Climate Concerns Dominate Financial Exclusion Decisions, Research Reveals

According to recent research, worries about climate change have emerged as the top reason financial institutions exclude specific companies from their portfolios. This trend persists even amidst growing criticisms against so-called “woke” capitalism.

This research, spearheaded by a coalition of environmental and sustainability non-profit organizations, indicates that 40% of such exclusions are grounded in climate change concerns. In comparison, 17% are related to companies engaged in weapons manufacturing, and 12% are due to tobacco involvement.

The data further emphasizes the importance financial entities continue to place on ESG (environmental, social, and governance) considerations. This is despite opposition from certain Republican politicians and state treasurers in the US, who believe that the financial sector shouldn’t act as a watchdog over corporate behaviors.

This coalition, comprising of groups like Friends of the Earth Netherlands, Fair Finance International, and the Dutch research consultancy Profundo, analyzed exclusions across approximately 150 financial entities including pension funds, insurance companies, and banks. Their analysis identified 4,532 companies that have been excluded by 87 financial institutions across 16 nations.

One of the hopes expressed by these organizations is that making this list publicly accessible will prompt the companies mentioned to reconsider and modify their operational practices.

South Korea’s Poongsan Corporation emerged as the most excluded company, mainly due to its production of contentious weapons like cluster munitions. It’s closely followed by the US defense entity Northrop Grumman and India’s business giant Larsen & Toubro.

Companies involved in fossil fuels have been categorized under climate concerns and human rights violations. Notably excluded for their fossil fuel investments were firms like Cenovus Energy, Suncor, and ExxonMobil.

Profundo’s Ward Warmerdam noted that the tracker suggests fossil fuels are progressively being seen as a “sin” industry. He emphasized the pressing need for oil and gas enterprises to accelerate their transition to sustainable energy, backed by tangible, immediate steps to retain their investor base.

Several investors have grown increasingly wary of the potential financial implications of climate change. They believe companies that lag in transitioning to a greener economy might become challenging to offload in the future.

Major investors, like Norway’s $1.4tn oil fund, have blacklisted companies such as Cenovus and Suncor due to their elevated greenhouse gas emissions. Meanwhile, other significant entities like ABP and the Church of England have sold off or plan to divest from high fossil fuel-involved companies.

Friends of the Earth Netherlands’ Peer de Rijk commended financial institutions taking steps to reduce their financed emissions by excluding certain companies.