Impact case study database

The publication of the three Principles of ‘committing to net-zero’, ‘developing a profitable net-zero business plan’ and ‘setting quantitative mid-term targets’ [ R3] was accompanied by extensive engagement with many different stakeholders to ensure the Principles would be effective at shifting institutional investment practice. The research has so far resulted in changes in the investment strategies of three globally active investment managers and the business development strategies of two major fossil fuel companies (BP and Shell). It has also led to changes in the thinking and strategic action regarding institutional investment among the University of Oxford, the Oxford Colleges and the Bishop of Oxford.

A. National and international: investment management and the fossil fuel industry

Sarasin & Partners – a London-based global investment manager – was the first investment management firm to adopt the Principles [ R4] and change their investment and engagement strategy. According to its website, Sarasin had GBP15,200,000,000 of assets under management in September 2020. In January 2019, Sarasin announced their ‘Climate Pledge’, which includes a commitment across the business to engagement, voting and divestment, informed by the Oxford Martin Principles [ E1]. They have also launched a ‘Climate Active’ endowment fund based on the three Principles, and appointed R4 authors Hepburn and Beddington to its Climate Active Advisory Panel. A brochure on the Climate Active fund states that:

“[i]n our engagements with companies, Sarasin Climate Active is informed by the Oxford Martin … Principles – seeking explicit commitments by boards of directors to align a company’s business strategy with the Paris Accord goals. This means that directors must commit to a 2050 to 2070 net-zero carbon emission pathway, and set out how they will get there in a way which enhances shareholder capital” [ E2].

In a testimonial letter, Sarasin’s Head of Stewardship explains that [ E3]:

“[t]he Principles [ R4] were an integral element of the successful launch of the Climate Active strategy. They provide a key framework for determining ‘Paris-alignment’ and thus have provided a core underpin for our investment analysis and engagement strategy. In line with OMS Principles, the strategy aims to invest in companies that we determine will be profitable in a net-zero pathway world and that have a compelling plan to get there.

Investments linked to the Climate Active strategy are rapidly increasing. Launched in February 2018, assets following the strategy have increased from approximately GBP600,000,000 in June 2020 to more than GBP800,000,000 by mid-November 2020 [ E3].

Moreover, as the Head of Stewardship explains, the influence of the Principles extends beyond the company’s investment strategy:

“[o]ur engagement strategy is also framed by the OMS Principles: we seek a commitment by the Board for Paris-alignment, and this needs to be backed up by a compelling (and profitable) strategy as well as explicit milestones for getting to net zero by 2050” [ E3].

Lombard Odier Investment Managers (LOIM), a Swiss-based company with global assets under management of GBP42,800,000,000 at 31 December 2019, have also adopted the Oxford Martin Principles [ R4] in the design of their new ‘Climate Transition strategy’. According to the press release [ E4], the strategy, which was launched in early 2020, “invests in companies that are already generating superior returns and that we believe are well positioned to generate growth and gain market share, as the transition to a carbon-constrained and climate-damaged economy continues to accelerate”. The strategy has the “Oxford Martin Principles for Climate-Conscious Investment … incorporated at the heart of the strategy’s stewardship approach, as well as in the overall stewardship activities of LOIM”.

A third global investment manager that took up the Principles [ R4] is UK-based P1 Investment Management. They have developed a new standard for investment managers informed by discussions with the research team behind the Principles. This standard, the Net-Zero Carbon 10 target (NZC10), requires that 10% or more of fund managers’ portfolio assets are invested in firms with net-zero CO₂ emissions, realistic strategies to achieve this by 2030, or a fund manager who actively engages with firms to achieve this. As the company’s website explains, NZC10 “allows fund managers to better align their investment policies to the requirement for carbon neutrality, rather than just emissions reduction. This focuses on net-zero emissions, so firms can have some CO₂ emissions, providing these are reliably offset” [ E5].

Two major fossil fuel companies have also drawn on the Principles to develop their business strategies: BP and Shell.

