Corporate bonds are a critical source of finance for coal, oil and gas companies. Yet, compared to the stock market, few financial institutions have addressed their fossil fuel bond investments.

Over half of coal, oil and gas financing comes from bond issuances on the primary market, and all of the 100 biggest emitting companies are dependent on the bond market for their financing – while only 30 are listed on stock markets.

There are over $7 trillion of coal, oil and gas bonds on the market today

• $3 trillion coal bonds (companies along the coal value chain)
• $4 trillion oil and gas bonds (upstream and midstream companies)

Of the total amount of fossil fuel bonds, around $5 trillion have been issued since the Paris Agreement. Meaning issuance and investments in corporate bonds of fossil fuel developers haven’t been slowing down in line with political agreements on climate change.

The majority of these bonds are ordinary bonds (sometimes called vanilla bonds). Only around 2% have any type of green or sustainable label. In other words, these are not bonds that are trying to help companies transition – they are fresh cash for continuing business as usual.

What are you asking for?

Investors transitioning their fixed income portfolios would:

• Deny new debt: Adopt coal, oil and gas policies that immediately stop all new investments in companies expanding fossil fuel output and infrastructure. These policies must cover passive holdings and third-party assets.
• Divest from bond holdings in fossil fuel companies, unless the company has demonstrated proof of no new fossil fuel output / infrastructure and announces a complete phase-out strategy aligned with principles of equity, a 1.5.˚C timeline that is certified by globally recognised science-based professionals and in alignment with the goals of the Global Biodiversity Framework (GBF).

Asking financial institutions to immediately divest from their existing bond holdings is a less crucial demand. Though companies holding bonds with maturity dates after agreed upon fossil fuel phase out dates will need to divest unless the company transitions.

An example of a strong fossil fuel exclusion policy may look like:
Company A commits to immediately make no new investments in bonds and sale of existing bonds issued by:

• Companies developing thermal coal mines/plants/infrastructures
• Mining and power companies based on a strong relative threshold (15% of revenues or power generation from thermal coal) and strong absolute threshold (10 Mt of coal production and of coal power producers over 10GW)
• Oil and gas companies based on a strong threshold (5% of their revenues from fossil fuels activities (upstream, refining and electricity generation)).
• Oil and gas companies developing unconventional oil and gas projects.

Deny debt versus divestment

Bonds traded on the secondary market do not impact the current interest rate or face value of the bond when it reaches maturity. Thus, asking investors to divest from their existing bondholdings has less of a direct impact on money flowing to the issuing company, although it can send helpful market signals and lead a fossil fuel company to pay out higher interest rates on future bonds.

This brings nuance to the divestment vs engagement debate. Investors may wish to engage with companies to support their transition (though we have yet to see any cases of this being effective), in which case they could do so via shareholder rights. But, as a bondholder, investors have very little influencing power on the issuer. For this reason, investors do not have to counter arguments of whether divestment from a company frees up space for ‘worse’ investors to come in that do not engage.

In other words, engage via equities if you must, but deny debt.

Build a small team:

Why build a team? Building a small team of 2–3 people to work together means that you can:

• Collaborate. A few people will be able to lean on each other for support and divvy up the tasks of research and customizing your proposal as you get ready for a meeting with decision-makers.
• Show power. When you meet with the Chief of Investment or Chief of Sustainability to make your case for a fixed income fossil fuel exclusion policy, having a small team with you will show them that this is a need that’s echoed by multiple people.
• Have fun! Many people become friends with members of their working group, and rely on it as a source of support and social connection.

How to find 2–3 supporters:

• Talk to the 3 easiest people first. Your closest coworker, your teammates, your manager (if you have the right relationship). The goal of talking with them is to find out what they think about mitigating financial and climate risk by denying new debt to fossil fuel expansion, and to get a sense of their interest in working with you. Get input by asking and listening.
• Reach out beyond the people you know. If you’re at a big company: is there a sustainability group that meets? Is there a bulletin board where you can post a note and have people contact you? A group that meets at lunch time where you could make a quick announcement?
• Hold an informal meeting. Invite people who you’ve spoken with to gather together for a brief (virtual?) coffee/tea break and ask them to share their hopes for a climate safe retirement plan. Ask them to join you in working towards your goal. Invite them to create a working group with you and don’t leave the first meeting without a set time in the calendar to meet again, perhaps in one week.

