27 May 2014 — According to Morgan Stanley, the fossil fuel divestment campaign is the big trend to watch in 2014.
“Not since the apartheid era in South Africa have college campuses in the US and elsewhere teemed with the call for divestment. For this generation of students, the moral imperative today is to stop all fossil fuel extraction. Spurred by the nonprofit organisation 350.org, the movement is calling for divestment from approximately 200 companies that hold the vast majority of the world’s carbon reserves.”
As the WiseGeek site explains, a divestment campaign is designed to convince an institution to divest its assets from a particular region or company, with most divestment activity focusing on universities, “which often have large amounts of money invested in a wide variety of locations”, with the campaigns often successful due to universities’ interest in maintaining popular public opinion.
One of the most striking recent examples was the Sydney Biennale victory where artists organised a boycott against a system that indefinitely detains asylum seekers who arrive by boat, through a policy steeped in secrecy and violence. The move forced Luca Belgiorno-Nettis, director of Transfield Holdings, to resign as chair of the board of the Biennale.
Data compiled by Market Forces shows that people protesting against the big banks’ exposure to the polluting fossil fuel industry have so far withdrawn $200 million worth of deposits since the campaign began last year.
The amount is minuscule compared to the collective $19 billion Market Forces said these banks have loaned to Australian coal and gas projects since 2008, but it highlights a potential risk for lenders.
Since it started in the US, the divestment campaign has spread beyond banks to funds and university endowments that invest in coal companies. It’s a worldwide trend.
Huge funds like the Norwegian Government’s sovereign wealth fund has taken steps towards divesting from fossil fuels. The Norwegian government recently announced a formal review of whether the fund should halt investment in coal, oil and gas. Worth $840 billion, the fund is the biggest wealth fund in the world and, if successful, the move could be the biggest win to date for the global fossil fuel divestment campaign.
The World Bank, European Investment Bank and the European Bank for Reconstruction and Development have also stated they will scrap most assistance for coal-fired power plants. And multi-faith groups have sent a letter to Pope Francis, urging him to back a campaign to encourage millions of people, organisations and investors to pull their money out of the fossil fuel industry.
In Australia, Deutsche Bank, Germany’s biggest bank, has ruled out funding the Abbott Point coal terminal without the assurance from both the Government and UNESCO that it would not damage the Great Barrier Reef. Asked at the annual general meeting whether HSBC would be willing to fund the Abbot Point expansion, the bank’s chief executive Stuart Gulliver said it was “extraordinarily unlikely it would go near it”.
The divestment movement has gained a lot of traction with universities, which have a lot of money and high public profiles. For example, Stanford University in the US recently announced it would divest from coal companies.
“Stanford has a responsibility as a global citizen to promote sustainability for our planet, and we work intensively to do so through our research, our educational programs and our campus operations,” said Stanford President John Hennessy.
“The university’s review has concluded that coal is one of the most carbon-intensive methods of energy generation and that other sources can be readily substituted for it. Moving away from coal in the investment context is a small, but constructive, step while work continues, at Stanford and elsewhere, to develop broadly viable sustainable energy solutions for the future.”
“I think we’re at a tipping point,” Bob Litterman, chairman of the risk committee for $2 billion hedge fund firm Kepos Capital, told CNBC. “There’s going to be a lot of focus in the next couple years on what is the social cost of carbon, how do we create appropriate incentives and, as investors wake up to the fact that this is happening; we’re going to see more divestment, more investment in the next generation of energy.”
However, Mr Litterman told The Conversation that divestment was a “blunt, expensive, and potentially risky response” to the dangers of climate change.
“Rather than divesting all fossil fuels, an economically sound response for investors is to hedge the stranded assets in a fund,” he said.
Writing for the Harvard Institute of Politics, Ian Hendey says divestment from select fossil fuel producers would send a powerful message to the energy industry and the nation. It would signal that America’s universities take the climate-energy challenge seriously.
Brooke Jarvis in the Yale Journal says that fossil fuel divestment campaigns may be more akin to campaigns targeting tobacco companies. Just as those campaigns tried to link tobacco companies with the health effects of smoking in the popular consciousness, the current campaign wants to tie fossil fuel companies’ reputations to droughts, rising sea levels and the obstruction of climate action.
But how effective are these campaigns?
The John Hopkins newsletter reminds us that owning shares in a corporation gives people voting rights.
“Someone who holds a share of ExxonMobil gains the right to have a say in the way in which these corporations are run. A better proposal for an organisation seeking to reduce climate change would then be to use their voting power to move fossil fuel companies towards seeking sources of alternative energy.”
Matthew Yglesias at Slate says divestment doesn’t make a whole lot of economic sense. All it does, he says, is force the price of the company down and that attracts the bargain hunters, and in the age of algorithmic trading, the entire process will run its course in the blink of an eye. Nobody will even notice it happened.
“The nature of the climate change problem is that it can’t really be fixed through individual action. There’s no real way for an individual consumer to know the energy mix that goes into the products she buys. More to the point, complicated systems that govern electricity distribution and transportation can’t be effectively overhauled on a person-by-person basis. Reform needs to be regional – if not national – in scope.”
Loren Steffy at Forbes says the reason Wall Street hasn’t been delivering the capital needed form a “sustainable” economy around renewable energy is because that economy isn’t sustainable. The return on investment has not yet reached the level to attract the kind of capital needed to achieve sustainability.
Dan Apfel at The Nation says the divestment movement has to go one step further and reinvest the money into renewables and a sustainable economy.
“Investors, including the colleges, pension funds, foundations and churches that as citizens we participate in and benefit from, together have trillions of dollars that can be used to confront this crisis. Yet these organisations are directly supporting the disruption of our climate and its devastating impacts by refusing to take action with their money. Even those who have divested have not done enough. They now must evaluate how they can actively use their investments to limit the impacts of climate change,’’ Apfel says.
“It is time to shift money into solutions to climate change. These solutions in particular need investment, and a lot of it, now. While one college or pension may not be able to finance the move to a new, low-carbon economy themselves, when many shift their investments they can dramatically increase investments in this area.
“From the investment perspective, there is also plenty of money to be made investing in the transition from fossil fuels. While government spending and regulation would undoubtedly make more climate change solutions profitable, many of these investments are viable right now. If major investors were to move even five per cent of their money, they could help to open more investment opportunities and build pressure for policy change.
“These changes will only become easier to make: large investors already find hundreds of opportunities in all shapes and sizes. It is possible to invest in building wind farms, smart grid technology, energy efficiency and environmental restoration.”
Surely when the trillions of dollars are poured into renewable energy, it will be a different equation. Divestment is just the first step.