In February 2020, BP committed to becoming a net-zero emission company by 2050 or sooner. The company has developed a strategy that revolves around not only delivering on this ambition but also pivoting to low-carbon energy and delivering value to stakeholders. To this end the company will, according to its website, use integration, partnerships and (digital) innovation to concentrate on ‘low carbon electricity and energy’, ‘convenience and mobility' and ‘resilient and focused hydrocarbons’. BP’s Head of Group Strategy acknowledges [ E6]:

“Oxford University's role in helping us to reach this position, in particular the impact of the Oxford Martin Principles for Climate-Conscious Investment on our thinking. These principles resonate with us and are an extremely useful example of how academic leadership can provide guidance for the energy transition. Our strategy now covers the three elements of the Oxford Martin Principles: we have committed to being a net zero company [ R4’s first principle], we intend to become a net zero company in a profitable manner [ R4’s second principle], and we will be measuring our progress at regular intervals [commensurate with R4’s third principle]. Many of our investors and our University stakeholders have come to expect this of us, and we intend to continue to play a role as a leading and responsible business as we and the planet transition to net zero.”

Shell is similarly aiming to become a net-zero emissions business by 2050 or sooner. Its focus is on the ‘New Energies’ of electricity, wind and solar, and on building an integrated lower-carbon power business. The company’s Executive Vice President New Energies confirms that “in recent years Shell has significantly increased its investment into New Energies” because “[w]e listen carefully to our shareholders and other stakeholders, and an increasing number of them are asking that businesses like ours have a strategy that is aligned with the Paris climate goals, consistent with the Oxford Martin Principles for Climate-Conscious Investment” [ E7].

B. Local: Institutional investment

The Principles have also influenced thinking and practice among institutional investors in the city of Oxford, in part because they have come under pressure to consider the consequences of their actions on climate change. These include the University of Oxford and the Oxford Colleges, which are financially independent from the University. The value of the endowment assets of the University and the Colleges together amounted to GBP6,100,000,000 in 2019. This is the second largest university endowment in the UK. For comparison, UK government statistics show that only 10 of 87 local government pension scheme funds in England and Wales had a larger market value in 2019.

In 2019, one of the Oxford Colleges – St Hilda’s – redirected its long-term investments by joining Sarasin’s Climate Active endowment fund. This reflected the College’s [ E8]:

“policy of active engagement … informed by the Oxford Martin Principles for Climate-Conscious Investment [ R4]. These Principles provide a framework for engagement with targeted firms and for disinvestment after reasonable engagement efforts have been made and responses found wanting. The College believes that this active ownership approach will ensure it is doing what it can to support the aims of the Paris Agreement while at the same time protecting the College’s long-term financial interests”.

Subsequently, the University’s executive governing body formally adopted a new investment strategy for the investment assets under its control in April 2020 [ E9]. The strategy consists of: 1) divestment from the fossil fuel industry, 2) engagement with investee fund managers per the Oxford Martin Principles [ R4], and 3) oversight to monitor and evaluate progress regarding 1) and 2). On its website the University states that the:

“chosen approach is based on its own world-leading research on climate-conscious business practices, the Oxford Martin Principles for Climate Conscious Investment [ R4]. These provide a framework for engagement between climate conscious investors and companies across the world, helping them to assess whether investments are compatible with transition to a more stable climate and the goals of the Paris Agreement on climate change” [ E9].

The Principles have also been adopted by individuals in the city, empowering them to demand change. The Bishop of Oxford – whose seat is the city of Oxford’s Christ Church Cathedral, (physically located within the University of Oxford’s Christ Church College)– embraced the Principles [ R4] in early 2018. With the research team behind the Principles, he developed a motion challenging the action on Climate Change and Investment (GS 2093) proposed by the Church of England’s National Investing Bodies (NIBs) to the Church’s General Synod in June 2018. With the amendment, the Bishop urged “the NIBs to engage urgently and robustly with companies rated poorly by the Transition Pathway Initiative (TPI) and to divest from any fossil fuel company which is not on an unequivocal path by 2020 to aligning its business investment plan with the Paris Agreement to restrict global warming to well below 2°C” [ E10]. TPI is a global initiative, set up by the NIBs and others in 2017, that assesses companies’ preparedness for the transition to a low-carbon economy and provides an online tool to investors. The Bishop wanted the NIBs to work with the Oxford Martin Principles rather than rely on companies’ insufficient disclosure of their emissions or focus on “disinvestment from laggards – a relative and imprecise term” [ E10]. The Bishop “commend[ed] these Principles to the TPI and the NIBs in relation to their investments in fossil fuel companies” [ E11] because they offer “a much more demanding set of criteria to guide engagement/divestment debates among shareholders and public bodies” [ E11]. The Bishop’s motion for a more stringent net-zero investment approach based on the Principles was rejected but did make the General Synod reconsider its investment decision-making.