Climate action or distraction? Exploring investor initiatives and implications for unextractable fossil fuels

Abstract

Limiting global warming to 1.5 °C requires drastically reducing fossil fuel production and use. Institutional investors who invest in fossil fuels can potentially influence the energy transition. However, few papers investigate how investors can leverage their collective resources to accelerate a transition away from fossil fuels. Hence, this paper asks: How do investor initiatives inform or shape efforts of institutional investors to align with the Paris Agreement and what are the implications of these for a goal of leaving fossil fuels underground? We identify 41 investor initiatives through a document analysis and use a sectoral governance perspective to analyse initiative strategies and policies. We then examine in depth one of the largest initiatives, Climate Action 100+, supported by analysis of 55 newspaper articles. Findings indicate that while initiatives are active in providing resources to investors to assist with aligning their investments with the Paris Agreement, coordinating investor engagement, and have been successful in uniting a critical mass of investors behind climate goals ($500 billion - $106 trillion), there exist many gaps in their capacity to achieve ambitious action on climate from companies or their investor members. A lack of internal accountability, minimal transparency into their goals and timelines, and limited ambition threaten to undermine the potential for investor initiatives to be agents of climate action. Furthermore, loopholes in the net zero policies promoted by initiatives risk diluting their effectiveness in limiting fossil fuel extraction.