The Wellcome Trust will no longer invest in oil and gas private equity funds, the foundation’s chief investment officer Nick Moakes told New Private Markets. It is also considering divesting from its existing oil and gas assets – a change in stance for the foundation, which has resisted public pressure to divest from its fossil fuel investments since 2015.
The UK-based foundation has £32.6 billion ($45.2 billion; €38.1 billion) in assets and a 4 percent energy sector exposure across its public and private assets, according to its 2020 financial report. It has holdings in BP and Shell and “a handful of small, legacy private equity positions” in oil and gas, a spokesperson for the Wellcome Trust said.
“We decided some time ago that we wouldn’t make any new investments in oil and gas-focused private equity funds because their time horizons are generally too short to shepherd their businesses through decarbonisation,” said Moakes.
Capital committed by investors to oil and gas private equity funds has declined in recent years. Private equity funds dedicated to the oil and gas sector raised a total of $13.4 billion in 2020 and $7.3 billion in 2019 – down from a peak of $34.9 billion in 2014, according to PEI data.
On Thursday, Wellcome announced its target to achieve net zero carbon emissions by 2050 across its public and private portfolios. The foundation will consider divestment “as a last resort” if asset managers fail to make progress on decarbonisation, said Moakes.
Wellcome has faced public criticism in recent years for investing in carbon-intensive industries and for not disclosing its fossil fuel private markets assets. In March 2015, The Guardian newspaper launched a petition calling on Wellcome to divest from fossil fuels. The foundation’s director, Jeremy Farrar, responded a month later, arguing that divestment would not encourage carbon emissions reductions: “We use our access to company boards to press for more transparent and sustainable policies that support transition towards a low-carbon economy.”
Speaking to New Private Markets on Monday, Moakes echoed this argument. “While we appreciate the important role of campaigners on this issue, our view remains that for us to make a real-world difference, encouraging the businesses we invest in to decarbonise is more impactful than simply selling the positions to another investor,” said Moakes.
But divestment is now on the cards, he added. “We have in the past exited positions in carbon-intensive businesses where a company was not engaging with our calls to transition their business model. This is a last resort, as it almost inevitably means selling to an investor less inclined to try to influence the company than we are. As well as presenting environmental concerns, a business not adapting to a decarbonised future is simply a risky and potentially poor long-term investment.”
And Wellcome’s net zero strategy document says: “There is also a place for selective divestment in our toolbox, where companies make no or insufficient progress towards meeting these goals [of setting net zero targets].”
The foundation has introduced a five-step engagement ladder for asset managers in its net zero strategy. The first step is: “Has management committed to setting a target of NZ by 2050?”
“We want to see positive engagement on the topic. Setting realistic net zero targets for their operations can, and often should, take a business some time to work through. We will assess progress each year,” said Moakes.
The investor wrote in its strategy document: “Our efforts are likely to be most focused on our substantial private equity holdings, where we believe we can have the greatest influence and where engagement has been less of a focus thus far.”
The foundation’s net-zero efforts will focus on its private equity investments because “the private equity sector is generally lagging public markets on topics such as measuring carbon footprints”, it added.
Moakes said Wellcome is also encouraging its asset managers to follow TCFD recommendations in their disclosures.