by scrapping fossil fuel subsidies or putting a price on carbon.
“Such changes could also generate nearly $3tn by 2030 for governments worldwide,” he added, citing research conducted by the World Resources Institute.
“These funds could be used to massively scale up renewables, prioritise the development of energy storage to address the intermittent nature of such power, and improve energy efficiency in industry, transport and housing – which will make fossil fuels increasingly redundant.
“While IOCs now produce much less fossil fuel than they used to, they still have a huge amount of expertise that could be applied to the energy transition – so rather than transferring power to less environmentally-conscious NOCs, we should make use of them.”