Greta Thunberg’s stance is bold, but is there another way?

At 20 years old, Greta Thunberg is already a seasoned climate campaigner, unafraid to call out businesses and world leaders on a lack of action. When Greta talks, millions listen.

We saw ‘the Greta effect’ in full flow this summer. She pulled out of a scheduled appearance at the Edinburgh International Book Festival in protest at a key sponsor’s links to fossil fuels. Several leading authors followed up with a threat to boycott next year’s event if organisers don’t change course.

Being this uncompromising in approach can be tremendously powerful. But ‘all or nothing’ isn’t always the right way. In fact, when it comes to investing, I firmly believe it’s far more fruitful to engage with companies to help them change and improve, than it is to shut them out entirely.

Divest, divest, divest

Boycotts are nothing new (think South African products during apartheid or Nestlé and baby formula). Often the best way for campaigners to get their point across is hitting their targets in their wallets.

The investor equivalent is divestment. And there’s been growing pressure on pension funds, institutional investors, and individuals in recent years to remove all holdings of certain types of stocks, such as weapons or tobacco.

Fossil fuel producers are increasingly a divestment target. The University of Cambridge plans to cut all direct and indirect investments in fossil fuels by 2030 from its £3.5 billion endowment funds, while the Church of Englandannounced plans to divest from fossil fuel holdings earlier this year.

Engagement – a seat at the table

But divestment is really the nuclear option. It’s the road to take when no other tactic has worked. Being invested buys a seat at the table and the potential to engage. Taking your money out means giving up any rights you have as a shareholder to force a company to change.

For example, there are justifiably question marks over how seriously big oil companies such as Shell, BP and Total are taking promises to reach ‘net zero’ (all three have been accused of U-turns on previous climate pledges). But even allowing for recent pivots back to oil and gas, in recent years these companies have pumped billions into clean energy – in part due to pressure from their shareholders.

The knowledge that shareholders might walk away can be strong motivation for companies to change. But this threat isn’t as strong as you’d think. There’s been an increase in private equity firms buying up oil and gas assets, shifting the ownership away from public-listed companies. While not immune to ESG requirements, there’s a lower bar for private money – thus sparking concerns that the most emissions-heavy assets might becoming more hidden from view.

Light and shade

Let’s look again at Greta’s book festival boycott. Her target was investment management firm Baillie Gifford. The company fiercely defended its record – noting that only 2% of clients’ money was in businesses related to fossil fuels (compared with a market average of 11). Many of those companies, it said, were transitioning to cleaner forms of energy.

Now, as this article from Investor’s Chronicle points out, ‘however you spin it’ the level of fossil fuel companies held by the firm won’t be ‘insignificant’. But it adds “There’s also an inconsistency in making villains out of fossil producers and their backers, while so much of the global economy is wedded to carbon-intensive activity.” (It cites a report from carbon disclosure group CDP that suggests just four FTSE 100 companies had a credible climate transition in place).

All-or-nothing means ignoring subtle nuances in how companies approach climate change.

Finding the middle ground

As economic conditions become more challenging, so the principles of sustainable and responsible investing have been subject to even greater scrutiny and criticism.

The arguments are even more polarised. On one side, there’s those holding to the maxim ‘get woke, go broke’. For them, focusing on sustainability measures or principles ignores the number one priority – making money.

On the other side, and equally as uncompromising, are activist investors demanding total and immediate divestment. It’s even given rise to the practice of ‘greenhushing’ where companies actively play down their sustainable credentials even if they’ve taken positive action such as setting carbon-reduction targets (either through fears it will provoke a backlash from either the anti-woke crowd, or activists demanding more).

It's a delicate balance. But we won’t change anything without dialogue. Putting shutters down and forcing people out of the debate won’t win the argument – if anything it leaves you further away from your goals.

For me, the best way is trying to find a middle ground.

This requires subtlety and skill, corporate engagement that gets more than one side on board and understands the nuances in the arguments, looks for the positive solution not the doomsday scenario and, ultimately, focuses on how this can be better for shareholders in the long run.