Since it was launched over three years ago, the global fossil fuel divestment campaign has become the fastest growing divestment effort in history with a recent study by Arabella Advisors in the US finding that an estimated US$2.6 trillion (AU$3.66 trillion) has been divested from coal, oil, gas, or a combination of all three, by funds, trusts and foundations.
A new study this week from Corporate Knights showed that US$23 billion (AU$32.4bn) has been lost by 14 funds who chose not to divest from fossil fuels, including the Bill & Melinda Gates Foundation (with a loss of AU$2.68bn).
Recent arguments from a range of business experts and the financial media suggest that divesting is a bad idea. Below, we’ve taken on their arguments to show that it makes great sense - not only for the global climate but, with fossil fuel prices dropping drastically and global commitments to reduce or phase out fossil fuel use altogether being made, for the bottom line as well. So, let the fossil fuel divestment myth-busting begin:
1. Shareholder engagement with fossil fuel companies is the best way to drive change
Whatever your view, fossil fuel companies such as ExxonMobil and Peabody have long been aware that burning their products would raise global temperatures enough to cause glaciers to melt and sea levels to rise by the middle of this century. So holding on to your shares and “engaging” with fossil fuel companies is pointless at this point in time because their very product simply cannot be used in the very near future if we are to keep our world below the 2°C of warming the world has committed to in order to ensure it remains liveable.
As 350.org co-founder Bill McKibben says, the likelihood of fossil fuel companies committing to change now, because of shareholder engagement, seems more or less impossible: “Engagement is unlikely to persuade a company to commit to eventually putting itself out of business.”
The leading environmentalist Jonathon Porritt spent years engaging with fossil fuel companies on sustainability projects only to conclude that such efforts were futile. Porritt wrote: “There was a time when I seriously persuaded myself that it was still just about possible for companies like Shell and BP to find some way of transitioning into ‘fully-integrated energy companies’, investing as much in renewables, storage and efficiency as in hydrocarbons, instead of reverting to what they are today: pure-play hydrocarbon dinosaurs. It didn’t happen. Worse yet, the lengths they went to justify their continuing investments in new hydrocarbons have become more and more extreme.”
After years of documented resistance to proven climate change science, there is little evidence so far in support of the shareholder engagement approach.
2. We all use fossil fuels everyday, so divestment is hypocritical
Fossil fuel companies exist because we want and use the products that fossil fuels make and power – from airconditioning to heating, TVs to tennis balls. Shifting to new energy sources will take time, so no one is arguing for an on-the-spot end to all fossil fuel use.
In Pope Francis’ encyclical on the environment, Laudato Si’, Francis has shown himself to be a strong supporter of progressive investment principles and clean energy. “There is an urgent need to develop policies so that, in the next few years, the emission of carbon dioxide and other highly polluting gases can be drastically reduced, for example, substituting for fossil fuels and developing sources of renewable energy,” he said.
The “divest-invest” strategy moves money into non-fossil fuel energy sectors that have already begun driving the transition to a low-carbon world. Analysis based on a report by Arabella Advisors has shown that the divestment movement has grown exponentially since its launch, with more and more investors reducing their fossil fuel holdings and diversifying their portfolios to include clean energy investment.
3. Divestment is not meaningful action - it’s just gesture politics
Divestment works by stigmatising the fossil fuel companies and removing their social license to operate. As pointed out in a report from Oxford University: “The outcome of the stigmatisation process poses the most far-reaching threat to fossil fuel companies. Any direct impacts pale in comparison.”
Divestment can also bring pronounced negative visibility for individual companies as illustrated by the Australian National University’s decision to divest shareholdings in seven resource companies including Santos, Oil Search and Sandfire in October 2013. Many of these companies responded angrily, claiming that the decision was unfair.
Who would have thought that a small divestment of A$16 million could outrage companies with a combined market capitalisation of AU$45 billion? Since the ANU divested from Santos, the company’s shares plummeted 60 per cent - dropping from a share price of nearly $15 to $6. What Prime Minister Tony Abbott at the time called “stupid” turned out to save the university millions.
In addition, as an increasing number of companies and organisations divest from fossil fuels along with public concern and calls for action, it can actually make it easier for governments to take action. The dramatic reality of the divestment movement has already been demonstrated by successful campaigns against corporations in apartheid South Africa, tobacco companies, munitions and gaming.
