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CIEL Joins the Finance Climate Challenge

Cate Bonacini

This morning, CIEL joined over 160 organizations from around the world in the Finance Climate Challenge. The full text of the challenge is included below. To learn more about how your organization can join the Challenge, please visit the Finance Climate Challenge.

The undersigned organizations call on the finance sector to end all support for new fossil projects, and drop any coal, oil, gas or petrochemical company that does not immediately stop expansion and wind down existing operations.

The fossil fuel industry’s plans for expansion undermine the Paris Agreement, accelerate the climate crisis, violate the human rights of indigenous peoples and impacted communities, and put all life – present and future – at grave risk.

These are also bad investments: The fossil fuel industry is lagging the market, with sustained underperformance for over a decade. Ahead, investors face abrupt capital destruction as fossil fuels are repriced and stranded.

The climate emergency demands swift action. Further shareholder engagement with the fossil fuel industry only delays the rapid shift to clean energy needed to meet the Paris climate goals. Prudent fiduciaries must act now to protect portfolios and the planet. It’s time for the finance sector to make a clean break with dirty energy.

The Paris Agreement Requires a Rapid Phaseout of Fossil Fuels

The scientific community has established that most fossil fuel reserves must remain in the ground if we are to meet the Paris Agreement and to strive to limit warming to 1.5°C.

The Intergovernmental Panel on Climate Change recast the Paris target in its 2018 Special Report: It concluded that 2°C of warming would be catastrophic, significantly worsening the impacts of drought, floods, extreme heat and poverty for hundreds of millions of people. The report affirmed that 1.5°C is the upper limit if island nations and other vulnerable communities are to survive.

The United Nations Environment Program (UNEP), in its 2019 Emissions Gap report, has warned that present climate commitments, even if fully implemented, would commit the world to more than 3°C of total warming; and that staying below 1.5°C demands that nations immediately quintuple their levels of ambition. Every year of delay means governments will have to take more drastic action, increasing the likelihood of vast disruptions to society and the economy.

UNEP’s 2019 Production Gap report has warned that present and planned production of fossil fuels would produce more than twice the emissions permissible to stay below 1.5°C of warming. The ongoing massive expansion of fossil-based plastics and petrochemicals will add a further 56 gigatons of CO2 to the atmosphere by 2050.

The known reserves in currently operating oil and gas fields alone, even with no coal, would take the world beyond 1.5°C. Industry efforts to replace the world’s carbon addiction with a plastic addiction will only compound that crisis. Averting climate breakdown requires the rapid phaseout of fossil fuel production and use, and the vastly accelerated deployment of renewable energy.

The Fossil Fuel Industry’s Expansion Plans Defy the Paris Agreement

To align with Paris, the oil and gas industry would need to choose one of two paths: Wind down its fossil and petrochemical business and return value to shareholders, or transform its core business to the production of renewable energy at scale.

Instead, the industry is set to spend close to $5 trillion on new exploration and extraction over the next decade while investing billions more in new, high emitting infrastructure for plastics and petrochemicals. In stark contrast, top oil and gas companies jointly spent just 1.3 percent of their budgets on low-carbon energy in 2018.

The industry maintains that further expansion can be reconciled with climate targets because Carbon Dioxide Removal (CDR) technologies, such as direct air capture and carbon capture and sequestration, will be available to offset new emissions.

Both the Intergovernmental Panel on Climate Change and UNEP have warned that CDR faces “multiple feasibility and sustainability constraints” that make reliance on such technologies a major risk in our ability to limit warming to 1.5°C.

The false hope of CDR reduces ambition for vital emissions reductions, locks in fossil fuel infrastructure for decades, fails to reduce deadly air pollution generated by burning fossil fuels and poses profound risks to human lives, communities, and natural environments.

It is unethical to stake humanity’s future on an unproven technology, particularly when renewable energy is a viable and cost-effective alternative to fossil fuels for most applications. Investors and policymakers must reject the industry’s dangerous narrative aimed at ensuring the expansion of fossil fuels.

Should a company stop expansion immediately and wind down existing reserves, this leadership should be supported by the finance sector and governments.

Shareholder Engagement Cannot Transform the Fossil Fuel Industry in Time

After nearly two decades of shareholder engagement with the fossil fuel industry on climate change, oil and gas companies are still pursuing growth at all costs.

Nevertheless, investor initiatives with trillions in assets under management, including the Institutional Investors Group on Climate Change, the Climate Action 100+, and the Net-Zero Asset Owners Alliance, are now pursuing costly engagement strategies with the stated aim of reforming the industry in line with the Paris Agreement.

The fossil fuel industry is not a good faith partner in these negotiations: Since Paris, the world’s five largest listed oil and gas companies spent more than $1 billion lobbying to prevent climate action. This builds on decades of climate denial and disinformation campaigns targeting policymakers and the public.

Industry concessions to shareholder pressure have been cynical and inadequate. For example, Shell recently committed to reduce ‘emissions intensity’ across its value chain in a move widely hailed by engagement advocates. A pledge to make fossil fuels more efficient is cold comfort when emissions must be drastically cut in absolute terms.

