Working with the fossil fuel industry to improve its environmental impact is seen as more effective than divesting from the emissions-heavy sector, according to RBC Global Asset Management's latest survey on environmental, social and governance-focused (ESG) investments.
The asset management division of Canada's largest bank found global institutional investors preferred engagement (45 per cent) over divestment (10 per cent) by a more than four-to-one margin, a slight increase from 40 per cent a year ago. However, the result comes as some major investment funds sell off oil and gas holdings in pursuit of a greener portfolio. Many of those decisions have targeted companies in Canada's oil patch.
"Over the last three years, there has been no growing support for divestment amongst institutional investors, indicating a clear preference for engaging in dialogue with companies," the survey's authors wrote.
Last month, Harvard University announced a plan to divest its US$42 billion endowment from fossil fuels, citing a need to decarbonize the economy, and a responsibility to make prudent long-term investments. The move was prompted by the activist group Fossil Fuel Divest Harvard.
However, Anne Simpson, who leads the sustainable investment strategy for the US$400 billion California Public Employees' Retirement System (CalPERS), criticized the decision at the time, saying giving up ownership also means giving up the ability to drive change from the inside.
"If we sell our shares in oil and gas companies, we're losing an opportunity to have an influence," Simpson told The Guardian newspaper in September.
In a similar move to Harvard's, New York's state pension fund said in April that it will restrict investment in six Canadian oil sands companies "that have not demonstrated that they are prepared for the transition to a low-carbon economy." Last May, Norway's US$1 trillion sovereign wealth fund blacklisted four Canadian oil firms. Prime Minister Justin Trudeau said at the time that this underscores the importance of fighting climate change.
RBC says it surveyed 805 institutional asset owners, investment consultants and investment professionals in the United States, Canada, Europe and Asia between May and July 2021.
Just under 16 per cent of those surveyed believe divestment and engagement are equally effective. The bank found the biggest support for engagement in Europe and Canada, 50 per cent and 53 per cent, respectively. That's followed by the U.S., at 42 per cent, and Asia at 40 per cent.
Among the survey's other findings:
29 per cent say they have placed greater emphasis on ESG considerations as a result of the COVID-19 pandemic
Anti-corruption topped the list of ESG concerns for a second consecutive year, followed by cybersecurity, and climate change
European investors pay the closest attention to ESG in their investment decisions (80 per cent), well ahead of Asia (32 per cent), Canada (31 per cent), and the U.S. at 20 per cent
Less than half of global investors (41 per cent) say corporate boards should adopt visible minority diversity targets, almost unchanged from last year
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.