Myth buster

Myth: Divesting from oil and natural gas reduces GHG emissions

A Harvard study confirms oil and gas companies are leaders in cleantech innovation—and that’s not greenwashing, it’s a verifiable fact.


There’s a growing trend among some investors to withdraw their dollars from oil and natural gas companies. It’s an act called divestment: de-investing in companies for moral or ethical reasons. For example, in May 2020, Norges Bank announced a decision to exclude several oil sands companies from its Government Pension Fund Global investment portfolio.

But denying investment to oil and natural gas producers actually undermines the development and commercialization of innovative technologies that reduce GHG emissions, fresh water use, and other environmental impacts – and can promote unintended consequences such as carbon leakage and energy shortages.


Divestment decisions like these suggest a lack of awareness of the many ongoing technological and other advances in the industry, particularly in Canada’s oil sands. In fact, oil sands overall emissions intensity fell by 20 per cent from 2009 levels and is expected to decline by up to 23 per cent more by 2030. Companies are committed to lowering GHG emissions while minimizing other environmental impacts, in line with corporate goals of cost control, operating efficiently and being sustainable community partners. It’s partly driven by a strong awareness in Canada that environment, social and governance (ESG) practices are becoming increasingly important to energy consumers, investors, governments and others.

“Canada’s vast oil sands resource is sustainably developed under one of the world’s most highly regulated jurisdictions,” says Tim MacMillan, president and CEO, Canadian Association of Petroleum Producers (CAPP). “Environmental progress is important, and that is precisely what industry is doing through continuous innovation and improvement. We encourage groups that are redefining their investment portfolios to consider that an investment in Canadian energy is an investment in sustainable choice.”

Some investors do recognize the tremendous strides the industry has achieved. Harvard University, for one, pushed back against student demands in 2015 for the university to divest holdings in oil and natural gas, saying, “Divestment is likely to have negligible financial impact on the affected companies. And divestment pits concerned citizens and institutions against companies that have enormous capacity and responsibility to promote progress toward a more sustainable future.”

In fact, a recent study by the Harvard Business School concluded investment policies that exclude traditional oil producers from most sustainable funds eliminates some of the most prolific and influential producers of green innovation.

“They are investing about three times more than the average firm in climate change mitigation technology,” said Lauren Cohen, professor of business administration at Harvard Business School and lead researcher of the study. “This is technology that’s going to help us to abate these issues around energy and climate, and it’s the best technology in that space.”

He continued, “Our findings raise important questions as to whether the increasing incidence of explicit divestiture campaigns is optimal, or whether reward-based incentives would lead to more efficient innovative outcomes.”

In addition, attempting to stifle oil and natural gas production by restricting financial support can have an unintended consequence: carbon leakage. Countries with lower environmental standards — and in many cases lower social, human rights and governance standards — will be able to meet growing demand for energy resources, while responsibly produced Canadian oil and natural gas may have challenges competing for international markets due to under-investment.

Another potential hazard from declining investment could be a global production and supply shortfall. According to the International Energy Agency, in its World Energy Outlook 2020, between USD $12 and $17 trillion of additional investment in the energy sector will be needed by 2040 to support rising global prosperity with needed energy sources.

The bottom line:

Technology advances are required across the oil and natural gas industry to help Canada achieve its Paris Agreement commitments. However, technological innovation to improve industry environmental performance is often expensive and can take years to move from idea to commercial application. Developing such technologies relies on financial support including stable, ongoing funding and investment.

In short, divesting from oil and natural gas investments actually impedes the very improvements environmentally conscious investors want to support.