Earth Matters: The Divestment Debate

by Susan Hellauer

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Divestment. It’s the opposite of investment, and it’s not just a financial strategy. It’s been an essential part of the activist’s toolkit since a 1980s student movement pressured college and university endowments to rid themselves of assets connected with the racist government in South Africa. And it worked. The movement galvanized people across the globe, and the apartheid regime became a political pariah.

Now, fossil fuel opponents are leading a growing divestment movement, born on college campuses in 2012, asking institutions and individuals to rid themselves of investments in an industry that, in their view, is the main contributor to harmful climate change.

Fossil fuel divestment raises plenty of questions, and Earth Matters posed some of them to two local environmental organizations. Here are their answers, prepared for you by the leadership of the Rockland Sierra Club and 350.org NJ-Rockland.

1. If individuals or organizations divest from fossil fuel, it’s not like the shares will go begging. Other investors will snap them up at a bargain, right? So how will this actually affect the fossil fuel companies?

This is one of the big objections to divestment, and some argue that divestment has limited ECONOMIC impact on fossil fuel companies for this reason.  But the primary reason to divest is a MORAL one, not an economic one. 

Climate change, if it continues at the current pace, will cause massive human suffering, not to mention irreparable harm to the environment.  Ninety seven percent of the world’s scientists, as well as the vast majority of the world’s nations, are telling us that climate change is being caused by burning fossil fuels that release greenhouse gases into the atmosphere which, in turn, trap heat. Many think it’s immoral to make money from this, and this is why increasing numbers of institutions and individuals are choosing to divest. 

Divestment also draws public attention to the way the fossil-fuel industry is profiteering from the exploitation of our planet—and it encourages caring institutions and individuals to refuse to participate.

Earlier this month, activists worldwide called for fossil fuel divestment. Demonstrators at the Brandenburg gate in Berlin. Photo courtesy 350.org

2. When the overseas sweatshop labor scandal erupted a few years ago (and it’s still going on) some organizations used their shareholder positions as leverage to shame the offenders and get better working conditions. Shouldn’t large stockholders do the same in this case: get energy companies to make investments in clean energy instead of dumping the investments?

There are people who feel that shareholder action is more effective than divestment efforts. The Sierra Club, 350.org, and most other environmental organizations disagree. Many large shareholders have tried to make a difference—so far none have. The closest we’ve come is that Occidental Petroleum has agreed to study the issue and include information about it in future reports, but this is a long way from deciding to leave the fossil fuels in its inventory in the ground, and this is what MUST HAPPEN on a global level if we are to stop climate change. 

Shareholder action is unlikely to cause a change that is this alien to the business interests of fossil fuel companies, and if it does result in change, that change will be glacially slow. We cannot afford to wait. 

But it is possible to have one’s cake and eat it too. A large institutional investor can divest, but retain a token number of shares to enable it to undertake shareholder actions. The Unitarian Universalist Association did exactly this when it voted to divest in 2014.

3. Back in the 1990s, I divested my little 401K of tobacco stock. But I’m reading that some pension funds (e.g., Calpers) might reconsider tobacco investments, because the share prices are healthy and rising. When pension funds are responsible to large numbers of people, for a growing number of years (because we’re living longer), how can you expect them not to seek the best return, no matter what?

As a general rule, immoral investments turn out to be bad investments in the long run. We don’t know whether tobacco will end up being an exception or not. But in the case of fossil fuels, if the vast majority of the world’s nations have acknowledged that burning them causes climate change and that climate change threatens humanity, then it is just a matter of time before regulations, laws, and financial incentives are promulgated that eviscerate the fossil fuel industry. If we were investing other people’s money, we would not want to gamble it on when the tide will turn. In addition, 350.org did a recent study that showed that if the New York State pension fund had divested three and a half years ago when 350 asked them to, the value of the fund would be FIVE BILLION DOLLARS greater today!

