The General Assembly of the Presbyterian Church (U.S.A.) is slated to weigh whether to divest from oil and gas companies in a move that sheds light on how some faith-based financial organizations face a different set of questions than other mainstream fund managers regarding divestment.
The Committee on Mission Responsibility Through Investment, or MRTI, an advisory committee that handles shareholder engagement with companies on behalf of the church, has recommended that the church exit its financial stake in Exxon Mobil Corp., Marathon Petroleum Corp. and Valero Energy Corp. until these companies' actions align with the general assembly's climate change criteria.
Engagement with the three companies to improve their governance, strategy, transparency and public policy with respect to climate change "produced no substantial change or movement ... and is likely not to do so in the future," MRTI said in the proposal. But the companies contend they are taking action and engaging with shareholders on the issue.
If the church general assembly approves MRTI's recommendation, it would join a small but growing number of religious organizations that have selectively divested from oil and gas companies. The Church of England's parliament voted in 2018 to end by 2023 holdings in fossil fuel companies that had not aligned their businesses with the goals of the Paris Agreement on climate change. And 20 U.K. churches, dioceses, religious orders and Christian institutions have announced their divestment from fossil fuels, according to Operation Noah, the Christian charity group running the related campaign in the U.K.
If approved, MRTI's recommendations would be placed on the 2021 divestment list and forwarded for review and implementation by the Presbyterian Foundation and the Board of Pensions that collectively managed more than $13 billion in financial assets for the church and its members as of the end of 2019. The Presbyterian Church (U.S.A.), or PC(USA), had about 1.3 million members as of 2018.
How faith-based fund methodologies differ
While all fund managers base their decisions on their defined fiduciary obligations, faith-based fund managers' strategies sometimes also reflect the doctrines and related directives of their affiliated church, according to experts.
PC(USA)'s advocacy arm, MRTI, for example, "believes faithfully caring for God's creation is essential to our Christian vocation, and the threat of climate change to God's creation is well established," the group said in its recommendation. The church has thus recognized the "need for an urgent and robust response to the existential threat of the climate crisis, including limiting global warming to well below two degrees" Celcius relative to preindustrial levels.
Divestment can be less complicated for faith-based funds in some instances. Mainstream fund managers have most of their assets tied up in passive index-based funds, which limits their ability to divest from specific companies. Many faith-based institutions, however, set up their funds decades ago to exclude companies heavily involved in such industries as tobacco and alcohol, guns, pornography or the apartheid. Managers at the Presbyterian Foundation and the Board of Pensions said adding another set of companies to the restricted list would be relatively easy.
Divest only if engagement fails
But nearly all investment managers interviewed for this article and previous ones on the topic of divestment agree that ending holdings in a company is a last resort, to be taken only after repeated engagement with a company has produced little to no results.
All members of the Interfaith Center on Corporate Responsibility, including PC(USA), are engaging with companies regarding greenhouse gas reductions, said the group's CEO, Josh Zinner. The ICCR is an association composed primarily of faith-based institutional investors that advocates on behalf of those members on sustainability issues. But while "some of our members have reached the tipping point in terms of engagement with oil and gas and are divesting, others feel like it's important to stay at the table," Zinner said. "Divestment and engagement are both important tools, and there's a necessity for both in order to really create change."
Not every faith-based organization plans to divest from oil and gas. Wespath Benefits and Investments provides retirement plans, investment solutions and health benefit plans rooted in the principles of The United Methodist Church. The pension fund continues trying the engagement route with the industry, despite receiving "considerable pressure from a certain portion of the church" to divest from all fossil fuels, Chief Investment Officer Dave Zellner said.
Nicholas Abel, Wespath's manager of sustainable investment services, said that while engagements with some companies "have been challenging at times," the pension fund continues to believe that the oil and gas supermajors have a key role to play in helping the world transition to a low-carbon economy.
