At the UN climate talks in Paris in December 2015, world leaders committed to keeping global temperature rises ‘well below 2°C above pre-industrial levels’ and ‘pursue efforts to limit the temperature increase to 1.5°C’ to protect humanity from the worst impacts of climate change.
Unless coal, oil and gas production currently in operation is retired early, emissions from existing projects will push global temperature rise past 2°C. That means we cannot open any new fossil fuel projects and need to phase out existing ones.
The voluntary sector works to make the world a better place. This will be difficult to achieve if we allow climate change to continue.
To achieve our charitable purposes and create a fairer society, charities must come together and act on climate change now.
Charities want to be able to support their communities, both now and into the future. Society’s reliance on oil and gas is one of the leading contributors to increasing energy costs. This is making it challenging for charities to deliver services for our communities now, while worsening climate change and threatening our future.
Climate science is clear that we urgently need to transition away from our broken fossil fuel energy system to meet climate targets. At the same time, if we continue to rely on fossil fuels, this will leave millions vulnerable to spikes in their prices.
Charities are at the frontline of the cost of living crisis. We are picking up the pieces and supporting people and communities being pushed into poverty. We have the added challenges of rising costs of operating our charities and falling charity income.
If the covid-19 pandemic and current cost of living crisis have taught us anything, it’s that all our plans and budgets quickly fall apart in an emergency we have not planned for.
For these reasons, we believe charities should consider divesting from fossil fuels to avoid the worst effects of climate change. This is to make sure we can achieve our objectives now and in the future.
Divestment won’t bankrupt the fossil fuel industry financially, but it can bankrupt them morally.
The aim of divestment is to weaken the financial and political influence of the fossil fuel industry, which keeps holding back action on climate change.
Every time an institution publicly rejects fossil fuel businesses, fossil fuel businesses’ ability to operate is weakened.
According to a study by Oxford University, the fossil fuel divestment campaign is the fastest-growing divestment campaign in history and the public disapproval it creates could cause significant damage to fossil fuel businesses.
Since 2012, more than 1,500 institutions globally have committed to divesting from fossil fuels, including:
The divestment movement has received support from high-level figures such as:
In the UK, divestment commitments have been made across multiple sectors:
While engagement can be effective with some sectors, it is unlikely to work with organisations whose business model relies on fossil fuel extraction and production. We are seeing neither real change nor change that is happening fast enough.
Over the last two decades, shareholder action has been used to try to change the behaviour of the fossil fuel industry.
Shareholders have put forward resolutions (requests for specific action which are then voted on) at annual general meetings to try and influence how fossil fuel businesses are run.
There have been some limited successes such as introducing sustainability practices inside businesses. Despite this, there haven’t been any resolutions that have been able to address the industry’s core business model., This still depends on burning too much carbon.
Voting for climate-friendly resolutions is a good thing to do, but it’s not going to solve the problem. Scientists say that to keep warming below 2°C, we need to leave about 80% of the fossil fuel industry’s current reserves underground.
In the face of growing shareholder pressure today, fossil fuel businesses continue to plan to expand their fossil fuel production, rather than accept the need for society to slash fossil fuel use and replace it with renewable energy.
Resolutions are also non-binding (they have no legal power). In June 2023 the Church of England decided to divest its £10.3bn endowment fund and £3.2bn pension scheme from all oil and gas businesses. They claim that businesses like BP and Shell have reversed previous commitments. This is after 10 years of the church engaging with the fossil fuel industry.
Given the small value of voluntary sector investments compared to the overall worth of fossil fuel investments, it would be difficult for charities to secure significant changes through engagement.
In any case, it would be challenging for any stakeholders to convince a business to change its core business model, nor is the timeline promising. With urgent action needed, slow and gradual advocacy is likely to produce too little, too late.
Where the voluntary sector does hold influence is with the wider public and the communities they work with. By publicly committing to divestment, charities can:
According to a 2020 International Energy Agency report, while major oil and gas businesses have the scale and capability to play a significant role in renewable energy, such investments to date are small.
In 2022, only about 5% of oil and gas business capital expenditure went to wind, solar, and other renewables.
It can be unclear how much fossil fuel businesses spend on renewable energy. Fossil fuel businesses often combine gas with renewable energy solutions even though it is a fossil fuel.
For example, Shell’s 2021 annual report states 12% of Shell’s capital expenditure was put into a division called Renewables and Energy Solutions. However, only 1.5% of Shell’s capital expenditure was spent on wind and solar investment.
Despite claims of investments in renewable energy, a Guardian investigation shows that the world’s biggest fossil fuel firms are planning oil and gas projects that would drive the climate past internationally agreed temperature limits resulting in disastrous catastrophic global impacts.
The selling of stocks requires a buyer. It is unlikely that all charities will divest at one time and the value of voluntary sector investments is relatively small.
For these reasons, the disposal of stocks by charities is unlikely to flood the market and cut share prices.
The number of charity-divested stocks picked up by such investors is likely to be too small to grant them significantly more shareholder influence.
Charities commit to divesting from fossil fuels within 3 to 5 years and to making no new investments in fossil fuels in the future. Charities without investments can commit not to invest future investments in fossil fuels.
We also encourage all charities that sign up to the commitment to increase their impact by sharing their decision with their donors, supporters and the wider public.
Charities should clearly explain why their board reached the decision and how it is in the best interest of their purpose and charity. This can be done through using our template:
Take a look at our communications pack for more information.
There are no guarantees when it comes to the financial impact of divesting from fossil fuels. While fossil fuel businesses have historically been considered a safe investment, there’s growing awareness that they are an increasingly risky investment.
Most fossil fuels need to remain in the ground if we are to meet the Paris Agreement targets, so fossil fuel businesses run the risk of being left with stranded assets (pipelines and oil platforms that can never be used and oil and gas reserves that can never be burned as a result of changes to consumer behaviour and law and policy).
In 2022 Morgan Stanley Capital International (MSCI), the world’s leading stock market company, carried out analysis showing that portfolios free of fossil fuel investments outperformed those with assets in coal, oil and gas companies over the last twelve years.
When considering divestment, all risks must be examined, financial and otherwise. If a charity is able to divest, it is important to also consider the timing of a sale to reduce any potential financial impact.
Charities could consider adopting a diverse, ethically responsible investment portfolio. This could be across a range of sectors to balance risks and make sure profitable returns can be made on their investment.
Depending on their charitable purposes, charities may also want to explore opportunities to include social investment in areas connected to those purposes. This could involve:
See our guidance on investment and borrowing.
Fossil fuel divestment is not arguing for an end to all fossil fuel use overnight. We understand that in our society’s current structure people still use fossil fuels for transport, heating, and everyday life.
However, divestment is about making a decision which encourages our society to change. We can do this by:
If we are to protect our communities from the worst impacts of climate change, things cannot continue as they are.
Moving away from fossil fuels also provides charities with an opportunity to consider reinvesting. Options of social investment include the renewable energy sector and social initiatives connected to their charitable purpose.
Find out how climate change could impact charities and why charities should consider divestment
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