4. Divestment is pointless - it can’t bankrupt coal, oil and gas companies
Over 460 organisations have made some move to divest since the launch of the divestment campaign including the Norwegian Sovereign Wealth Fund, which shed billions of dollars of coal investments from its $900 billion fund earlier this year. The $860 million Rockefeller Brothers Fund divested from fossil fuels in 2014 and Stanford University dumped coal investments from its $18.7 billion fund the same year.
Here in Australia, divestment commitments have been made by the City of Melbourne to the Royal Australasian College of Physicians, Local Government Super, the National Tertiary Education Union, the ACT Government in Canberra and the City of Newcastle - home to the world’s largest coal port - to name a few.
In the beginning, the aim of the divestment movement was not to bankrupt fossil fuel companies financially, but to bankrupt them morally. But support for the movement has exploded since 2014 and with over $2.4 trillion divested from fossil fuels, the impacts aren’t just being felt at the heart strings but at the bottom line too.
5. Divestment means stocks will be picked up cheaply by investors who don’t care about climate change at all
In reality, the reason for buying shares is to make money by investing in companies that you believe will make money. But according to IPCC climate experts, global greenhouse gas needs to be reduced by 40-70 per cent by 2050 and zero emissions need to be reached by the end of the century. Therefore, anyone who buys fossil fuel stocks are taking on a known risk. A recent Carbon Tracker report notes “the fossil fuel industry’s history is peppered with examples of failing to adequately assess risk to investments because certain scenarios were deemed highly unlikely”.
Importantly, if large scale divestment could lead to a strong increase of stranded assets it makes no sense for the public institutions and universities primarily targeted by the divestment movement to be holding these stocks.
6. Fossil fuels are essential to ending world poverty
Today there are more than seven billion people on the planet, and, without question, the real growth in energy demand is going to come from the developing world. The Pacific nations, on our doorstep, are already one of the most disaster-prone areas in the world. Climate change, driven by unchecked fossil fuel burning, will bring more cyclones, damaging storms and king tides, and for low-lying nations, inundation.
Australia’s Minerals Council - and the many pure play fossil fuel companies around the world - often argue that coal, oil and gas made the modern world and are essential to improving the lives of the world’s poorest citizens.
But as Marc Purcell from The Australian Council for International Development, argues: “Renewable energy development can provide cheap and easily accessible energy to the 1.2 billion people currently living without electricity. The Pacific now relies on fuel imports for power - by switching to renewables, savings from fuel subsidies can be invested in health and education. If we carry on growing the global economy at its current rate and continue to rely on fossil fuels, countries that already rely on our aid will need more help, and many of the development gains will be wiped out.”
So, there is a choice: ensure poverty is eradicated by the large-scale deployment of renewable energy, and shift money out of fossil fuels by divesting; or continue to sell fossil fuels to the developing world and inflict a growing number of extreme weather, drought and other climate change impacts on them and the rest of the world as a result. The right choice seems obvious.
7. It’s none of your business how other people invest their money
First, many divestment campaigners target their own pension funds, universities and local governments - which is, in fact, their money. But even when it is not, the impacts of fossil fuel investments are not limited to share owners themselves. The exploitation of fossil fuels is causing climate change that affects everyone on Earth.
While those who still doubt the existence of man-made global warming look more and more certain to end up with well-fried egg on their face - our children and grandchildren have every right to harshly judge our failure to act because we decided that it was none of our business how other people invested their money.
Furthermore, the “none of your business” argument would imply no divestment campaign has been legitimate, meaning that the harm caused by tobacco, and apartheid in South Africa, would have gone for a significantly longer time.
The speed and success of the fossil fuel divestment campaign has, in many cases, been the result of frustration due to the lack of government action on climate change at all levels. It has allowed people, funds, institutions, churches and philanthropic groups to take direct action against climate change by moving their money and it has gotten not only the attention of fossil fuel companies, but of investors too.
Rockefeller Brothers Fund chair Valerie Rockefeller Wayne summed up the future of energy best when she told Rolling Stone in January: “If you look back, when John D Rockefeller Sr got into the business, we got our oil from whales. It’s preposterous, right? His big breakthrough was to get oil out of the ground. The breakthrough now is going to be in clean energy. You should be there at the forefront. Those are the investors who are going to make the most money.”
Blair Palese is chief executive of 350.org Australia. Anne-Marie Fort is a volunteer with the organisation.