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Carlyle says divestment pressure isn't working

Data: U.S. Energy Information Administration, Yahoo! Finance; Chart: Jacque Schrag/Axios
Data: U.S. Energy Information Administration, Yahoo! Finance; Chart: Jacque Schrag/Axios

The pressure on big financial institutions to divest from oil and gas and other high-emissions holdings isn't working, according to a new report from Carlyle Group.

Why it matters: Financial institutions like UBS and Credit Suisse were held up as gold standards for how the industry could tackle its own emissions-reduction goals, but their efforts have turned out to be more talk than action.

What's happening: The Carlyle report, unveiled at Davos on Wednesday, found that financial-institution pressure may not be the stick investors think it is.

  • Amid soaring fuel prices, many oil and gas companies are seeing massive stock price increases and all-time-high buybacks and dividends.
  • Even with some institutional divestment, many oil and gas companies aren't exactly suffering. In fact, the divestment could be feeding into increasing consumer prices.
  • "To the extent divestment succeeds in depressing the supply of fossil fuels, it also increases their price," the report states.

State of play: Citing investor pressure, major financial institutions have publicly committed to decreasing their investments in high-emissions industries like oil and gas.

  • Institutions with the highest rates of divestment are primarily concentrated in Europe. See: UBS, Credit Suisse and Deutsche Bank.
  • JPMorgan and Morgan Stanley have also somewhat decreased investments in oil and gas companies, though at a lesser rate.
  • BlackRock has publicly committed to funding the transition to a zero-emissions economy, but also recently touted its work with oil and gas companies in Texas.

The intrigue: As the report states, federal policymakers sometimes intervene when consumers are negatively affected for long periods of time.

The bottom line: Divestment may only work as a long-tail stick rather than the immediate push investors had hoped for.

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