Jan 20, 2022 - Economy

Wall Street blunts momentum of fossil fuel divestment

Illustration of a a bull with horns.

Illustration: Megan Robinson/Axios

Citigroup and BlackRock, two major financial players with far-reaching climate goals, took similar stances this week on divesting from fossil fuel companies. They're against it, at least for now.

Why it matters: Both Citi and BlackRock see potential downsides to withdrawing their funds from fossil fuel companies. And it's not all about profits, but rather having a say over how those firms navigate what may be a rocky clean energy transition, they said.

Driving the news: The fossil fuel divestment movement has gained steam with institutional investors, including higher education, with even Harvard University moving that way last year.

  • But in his annual letter to CEOs published Tuesday, BlackRock chairman and CEO Larry Fink made the case for why divesting from the oil and gas sector, or moving money from publicly traded carbon-intensive assets to private ones, will not put the world on the necessary path to net-zero emissions.
  • "Capitalism has the power to shape society and act as a powerful catalyst for change. But businesses can’t do this alone, and they cannot be the climate police," Fink stated, writing that it is the government's role to set sustainability requirements and regulations.

Meanwhile: Yesterday, Citi CEO Jane Fraser unveiled the global bank's strategy for arriving at net-zero emissions by 2050, including 2030 goals.

  • Citi's plan contains absolute emissions reduction targets for its energy sector loan portfolio and a reduction in "portfolio emissions intensity" for the power sector.
  • Like Fink, Fraser also eschews moving away from fossil fuel investments, for now, noting that companies are at different places in "their journeys to net zero."
  • "We will... prioritize partnering on transition strategies before turning to client exits as a last resort," Fraser said.

Context: Fink and Fraser's stances on divestment may help slow a trend that has become evident in the oil-and-gas industry, which is the selling off of carbon-intensive assets, by publicly traded energy companies to smaller, private operators.

  • Large companies can count a reduction in their emissions and progress toward their climate goals, but such transactions merely allow emissions to trade hands.
  • The smaller companies buying up rights to drill in these places do not face investor pressure to meet climate goals and do not undertake the same emissions reporting that the large, multinational firms do.
  • Chevron, for example, has a newfound interest in selling its Canadian oil sands holdings and Japan Petroleum Exploration Co. is exiting the oil sands.

Between the lines: These smaller companies can also be more accident-prone, harming workers and the environment.

  • One prominent example is privately held Hilcorp's 2019 $5.6 billion purchase of all of BP's Alaska assets, including its stakes in the Prudhoe Bay oil field and the trans-Alaska pipeline.
  • The Alaska exit allowed BP to make progress toward its goal of net-zero emissions by 2050.
  • According to Bloomberg and InsideClimate News, Hilcorp has a worse environmental and safety record in Alaska than BP (BP is more famous for incidents elsewhere, such as the Deepwater Horizon spill in 2010).
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