Following stakeholder pressure on a Local Government Pension Scheme (LGPS) client to divest from fossil fuels, Isio conducted an in-depth research project on the relative effectiveness of engagement versus divestment, in bringing about the transition to a low-carbon economy.

Isio ultimately conclude that the industry evidence is mixed on whether engagement or divestment is more effective in bringing about decarbonisation action. There is however some nuance that needs to be recognised, namely that engagement escalation processes may ultimately lead to the selective disinvestment of select names as a result of a lack of traction from engagements, questioning whether these processes are in fact polarised. However, it remains clear investment managers and wider investment industry have a preference for an engagement approach. The paper considers various facets of the debate, including the regulatory perspective, the investment perspective, and industry evidence in this area.

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