Move follows decision by Dutch pension fund PFZW to divest from nearly all of its fossil fuel holdings.
Netherlands-based asset manager PGGM has announced it will shift its engagement focus from the supply to the demand-side of the energy sector, following a decision by its largest client PFZW to divest most of its fossil fuel holdings.
PFZW’s move amounted to a US$3 billion divestment of 310 oil and gas companies – including positions in Shell, BP and TotalEnergies – and left only seven oil and gas firms in its portfolio.
PGGM started a two-year oil and gas engagement programme on behalf of PFZW in 2022. However, the following year, the pension fund divested from 192 oil and gas companies that it said had not shown sufficient willingness to align with the Paris Agreement. The 94 oil and gas companies then left in PFZW’s portfolio had until the end of 2023 to draw up a verifiable energy transition strategy, in line with the 1.5°C pathway.
“The intensive shareholder dialogue over the past two years with the oil and gas sector on climate has made it clear to us that most fossil fuel companies are not prepared to adapt their business models to Paris,” said Joanne Kellermann, Chair of the Board at PFZW.
PGGM provides asset management and advisory services to pension funds with €240 billion assets and 4.3 million participants.
Speaking to ESG Investor, a spokeswoman for PGGM said the firm’s engagement focus would now shift to the demand-side of the energy sector, rather than engaging with oil and gas companies.
“We will focus on [oil and gas companies’] largest customers: when they start demanding more low-carbon sources of energy – wind, solar, biofuels, green hydrogen – they will supply fewer fossil fuels,” the spokeswoman said. “Our climate-active ownership covers several sectors, including food, materials, utilities, and transportation. Besides that, we have engagement programmes on healthcare, human rights, and biodiversity.”
Speaking to ESG Investor last year, Adam Matthews – Church of England Pensions Board (COEPB) Chief Responsible Investment Officer and former Climate Action 100+ engagement lead for Shell – argued that investor engagement with the oil and gas sector was at a crossroads. He suggested that more investor focus be placed on engagement efforts with the demand-side to reduce dependence on those resources.
As a result of its most recent decision, PFZW has retained shares in only seven fossil fuel companies, which include Cosan, Galp Energia, Granuul Invest, Neste Oyj, OMV, Raizen, and Worley.
“We continue to believe that oil and gas companies have a role to play in the energy transition – however, we only want to remain invested in fossil fuel companies that have a credible transition plan that sufficiently contributes to the goals of the Paris agreement,” said the PGGM spokeswoman. “The most important criterium is that at least 30% of their energy production should come from low-carbon solutions by 2030. They should also have capex plans that support their 2030 targets.”
The seven companies that remain in PFZW’s portfolio meet those criteria, the spokesperson added.
As a result of the pension fund’s divestments, PGGM has stepped down as co-lead on engagement with Shell as part of the Climate Action 100+ investor-led initiative – a position that it held alongside Dutch asset manager MN. PGGM has previously backed climate-related resolutions filed by activist group Follow This against oil giants such as Shell and BP.
Follow This recently dropped its Exxon shareholder proposal, which it filed alongside NGO Arjuna Capital after the company launched a lawsuit against them. The move has widely been interpreted by shareholders as a way to “shut down the debate” on their climate concerns.
In related news, PGGM released last week updated voting guidelines, with strengthened policies on diversity. The group has announced it would vote against the re-election of investee companies’ nomination committee if their board counts less than 30% of men or30% of women – unless an adequate explanation is provided. Last year, PGGM had introduced new voting guidelines on biodiversity and on living wage.