Perspectives on “Unburnable Carbon” and Divestment from Fossil Fuels

Investors on both sides of the Atlantic have been in a heated debate about divesting from fossil fuels since the Carbon Tracker Initiative released its report stating that 60 to 80 percent of fossil fuel company reserves are “unburnable” if we are to limit global warming to the 2 degrees or less recommended by the Intergovernmental Panel on Climate Change. The debate raises fundamental questions: Is financial divestment a desirable and feasible strategy for driving or supporting a shift to lower carbon alternatives? What impact can the divestment movement have on the global energy industry in the short and long term? What specific strategies can investors adopt to support a low-carbon economy? Join us in this one-hour conversation to unpack the financial, tactical, and moral arguments on both sides of the divestment debate.


  • Matthew Smith, Head of Sustainability, Storebrand ASA
  • Frances Way, Co-Chief Operating Officer, Programs, CDP
  • Charlotte Bancilhon, Manager, Advisory Services, BSR (Moderator)


  • According to research by the nonprofit Carbon Tracker Initiative, 60-80 percent of fossil fuel company reserves are “unburnable” if we are to limit global warming to the 2 degrees Celsius or less recommended by the United Nations’ Intergovernmental Panel on Climate Change.

  • Customers are now clearly voicing their expectations when it comes to investing their money, and asset managers have to take their demands into account and provide more transparency on their strategies.

  • Divestment is just one of the tools investors have. Influence is even greater when they invest in companies and help them lower their carbon intensity in the long run.

Memorable Quotes

“Divesting from fossil fuel companies is not something you can do overnight. It is possible for Storebrand because we have a long-running policy: We began in 1995 by establishing an environmental value fund; in 2001 we started divesting from tobacco companies and certain weapons companies and in 2005 we established our Storebrand standards that in addition excluded companies involved in grand corruption or in abuses of human rights.” —Matthew Smith, Storebrand ASA

“Investors begin to realize that they now have a bit of responsibility to drive action towards low-carbon economy, they may be held accountable.” —Frances Way, CDP


Charlotte Bancilhon, who leads BSR’s financial services practice in Europe, introduced the session by pointing out that energy is the most important ingredient to the global economy and essential to reducing poverty, and that the majority of the world’s energy comes from fossil fuels. However, there are now 181 asset owners—including pension funds, cities, foundations, and universities—in the United States, Europe, and Australia that have made commitments to divest from certain fossil fuel assets, and that number is growing.

Bancilhon first asked the audience’s opinion on the potential impact of the fossil fuel divestment campaign: about a third of the attendees seemed convinced that this would catch the public imagination without incurring a systemic impact. Bancilhon then asked Matthew Smith about Storebrand’s decision to exclude 35 utilities and energy companies from its holdings. Smith replied by pointing out that this decision was more financial than ethical, based on the expectation that a large amount of the assets would remain in the ground due to increasing regulations. He also mentioned how important this was to their customers.

Bancilhon then mentioned the Portfolio Decarbonization Coalition recently launched by the CDP with UNEP Finance Initiative and others and asked Frances Way about its objectives. Way answered that this initiative aimed to encourage investors to understand the carbon exposure of their funds and to commit to decarbonize them by measuring the transparency of their portfolio and by reallocating capital to shift the portfolio to lower carbon investment.

Then Bancilhon made the point that fossil fuels would play an important role in meeting growing energy demand. Frances Way replied that after reading the 2014 Intergovernmental Panel on Climate Change Synthesis Report she was convinced that a great part of fossil fuel assets will have to remain in the ground. Smith pointed out that viable alternatives are now enabling a low-carbon future: As an example, he noted that China now produces more renewable energy than France and Germany put together.

The discussion then moved to the speakers’ expectations of companies and investors. Way said that oil and gas companies needed to change their business models, and Smith added that they should stop looking for expensive and risky unconventional sources. They both agreed that investors should measure the carbon intensity of their portfolio and focus on investing in the best companies, not just divesting from the worst, and work with companies to help them improve their carbon intensity and reduce their dependence on fossil fuels.

The audience Q&A session began with a question about the role that CDP and the investor community could play in reframing the discussion in a more positive way for oil and gas companies. Way responded that investors felt foolish they had not realized the importance of “unburnable fuels” before, as the share-price valuation is affected by this factor. Smith added that oil and gas companies are actually part of the solution to the climate change problem. Another attendee insisted on the importance of decarbonizing fossil fuel production, through carbon capture and storage for instance. He also pointed out that investors can only drive this change if they invest in—instead of divest from—oil and gas companies.

A participant then asked whether Storebrand’s decision to divest was not in fact purely ethical, as it seems likely that we are not going to be able to stay below the 2-degree limit and might finally burn this “unburnable” carbon. Smith explained that it was also financial and that the companies they divested from were companies with what they think is a weak business model: purely coal and oil sands companies. He explained that potential for growth of these companies in the long run seemed weak as more regulations are expected to come, and pointed out that the European Union had committed to cut its domestic greenhouse gas emissions by at least 40 percent below 1990 levels by 2030.

Ryan Schuchard, BSR climate change Associate Director, made the point from the audience that two-thirds of all fossil fuels reserves are actually controlled by national companies; he then asked how investors could influence them. Way explained that leveraging commercial relations with state-owned companies was very difficult. Smith added that it was a case for increasing the analysis of states and state-owned assets but also admitted that their influence was quite limited.


November 4, 2014