A future without oil, coal, and gas companies is being forged by individual, institutional and religious investors
There is a robust debate happening in university halls, around religious congregations, and at individual kitchen tables nationwide. The driving question: Should we divest from the fossil fuel industry?
Whether you are a college student, a trustee of a religious or educational institution, or an individual with a retirement fund, this is a relevant question for you.
Earlier this year, several community organizations in Boston, including the Institute for Policy Studies’ Jamaica Plain Forum, held a community forum in Boston to discuss the moral and practical issues of divesting from fossil fuel companies as a strategy to combat climate change.
The forum, viewable here, brought together those with expertise in finance, community organizing, social justice, and policy to address questions surrounding the basic nature of fossil fuel divestment as well as its implications for our investments and our world. Some of the questions we debated were: Is divestment meaningful? Can we exert leverage over energy companies by retaining the leverage of ownership? Would divestment reduce the investment returns required to sustain our institutions and income needs?
Our view is that our current economy, based on insatiable extraction and consumption, is simply unsustainable – for the planet as well as for us. Powerful fossil fuel corporations exercise an undue influence on environmental and economic policy, thwarting our ability to adopt sane and far-sighted energy policies. Here’s what we found:
1. We Did the Climate Change Math: Now We Must Act
We must compel the 200 largest fossil fuel corporations to keep 80% of their carbon assets “in the ground.” Extracting and burning these reserves of oil, coal and gas would raise the earth’s temperature over 2 degrees centigrade, unleashing climate catastrophe. [Read:Rolling Stone, Bill McKibben, “Global Warming’s Terrifying New Math”]
2. Time to Choose Sides: We Must Raise the Cost of Extracting and Burning Carbon
If we succeed in averting climate catastrophe, it will be because we have succeeded in raising the cost of fossil fuels and forcing the industry to internalize its real costs to society and the environment. This will lower the profitability of the sector – and lower returns for investors. Our cities, congregations, and universities should not be in a position where we are rooting for the fossil fuel industry to win. It isn’t right that the value of a sector doesn’t reflect its impact on the earth and society. In the long-term, destroying the planet doesn’t help us boost our investment returns.
3. We Are All Responsible for Carbon Pollution, But the Fossil Fuel Industry Has a Disproportionate Responsibility for Climate Change
While each of us should take personal responsibility for reducing our individual carbon usage, the fossil fuel industry has disproportionate responsibility for climate change. Many of us would like to have lower carbon lifestyles, but we’re systemically blocked from doing so via the lobbying power of the fossil fuel industry. The fossil fuel industry uses their considerable financial and political power to rig the rules to block regulation, block sane energy policy, extract taxpayer subsidies, thwart renewables, and limit consumer choice. They are writing government policies and fundamentally distorting our democracy. The industry is institutionally caught in a short-term system, where their economic interests are aligned with destroying the planet. If we had a carbon tax, innovation and development would be pushed towards energy efficiency. [See: Oil Change International’s Dirty Energy Money index.]
4. Fossil Fuel Profitability is Based on Rigging Our Political Systems
The profitability of the fossil fuel sector is based on their ability to politically influence and rig the system and shift the real costs associated with their industry onto society. The externalities that they shift include: environmental pollution, worker health and safety, cost of military deployment in oil-producing regions, negative health impacts, global climate change, and political corruption. If fossil fuel companies had to absorb the true costs of these externalities, the industry would be transformed—and would probably likely focus first on energy conservation and sustainable energy sourcing before further extraction. Their dependence on political rules makes them a risky and volatile sector as investments. When their political clout diminishes, as we hope it will, they will become less profitable. [See: Oil Change International]
5. Investment Returns in Fossil Fuels Will Inevitably Decline
Over the last 20 years, the fossil fuel energy sector has been among the most profitable of all sectors. For a variety of reasons, including those described above, this will not remain true. As policy makers start pushing back, they will eliminate government subsidies for fossil fuel, as President Obama has proposed. They will pass laws requiring fossil fuel producers to be more responsible for their negative environmental and social impacts. There is also growing evidence that the assets of fossil fuel industries are greatly over-valued. And, if we are successful, many fossil fuel companies will have “stranded assets,” reserves that will not be tapped. When the real value of carbon holdings is adjusted downward, billions in shareholder wealth will evaporate. [See: Carbon Tracker]
6. Divesting from Fossil Fuels Will Not Negatively Impact Return
Investors are understandably concerned that their investments will earn less money if they eliminate profitable fossil fuel corporations. It may not be prudent to sell off securities with large capital gains all at once; individuals and investors should get professional advice on the best divestment strategy. Some institutions have long-term relationships with trusted investment advisors who have helped their investments grown. It is not ungrateful or unprofessional to direct these advisors to gradually divest from dirty energy and reinvest in socially responsible alternatives. Beware, however, of advisors who tell you it can’t be done or predict huge losses overtime.
