To engage or not to engage? Pension fund active ownership of fossil fuel investments

Purpose In the face of pressure to invest responsibly, pension fund managers must decide whether to remain passive investors, engage or divest their fossil fuel holdings. Factors affecting this decision are not yet fully understood. This study aims to explore the perceptions of pension fund managers of active ownership engagement within fossil fuel investments. Design/methodology/approach The authors use a qualitative and inductive approach by conducting semi-structured interviews with decision-makers from pension funds in Denmark that collectively represent approximately 80% of market capitalization. These interviews are complemented by interviews with a global investor network representative, a non-governmental organization and an engagement service provider. These were then transcribed and coded to identify core themes, contingency variables and engagement strategies. Findings Interviewees reported that despite external pressure to divest, pension funds in the sample strive to influence fossil fuel companies through active ownership and engagement strategies. They believe that active ownership can create a sustainable impact, assist the pension sector in fulfilling fiduciary obligations and provide financial value by guiding companies towards more sustainable business models. From the interviews, the authors identify four separate active ownership strategies: direct private engagement, direct public engagement, intermediary engagement and coalition engagement. The authors furthermore suggest contingency factors that lead active owners to favour each strategy. Originality/value This study contributes to the literature with an inductively derived pension fund engagement model that complements and augments existing models in this area. The model identifies strategic choices and contingency factors that influence the perception of engagement of these funds.