When campaign group Fossil Free Books (FFB) began targeting Baillie Gifford, lobbying for it to be dropped as a sponsor of the arts, it said its aim was to make the fund manager divest from all its oil and gas stocks. The plan backfired.

Baillie Gifford was either dropped or chose to part company with book festivals from Hay to Edinburgh by way of Cambridge, Wigtown and Henley. Its patronage of the arts was severed, but it held on to its supposedly offending stocks. It has repeatedly made the point that two per cent of its assets under management are in fossil-fuel companies while 25 per cent in companies helping drive the net-zero transition.

Still, FFB hailed its campaign as a success. Though it noted that its â€œprimary demandâ€ had indeed been to get Baillie Gifford to divest, the group said it was â€œencouraged that an institution with such problematic investments will no longer play a role in the UK literary sceneâ€.

Spinning the fallout

This has been met with scorn from other corners. Sam Leith, literary editor of The Spectator, called the result a â€œterrible own goalâ€, noting that â€œit hasnâ€™t caused a red cent to be divested from fossil fuels [â€¦] but it has crippled the spaces in which ideas of all sorts can be aired and exchangedâ€.

Alys Denby of City AM, meanwhile, pointed out that â€œimmediately withdrawing all investment from fossil fuels or â€˜just stopping oilâ€™ would plunge the Earth into a Hobbesian nightmare of darkness, poverty and chaosâ€. â€œThere wouldnâ€™t be much space in such a world for art,â€ she wrote.

Regardless of the fallout from the campaign, writing in Tribune magazine Guy Gunaratne, an author and FFB organiser, said the fact the group drew so much attention to itself and its demands should be seen as a positive. â€œ[Nobody] would have known about these investments were it not for our actions,â€ he wrote.

â€œThose concerned with cultural institutions in this country may still believe firms invested in fossil fuel extraction or companies complicit in human rights abuses make acceptable sponsors, others may now see that such funding structures were never tenable in the first place.â€

Investing blind

Andy Behar, chief executive of US shareholder advocacy organisation As You Sow, believes that Gunaratne makes a good point.

Having worked in the space since the early nineties and played an active role in divestment campaigns in recent years, he says it is clear that very few people know or consider where their money is invested. Given the pressing need to transition to net zero, he says it is vital that awareness is raised.

â€œWeâ€™ve been involved in divestment campaigns and what we found out was that no one knows what they own,â€ he says. â€œEvery pension scheme, no one has any idea what they own [â€¦] Whatâ€™s happening now is that people are realising that they want to invest in line with their values â€“ â€˜money is power and I want to use my power to shape the world I want to live inâ€™.â€

Doing that is easier said than done, though. The purpose of divestment campaigns is to force large investors like pensions funds and investment managers to ditch their holdings in polluting companies.

But, as it is only possible to sell out of quoted companies if there is a buyer for the shares, the net effect is the same â€“ the company will still have shareholders and its activities will still be funded.

Cuckoo in the nest

Against that backdrop, for Behar, shareholder engagement â€“ rather than blanket demands for divestment â€“ is key.

â€œWeâ€™re at the precipice of a great transition,â€ says Behar. â€œIt has to do with investment alignment. Itâ€™s never going to be pure, but at least itâ€™s moving in the right direction. In the 1970s the economist Milton Friedman argued that companies could do what they wanted so long as they were making money for shareholders, but now thereâ€™s something new.

â€œIn 2019, 181 companies in the US signed [membership organisation] Business Roundtableâ€™s Statement on the Purpose of a Corporation [outlining their social responsibilities]. At the time I said that was the biggest capitalism shift since capitalism began but it was going to take a decade.

â€œWeâ€™re now five years in and weâ€™re in the middle of this transformation. Itâ€™s an incredibly volatile time and it feels very chaotic but people will look back and say â€˜that was the transition from a colonial mindset to a sustainable mindsetâ€™,â€ Behar said.

Business Roundtableâ€™s statement was welcomed at the time it was signed, but it has not been without its detractors.

University of Oxford law professor Luca Enriques, for example, questioned whether the statement contained â€œanything other than rhetoricâ€ while Lucian Bebchuk and Roberto Tallarita of Harvard Law Schoolâ€™s Program on Corporate Governance wrote a critique that found it to be â€œmostly for showâ€.

Big Oil flees Europe

At the same time, the growing hostility among investors towards fossil fuel stocks is having another impact.

Franceâ€™s TotalEnergies and the UKâ€™s Shell are looking shifting their primary listings from Europe to the US, something that is seen as likely to improve their market valuations precisely because the shareholder environment across the Atlantic is seen as being friendlier to fossil fuel businesses.

Indeed, on a call with analysts earlier this year TotalEnergies chief executive Patrick Pouyanne said the company was â€œseriouslyâ€ exploring moving its listing from Paris to New York because â€œitâ€™s clear that in the energy and the oil and gas field, US shareholders are buying the shares and European shareholders are not buying [them in] the same wayâ€. The potential for a move will be discussed by the companyâ€™s board in September.

Oil giants either change their philosophy and become energy companies or they go out of business.
Andy Behar, As You Sow

Similarly, Shell CEO Wael Sawan told Bloomberg in March that he would â€œhave to look at all the optionsâ€ to close the valuation gap between his company and US listed rivals Chevron and ExxonMobil. It came after Sawan last year said in a BBC interview that the world still â€œdesperately needs oil and gasâ€ and that the US appears to be more supportive of the companies that can deliver that.

â€œThey said we continue to value a company that provides us the energy we desperately need,â€ he said of a meeting with US officials. â€œThat resonated with me as a person who comes from Lebanon where we are starved of energy.â€

â€˜Transition fast or die slowlyâ€™

It is perhaps unsurprising, then, that as the public is starting to demand greater transparency on where its money is invested, the investment bank JPMorgan Chase has called for a â€œreality checkâ€ on how long the transition away from fossil fuels to renewables is likely to take.

In its global energy strategy report, released earlier this year, the organisation said the transition had been set back by higher interest rates, inflation, and wars in Ukraine and the Middle East, meaning the journey to net zero â€œis a process that should be measured in decades, or generations, not yearsâ€.

â€œWhile the target to net zero is still some time away, we have to face up to the reality that the variables have changed,â€ Christyan Malek, head of global energy strategy at JPMorgan and the reportâ€™s lead author told the Financial Times.

*Activists demonstrate at an Extinction Rebellion rally in London in 2021. Credit: Loredana Sangiuliano / Shutterstock*

Fund managers like Baillie Gifford argue that they cannot divest from fossil fuel companies, either because their clients mandate them to hold them or because they constitute too big a part of the index to overlook. Behar says such attitudes are going to swiftly look outdated.

Modern portfolio theory, which was written in the fifties and suggests that ignoring a sector as big as the energy industry would be detrimental returns, doesnâ€™t stack up in a world where data analysis and algorithms can easily find alternatives, he says.

And, with pension-fund trustees likely to come under increasing pressure from members who want their money to be put to good use, fund managers will in turn be put under pressure to act. For fossil fuel companies that can mean only one thing, he says: â€œOil giants either change their philosophy and become energy companies or they go out of business.â€

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