What happens when you divest from BP and Shell?

We all know that if someone divests from a company, all they do is sell the shares to another investor who may care less about the environmental or social record of a company. But David Whyte from the Queen Mary University in London tracked what happened to the shares in BP and Shell that were sold by large investors divesting from these companies. And the results are sobering.

Whyte tracked the changes in shareholding of the 20 largest institutional investors in the two UK oil majors after the Paris Climate Accords in late 2015 until 2022. On average, he found that the largest institutions increased their shareholdings while smaller shareholders tended to divest. Most notably, the largest two to three shareholders, which tend to be Blackrock and Vanguard together with Norges Bank all increased their shareholdings in BP and Shell.

Why is that? It’s simply a reflection that Blackrock and Vanguard have massive index tracking businesses and these index trackers have become more popular over time so even though some of their funds divested from BP and Shell, the net holdings of these megafirms increased.

Meanwhile, the Norwegian government pension funds which drives the allocation behind Norges Bank is essentially an index tracking investor because it is so large that it can hardly do anything else.

Shareholders that have completely divested from these companies in the seven years between 2015 and 2022, meanwhile accounted for a mere 3% of BP’s market cap and 4% of Shell’s, respectively. This is such a small amount that the index trackers alone are overwhelming any selling pressure from the divesting institutions.

As the chart below shows, even during the heyday of divestments, the years after the Paris Climate Accord, the total selling pressure from divestment campaigns was so tiny that the growth of index trackers more than compensated for it. Simply put, divesting institutions succeeded in selling all their shares to index trackers. And no matter what the management of BP and Shell are doing, these index trackers will never sell their shares in these companies because they must own them.

Change in shareholding 2015-2022 of large indexers and divesting institutions

Source: Whyte (2024)