It is conventional investment wisdom that if you narrow the breadth of your investments—and fossil fuel securities are approximately 10 percent of the public equities market—that you increase risk. But there is plenty of expertise in the “socially responsible investment” field as to how to divest and design an investment portfolio that will still earn comparable returns. Industry professionals are working now to design “fossil fuel free” investment portfolios and mutual funds.
7. The Fossil Fuel Sector Will Not Reform Itself
The fossil fuel industry will only reform when we change the rules that shape their marketplace and operations. This can be accomplished through regulation and taxation. Instituting a robust carbon tax, phased in over several years and with offsets to address its regressivity, would signal huge market shifts. Many thoughtful people believe we should stay invested in fossil fuel corporations to have leverage with them and engage with them. This has not worked.
8. Support the Movement and an ‘Outside Strategy’
Selling stocks in fossil fuel companies may not drive down stock prices or even devalue the industry since other buyers will purchase those stocks. Regardless, the goal of the dirty energy divestment fight is to change public dialogue and society’s lifestyle, not stock prices. A traditional approach has been inside: engaging with the company and using our ownership stake to press the company to reform. This hasn’t worked. To send a strong message, we need to sever our ties to this sector and make these companies moral pariahs, similar to how the public treated tobacco companies.
Thankfully, there is a radical edge emerging to avert climate catastrophe. The “inside” strategy of working with the fossil fuel industry to reform itself is not moving fast enough. The new “outside strategy” activists are calling out the historic environmental groups who have compromised themselves into irrelevance. They are calling out Wall Street—those interested in only their own private gain at the expense of society and the earth. They are upping the ante in terms of direct action, civil disobedience along with traditional organizing and electoral politics. The call for divestment is part of this movement. [See:350.org]
9. Engaged Shareholder: You Can Still Work the “Inside Strategy” If You Want
Some institutional investors argue that they can change the behavior of the fossil fuel industry by retaining ownership of corporate shares and being engaged investors. Institutions or individuals that want to actively engage in shareholder activism—introducing social issue resolutions— should retain the $2,000 of stock that enables them to introduce resolutions, as Greenpeace and the Institute for Policy Studies do. Ownership is only one source of leverage, however. We should engage as full stakeholders—citizens, employees, consumers, communities, and moral actors.
10. The Moral Question Is Why Should Any Institution or Individual Stay Invested: This Is an Abolitionist Cause
Divestment is not primarily simply an economic strategy, but also a moral and political one. If slavery is wrong, is it wrong to make a profit from it? If Apartheid is wrong, is it wrong to make a profit from it? “If it is wrong to wreck the planet, then it is wrong to profit from it.” [See: The Boston Phoenix, Wen Stephenson, “The New Abolitionists”]
11. We Can Divest from Fossil Fuels and Invest in the New Economy
The next 20 years will be unlike the last 50 years. We are entering a stage of discontinuity thanks to ecological and economic change. We are in a transition to a new economy—based on an entirely different set of assumptions about energy and the future source of livelihoods. We need to shift capital investment away from the dinosaur economy and towards the sustainable and just new economy. Compared to the limited, risky, corrupt and unethical fossil fuel sector, there is a wide range of socially responsible investment opportunities with comparable returns for individuals, religious institutions, and other institutions. [See: New Economy Working Group]
Conclusion: We Should Divest from Fossil Fuels and Invest in the New Economy
There is no good reason why we should remain invested in the fossil fuel industries, not when we can continue to powerfully advocate with corporations and maintain sufficient returns. We can and should find ways to shift our investment capital to the socially and environmentally attuned institutions and enterprises of the new economy.
Bill McKibben: Global Warming’s Terrifying New Math
Dirty Energy Money: Challenging Dirty Energy’s Dominance Of Our Democracy
Carbon Tracker: Unburnable Carbon: Are global financial markets carrying a carbon bubble?
Naomi Klein: Time for Big Green to Go Fossil Free
Northstar Asset Management: The Cost of Fossil Fuel Divestment Has Been Greatly Exaggerated
Aperio Group: Do the Investment Math: Building a Carbon-Free Portfolio
Jamaica Plain Forum: May 13th Boston panel on divestment
Price of Oil: Exposing the True Costs of Fossil Fuels
New York Times: Room for Debate: Is Divestment an Effective Means of Protest?
It will take more than just divestment:Does Divestment Work? – Harvard Institute of Politics
Cities divesting: San Fransisco, Seattle … & Boston?
As You Sow – Environmental and Social Corporate Responsibility
Community-based and socially- responsible investing:
Sprout Lenders & Common Capital
Oil Change International
Responsible Endowments Coalition
Written with assistance from Jonah Reider.