Divestment helps oil and gas companies turn a profit: Carlyle report

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Pressure on big financial institutions to divest oil and gas and other high-emissions assets is not working, according to a new report from the Carlyle Group.

Why is this important: Financial institutions like UBS and Credit Suisse were seen as benchmarks for how the industry could meet its own emissions reduction targets, but their efforts turned out to be more talk than action.

What is happening: The Carlyle Report, unveiled in Davos on Wednesday, found pressure from financial institutions may not be the stick investors think.

  • Amid soaring fuel prices, many oil and gas companies are seeing massive increases in stock prices and unprecedented buybacks and dividends.
  • Even with some institutional divestment, many oil and gas companies aren’t exactly suffering. In fact, divestment could fuel higher consumer prices.
  • “To the extent that divestment succeeds in reducing the supply of fossil fuels, it also increases their price,” the report says.

State of play: Citing pressure from investors, major financial institutions have publicly pledged to cut investment in high-emission industries like oil and gas.

  • The establishments with the highest divestment rates are mainly concentrated in Europe. See: UBS, Credit Suisse and Deutsche Bank.
  • JPMorgan and Morgan Stanley also reduced their investments in oil and gas companies somewhat, but at a slower pace.
  • BlackRock has publicly pledged to fund the transition to a zero-emissions economy, but has also recently touted its work with oil and gas companies in Texas.

The plot: As the report indicates, federal policymakers sometimes intervene when consumers are negatively affected for long periods of time.

The bottom line: The divestment can only work as a long-tail stick rather than the immediate boost investors had hoped for.

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