Shareholder engagement with the fossil fuel and petrochemical industry is only capable of delivering incremental change when this moment demands rapid transformation. Continued engagement with these companies only serves to legitimize their delay tactics when the window to act is almost closed.

Leaders Across Science, Finance and Civil Society Demand an End to Investment in Fossil Fuels

More than 11,000 scientists have warned of a planetary climate emergency, and urged that remaining fossil fuels be left in the ground.

More than 700 civil society organizations, through the Lofoten Declaration, have called on companies to recognize that continued fossil fuel exploration and production without a managed decline and just transition is irreconcilable with meaningful climate action.

More than 400 human rights organizations have called for urgent actions to make fossil fuels a relic of the past and hold climate destructive industries and their financial backers accountable for climate-related human rights violations.

More than 1,400 civil society organizations, through the Break Free from Plastics movement, have called for the rapid phaseout for single-use disposable plastics, which account for 50% of global demand growth for oil by 2050.

Five United Nations human rights treaty bodies issued a joint statement affirming that climate change poses significant risks to human rights, and demanding that governments contribute to phasing out fossil fuels, ensure that public and private investments are consistent with a low-carbon pathway, and discontinue financial incentives that are not consistent with such a pathway.

The Club of Rome, in its Planetary Emergency Plan, calls on governments, investors and companies to halt all fossil fuel expansion, investments and subsidies by 2020 and shift investments and revenues to low-carbon energy deployment, research, development and innovation.

More than 140 leading economists and financial analysts, through the Declaration on Climate Finance, have called for an immediate end to investments in new fossil fuel production and infrastructure.

Indigenous Rights Must be Protected

When Indigenous communities and nations say no to fossil fuel development in their lands, the finance sector must comply.

Investors, banks and insurers must align with the Paris Climate Agreement along with the Guiding Principles on Business and Human Rights, and the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP). Eighty percent of the world’s remaining biodiversity exists within Indigenous lands and territories, it is critical to the habitability of the planet that Indigenous rights are upheld and enforced.

The United Nations has affirmed the central role Indigenous communities have in mitigating the climate crisis and building climate solutions. Consultation with Indigenous communities affected by investments is critical to properly assess social, ecological, and cultural risks — particularly in the case of investments related to extractive fossil fuel industries. Investors and insurers must implement practices that respect Indigenous Peoples right to Free, Prior, and Informed Consent (FPIC), as defined in UNDRIP. FPIC requires far more robust due diligence and thorough consultation processes to ensure that Indigenous Peoples’ rights are fully respected. Should rights violations take place, Indigenous Peoples must have full access to grievance channels with project sponsors and financing banks, insurers, rating agencies, and investors.

Prudent Investors are Divesting from Fossil Fuels

Increasingly, institutions are divesting from coal, oil and gas in order to show climate leadership and safeguard portfolio value against climate-related financial risks, present and future.

Already, the fossil fuel industry is lagging the market, with sustained underperformance for over a decade. The larger threat is the possibility of abrupt capital destruction as fossil fuels are repriced and stranded. The Bank of England has warned that such a climate Minsky moment could result in investor losses of up to $20 trillion.

In response, prudent fiduciaries are taking action: Over 1,110 institutions with more than USD $12 trillion in assets under management have already made some form of divestment commitment.

Assets committed to divestment have grown from $52 billion in 2014 to more than $11 trillion today, an increase of 22,000 percent in five years. Divesting institutions include sovereign wealth funds, banks, global asset managers and the insurance companies, cities, pension funds, health care organizations, universities, faith groups and foundations.

What began as a moral call to action by students is now a mainstream financial response to growing climate risk to portfolios, people and the planet. Divesting institutions are protecting their assets at the same time they are supporting a climate movement that the Secretary General of OPEC has called “the greatest threat to our industry going forward.” Divesting institutions are further seizing opportunities to invest in the growth sectors of the future, namely renewable energy and other climate solutions needed to fulfill the promise of the Paris Agreement.

Divesting institutions are also insulating themselves from legal liability. Climate litigation against oil, gas and coal companies is accelerating globally. The first climate litigation against a pension fund has been brought in Australia, alleging the fund violated its legal duty to protect retirement savings from climate risk. Emerging research also demonstrates that the contributions of fossil fuel companies to the rising impacts of ocean acidification can now also be quantified, creating a new and significant source of legal liabilities and financial risk for fossil fuel producers and investors.

The fossil fuel industry’s plans for expansion are at odds with a safe and prosperous future.

Shareholder engagement with oil and gas companies cannot deliver the transformation this moment demands, namely the rapid phaseout of fossil fuels and petrochemicals necessary to limit warming to 1.5°C. The fossil fuel industry has spent decades lobbying against meaningful climate action, and there is no evidence that it will stop now. Investors pursuing engagement today are legitimizing the industry’s delay tactics. Today, delay is fatal.

Investors must stand with institutions around the world that are divesting for ethical, financial and legal reasons. Now is the time to show climate leadership while protecting your assets from an industry in decline. Without a swift and just clean energy transition, economies will plunge into chaos and humanity will not survive. Global leaders across science, economics, human rights and climate justice have already declared a Planetary Climate Emergency. This moment requires decisive action. Today, investors who own fossil fuels own climate change. They must divest now.

These Organizations Have Endorsed the Finance Climate Challenge

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