Wespath only considers divestment if a company is no longer viable and engagement is no longer moving the needle. For example, Wespath divested from coal companies because holding those shares was not in the financial interests of its members, Zellner said.
Wespath's investment decisions are "guided by church principles but ultimately, whether to exclude the stocks, would be our decision," Zellner explained.
Division among the ranks
Not all members of PC(USA) support MRTI's recommendations. Some would prefer that the church not divest from any oil companies, while others want to eschew all fossil fuel holdings.
Rob Fohr, director of faith-based investing and corporate engagement for the church, said he is cognizant that some of the denomination's members work for fossil fuel companies but he is confident that the deliberate seven-step process MRTI uses to make its recommendations should help ease some of those concerns.
At the direction of the general assembly, MRTI has for two years engaged with a number of electric utilities, oil and gas companies and car manufacturers in hopes of convincing them to assess, disclose and begin addressing their climate-related risks. MRTI also joined the Climate Action 100+ initiative composed of more than 450 investors with over $40 trillion in assets under management. At the end of 2019, MRTI reviewed its progress and found three companies lacking. MRTI engaged with and did not recommend divesting from Duke Energy Corp., ConocoPhillips, Chevron Corp., Phillips 66, Ford Motor Co. and General Motors Co.
A group of church members called Fossil Free PCUSA that prompted the church to first consider fossil fuel divestment in 2014 also plans to ask the general assembly at this year's gathering to divest from fossil fuel companies entirely.
Abby Mohaupt of Fossil Free PCUSA contends that the time for engaging with fossil fuel companies in hopes they will change is over.
"Those of us who have been calling for divestment have been really clear that people have been trying that tactic for decades without any success and so the industry doesn't deserve more time," Mohaupt said. "Our job is to take our investments and to put them into renewables and into supporting communities that have been on the front lines."
But Fohr said industrywide divestment would forestall the ability to acknowledge and reinvest in companies that later turn over a new leaf. That said, he indicated chances are high that MRTI will ratchet up its expectations for companies at the next general assembly in 2022 and may recommend divesting from additional companies.
In addition to advocating for divesting from Exxon, Valero and Marathon, MRTI recommended that the church add several companies to its watch list for focused engagement, including Occidental Petroleum Corp., American Airlines Group Inc., Delta Air Lines Inc. and United Airlines Holdings Inc.
As of April 8, the church had not postponed or canceled the general assembly gathering scheduled for late June due to the coronavirus. On April 2, the church indicated it is considering having the meeting virtually or potentially delaying the gathering until the fall.
Exxon, Marathon and Valero contend they are addressing investors' concerns
The three companies MRTI has recommended PC(USA) divest from said in emailed statements that they are taking the issue seriously.
A spokesperson for Exxon said the company regularly engages with shareholders, has issued several climate change reports and has invested more than $10 billion in lower-emission technologies over the last two decades. "ExxonMobil supports the goals of the Paris Agreement" on climate change, spokesperson Casey Norton said. "The structure of the agreement recognizes that energy-related emissions are driven by society's demand for energy — not its supply."
Marathon "engages in regular communication with its shareholders and welcomes their input on matters of importance," spokesperson Jamal Kheiry said.
Kheiry said Marathon has lowered its greenhouse gas emissions intensity by about 20% over the past five years and is working on expanding its energy efficiency program, reducing methane emissions and increasing its use of renewable energy. Marathon set a new goal in March to reduce its greenhouse gas emissions per barrel of oil equivalent processed to 30% below 2014 levels by 2030 and linked that metric to the company's executive compensation program.
A Valero spokesperson pointed to a section of the company's 2020 proxy statement that outlined its shareholder engagement practices over the prior year. "Ongoing engagement with our stockholders is important to us," the document said. The proxy statement also noted that the company faces increasing investor pressure related to climate change and potential divestment.
"If we are unable to meet the sustainability standards set by these investors, we may lose investors, our stock price may be negatively impacted and our reputation may be negatively affected," the company said in disclosing risk factors in the report.