Findings from a report by the Climate Change Collaboration and the UK Sustainable Investment and Finance Association (UKSIF) show oil companies will no longer appeal to investors unless they adopt business models that support the Paris climate target.
The report, Oil pressure gauge: 2018 survey of fund managers' attitudes to climate risk and fossil fuel companies, found 86% of fund managers want oil companies to shift their focus away from fossil fuels and develop fossil-free products.
In addition, almost half of the respondents are calling for oil companies to adopt policies consistent with limiting global warming to 1.5°C while 43% are calling for a 2°C target.
Two thirds (67%) of fund managers want oil companies to change their investment to support a low-carbon transition in order for these targets to be met, but a quarter (24%) want the companies to wind down their businesses and return cash to shareholders.
While 68% of those canvassed think oil companies will still be attractive if they align themselves with the Paris targets and conversely 18% believe oil companies will be good investments if their focus is still on fossil fuels in five years' time, less than a quarter of fund managers do not view oil companies as good investments in any timeframe.
UKSIF chief executive Simon Howard commented: "The writing is on the wall for oil companies that do not support global efforts to avoid a climate catastrophe by urgently phasing out fossil fuels and transitioning to a low-carbon world. The investment community recognises that these will make increasingly risky investments."
However, these percentages are not translating into visible action. In the market there is proving to be a failure to develop products that are meeting the growing demand for fossil-free investments as well as effective strategies that will force oil companies' to change their current behaviours.
Indeed, the report warned many fund managers are still putting investors at risk by failing to align their portfolios with the Paris targets, agreed back in 2015 and signed by 195 countries; only 21% have a policy to do this across all their funds.
Howard added: "Most fund managers need to do much more to protect asset owners, and asset owners more to protect savers, by driving oil companies to change.
"Both should publicly commit to aligning investment portfolios with the Paris targets and managers should make more fossil-free investment products available.
"They should also coordinate their engagement policies and give them real teeth by setting oil companies deadlines and spelling out the consequences if they fail to take action."
UKSIF and the Climate Change Collaboration surveyed 39 fund managers with $10.2trn of assets under management for their second annual report on investment in integrated oil companies, following a warning by the Bank of England that climate change could wipe up to $4trn off the value of fossil fuel assets, as well as up to $20trn across all sectors of the economy.
The report said: "With the risks posed by climate change and to the IOCs in particular, asset managers need to ensure as many clients as possible are protected and should actively consider applying firm-wide climate policies consistently across all the portfolios they manage.
"It is not impossible that firms that apply climate risk policies inconsistently may risk litigation if clients lose out."