New principles from the University of Oxford guide corporate investment towards climate goals

Today, companies and investors face many complex ethical questions. Should investors continue to invest in fossil fuels or should they divest, sending a signal about the perceived illegitimacy of particular business models in a changing climate?

And given the internationally agreed aspirations towards achieving net zero emissions, how should investors manage the legal and financial risks of this transition?

Addressing a moral challenge

In response to a very different moral dilemma in the 1970s, the Sullivan Principles were developed to help investors and companies by providing a practical set of guidelines on how to engage with businesses in the South African apartheid regime.

According to the University of Oxford, a new set of principles is needed to address the moral challenge of climate change. These principles, developed by a team of researchers at the Oxford Martin School and published in Nature Climate Change, are a set of scientifically grounded tools that can be used by both investors and companies to assess corporate strategy against climate change.

The role of the investment community is pivotal to the success of the transition to a net zero carbon economy, yet the researchers say there’s ‘a maze of standards and disclosure criteria arising around the issue of climate’. The Oxford Martin Principles provide concise and fact-based guidance that can be widely applied to companies.

The three principles

The Oxford Martin School has devised the following principles to assess corporate strategy against climate change.

  1. Commit to reaching net zero emissions from their business activities
  2. Develop a plausible and profitable net zero business model
  3. Set out quantitative mid-term targets compatible with their net zero goal

The principles in action

The paper, Principles to guide investment towards a stable climate, applies these principles to three very different companies: BHP Billiton, Unilever, and Statkraft.

It states that while BHP Billiton is a miner and a large extractor of fossil fuels, meaning its current business model creates a flow of CO2 emissions into the atmosphere, ‘a pathway to compliance with the principles is not far out of reach’. This is because BHP Billiton acknowledges that global net emissions need to fall to zero by the second half of the century, and the company also has a longer-term goal to reach net zero operational emissions in the second half of the century, which represent important steps towards satisfying Principle 1.

‘Our case studies show that while most companies would be unlikely to satisfy all the principles today, doing so would not be beyond the reach of most companies in the future.’

Oxford Martin Fellow at the University of Oxford

While Unilever is currently struggling to reduce the lifecycle emissions of its products (meaning it currently falls short on Principle 2), the company has climate policies that extend across the entire value-chain of its products. There’s a clear target to halve products’ life-cycle emissions by or before 2030, and Unilever has a strategy for net zero operational emissions by the same date, representing substantial progress towards meeting Principle 1.

The paper highlights that while Statkraft is primarily a renewable energy company, meaning it satisfies Principle 2 by being naturally aligned to the goals of the Paris Agreement, it also owns and operates a small number of state-of-the-art gas power plants in markets with a high share of coal power production.

‘a cornucopia of risks for business’

Professor Cameron Hepburn, co-director of the Oxford Martin Net Zero Carbon Investment Initiative, added, ‘Climate change presents a cornucopia of risks for business: companies need to think through their strategic position as the industrial economy changes, not only in terms of immediate policy and regulation but also in terms of their supply chain.’

Professor Myles Allen, also co-director of the Oxford Martin Net Zero Carbon Investment Initiative, emphasised, ‘In a nutshell, investors need to know how companies plan to thrive both during and after the transition to net zero emissions. Everything else is secondary.’

Professor Sir John Beddington, senior adviser at the Oxford Martin School, concludes, ‘The involvement of the commercial sector is essential if climate change is to be mitigated. The simple solution of no investment in fossil fuel related companies is not the answer. These principles provide a significantly more sophisticated way for investors and companies to engage beyond simple divestment.’