Andrii Yalanskyi/Shutterstock Save for later Print Download Share LinkedIn Twitter The Church of England Pensions Board's recent decision to divest from fossil fuels is raising questions about the value of engagement over divestment and the widening gap among investors on climate issues. "The Church of England is an excellent example of an investor that sets out a clear engagement strategy and follows through on the consequences," says Simon Rawson, deputy chief executive at activist shareholder group ShareAction. But while divestment is a "legitimate strategy" — and probably the Church's only option at this point, as it felt its engagement had failed — "we need investors to drive the transition, not just divest from companies."But the problem is that engagement needs to go beyond statements of intent and trigger action, including voting and, in some cases, divesting, Rawson tells Energy Intelligence. "Most investors don't have clear objectives and don't have clear strategies; they don't have timelines, they don't have milestones, and they don't have consequences for failed engagement." This makes, paradoxically, the Church of England's decision an "important signal" which may reinforce engagement's impact in the future. "The likes of the Church of England, who are at the forefront of driving responsible investment, if they don't follow through on their threat to divest, then that just weakens engagement further."While groups like Climate Action 100+ have "fantastic objectives" and an "incredible number of investors and amount of assets under management," its members are not voting in line with those objectives. "If they followed through on what they say they will do, then you would see transition,” says Rawson.Recent votes at oil companies' annual general meetings are, however, encouraging and show "some progress," he believes. "The vote at Total, for example, was the highest that we've seen, and the votes at BP and Shell returned to the levels that we had seen before the decreases we saw in 2022. But that's still just 30% of the shareholder base."'Most Alarming'The "most alarming trend" is the "increasing divergence" between US and European asset managers. Rawson called the recent votes at Exxon Mobil and Chevron, with results dipping to around 10% on climate resolutions, "truly terrifying." While he believes the anti-ESG movement in the US is "very largely" a political campaign ahead of next year's presidential election, it also plays on "genuine fears that people have about the implications of the transition on them, their livelihoods, their jobs." Activists "need to not ignore that," he warns. "Politicians everywhere are going to need to deal with making the social case for tackling the climate transition, as well as tackling that transition itself."Rawson believes US asset managers are not worried about being blacklisted by conservative states as the potential loss of business is "tiny." Instead, the threat of legal action around antitrust issues has "really slowed things down and put a lot of sand in the gears." As a consequence, "any attempts to be progressive have been slowed down as everything has to run through lawyers and be triple justified." The US financial sector was never enthusiastic about climate action, according to Rawson. It has now found "a good reason not to take any bold steps."However, some US asset managers remain committed to responsible practices but prefer doing so behind the scenes and without collaborating in net-zero alliances. "In the current political climate, I am sort of sympathetic to the fact that they don't want to band up."Interim InertiaA more general issue among asset managers is the lack of 2030 interim targets and their lack of clarity when they exist, Rawson notes. ShareAction's analysis shows that only about 75 out of over 300 members of the Net-Zero Asset Managers Initiative have set interim targets, and that those are "completely incomparable and insufficient." The initiative's signatories are advised to halve portfolios' emissions by 2030 but are free to set their own version of that "very wide guidance." Some are using intensity targets while others prefer portfolio coverage targets or temperature alignment targets, and there is a range of how much of their assets under management are covered by the targets. "That's a huge problem because it means that even based on what they have published, we have absolutely no way of knowing whether they are on track to achieve 50% by 2030."ShareAction recommends the industry adopts a common standard for interim targets to ensure comparability. Funds may also use various metrics but should include an absolute target — without which "there is no guarantee that this leads to a real world emissions reduction."