Create a working group

‍Invite people you’ve spoken with so far to work with you to develop a proposal and meet with decision-makers. Set a regular time to meet—every week or two—and divide up the work into specific roles. If someone wants to be part of the group but can’t take on much of the work, figure out a way to include them in the process by having them continue to give input or at least be present when you meet with decision-makers.

Who is the decision maker?

Who decides what bonds the company invests in? Power-mapping is a process to figure out who has the power to create change, and who might have the power and incentive to block the initiative.

Maybe it is the Chief Investment Officer or another decision maker who oversees fixed income, and there may be key reasons for them to support this change.

Map out the questions to answer:

• Who has the power to make this change?
• Who do they listen to?
• What do they care about?
• What are they most proud of at your company?
• Who is opposed to this change and why?

If you don’t know the answers to these questions, it may be worth having an initial meeting with someone more junior than C-suite to find out, by asking questions like “has the company considered adopting a fossil fuel exclusion policy? If not, would they be more open to doing so if it means halting new bond investments and engaging via equity, rather than divestment?”

Once you have a list of key decision makers, you can map them against an axis of:

1. Influence over the decision
2. Level of support for the goal

It is also helpful to map the key influencers within the organisation, and where they sit on the axis relative to the decision makers; getting their support will help you build your case and create the environment for change to occur.

Influencing change

Once you have a map of the key decision makers, and an understanding of where they sit in relation to making this change, you can start to map a pathway to start influencing change.

As you build your plan and carry it out, you will need to motivate, inspire, and influence people throughout your organisation. In most cases, making this change will require extra work for people, and you may encounter resistance.

Think about:

• Why might someone want to work on this? What’s in it for them? Has anyone been outspoken about climate at your company that you might enlist?
• How is climate change already affecting the company, or how will it in the future? Has your company taken a position on climate? How can you connect achieving this goal with the company’s broader mission and values? Can you write it into the blueprint and connect it back to the origin story and goals?
• Who is going to resist this change and why? Can you understand their objections and fears early so you can mitigate them?

You’ll need to flex this muscle most during approval steps, but you’ll want to be working on it all along the way.

Meet with your company decision maker(s)

Request a meeting to discuss your companies fixed income investment with the Chief Investment Officer, the Chief Sustainability Officer, or another key decision-maker overseeing retirement benefits administration who you’ve identified. Whether or not you’ve met with them already, tell them the topic of the meeting ahead of time.

In your meeting, ask them to better meet the needs of employees, clients and shareholders and align with your company’s climate commitments by denying new debt to companies expanding fossil fuel production.

Follow-up and persist

It is rare to achieve policy change after the first or second meeting. This is an exciting time and opportunity for you to work together with your company’s leadership to implement meaningful change.

Persistent follow-up and support are often very important to ensuring that your work comes to fruition. Here are a few tips for strong follow-up:

• Confirm with the decision-maker the specific next steps and put them on a calendar. Clarify what further information or research is needed, as well as who is gathering it. Offer to provide resources or help with researching answers to their questions.
• If they aren’t proactively following up with you, then pop into their office or send them a message to ask again “what are the next steps and how can I be of help providing resources or support on this?” Reaffirm your appreciation for their time, commitment to implementing a climate safe retirement plan, and eagerness to work together to make it happen.
• If you get stuck, get in touch with us to troubleshoot any roadblocks and to support your leadership team in talking to their investment manager. Sometimes, even when your company leadership is eager to switch to a climate safe retirement plan, your asset manager may not have the options you need. Expanding your working group to include your organisation’s senior leadership will help you gain support.