Finally, more and more corporations are including climate risk in their business decisions—and are being called to task if they fail to do so. Fossil fuel companies, in particular, have large reserves that are on their balance sheets but are still underground.  If climate action forces these reserves to stay in the ground, there is a danger of the industry being overcapitalized because of these “stranded assets”—defined as assets that become obsolete or nonperforming well ahead of their useful life. Stranded assets must be recorded on a company’s balance sheet as a loss of profit. If corporate deposits of oil and gas need to be abandoned and their value written off, the stock is likely to plunge in value. This risk is increasing; why not move on now?

Divestment demonstrators in Hong Kong earlier this month. Photo courtesy 350.org

4. What about super investors like Warren Buffett? Why hasn’t he—or others like him—been leading the way on this? Buffett has just stated, at his Berkshire Hathaway annual shareholders meeting earlier this month, that they have no intention of divesting from fossil fuel stocks for at least the next 12 years, and that’s how the shareholders voted. But a significant minority of shareholders keeps raising the issue.

Warren Buffett is an amazing investor and an impressive human being. He has taken informed positions on many societal issues and shown that he is an independent thinker. As evidence mounts, and as pressure is brought to bear on fossil fuel companies, it is our hope that he will come to his senses, and that the rest of America will as well. This was just the second year that the divestment resolution has been presented at the Berkshire Hathaway annual meeting; it is not likely to be the last. It also bears noting that Mr. Buffett is heavily invested in renewable energy. As of 2014, this included over $15 billion in wind energy accounting for 7% of the country’s wind energy inventory, and an even larger investment in solar energy. 

5. Won’t divestment make it harder for non-rich people trying to build a sufficient retirement fund to reach their goals? 

We are very hesitant to tell people how to manage their personal money. Individuals need to make their own choices in consultation with their advisors. 

But we think it is fair to ask them to consider the following: As planetary temperatures go up (we have had new record high global temperatures for the last three years in a row and the ten hottest years on record have all occurred since 1998), as oceans rise leading to increased coastal flooding, as the intensity of storms continues to increase because hot air holds more moisture, and more moisture results in worse storms, is it not reasonable to assume that the transition from fossil fuels to renewable sources of energy will accelerate? This is already happening more quickly every year.

As an individual, does it make sense to gamble on when public policy will change to the point that fossil fuel companies start losing money? Sooner or later, this is going to happen, because in order to survive we are going to need to reject fossil fuels. This has, in fact, already happened to the coal industry, and while current US politics are slowing coal’s demise, it’s hard to imagine that investing in coal today would be smart. Oil and gas may not be far behind.

Demonstrators at May 2016 Exxon shareholder meeting in Dallas call for divestment. Photo courtesy 350.org

6. For people whose retirement and other investments are entirely in mutual funds, which may have dozens or hundreds of stock investments themselves, won’t divestment mean replacing just about everything? This seems scary.

We agree. This is a little scary.

Everybody needs to figure out the right balance for him- or herself.  But there are mutual funds that have been designed to be green. And investments in renewable energy companies and socially responsible mutual funds are now profitable, and are likely to become more so if current market trends continue. Many climate change zealots have studiously eliminated any fossil fuel holdings from their portfolios. There are also millions of us who are not all-or-nothing on this issue, but are shifting investments at a rate that feels safer to them. You make a difference every time you do something that moves you and the planet in the right direction. Everybody has to find the right pace and balance for themselves. What we cannot afford is for people to do nothing.

You or your investment advisor can visit the Forum for Sustainable and Responsible Investment website, which has a substantial list of funds from a number of companies that meet various SRI criteria.

7. Where can I find out more and talk to people who have done this successfully?

The 350.org NJ-Rockland site includes the names of investment advisors and the personal story of an individual who shares his journey to become a socially responsible investor. And 350.org NJ-Rockland and the Sierra Club of Rockland have a joint Divestment Committee working on three initiatives, one of which is to provide more resources for people who want to engage in personal divestment.

We will be reporting on our progress (admittedly in its early stages) at the next joint meeting of the two groups on June 1 (see box). This meeting is open to the public. If you can’t make it and you’re interested in joining the Divestment Committee, you can email jordan93016@icloud.com.

May 2017 divestment activists in London. Photo courtesy James Cracknell @JollyJourno via Twitter

Learn more:

• National 350.org website
• Fossil Free: Divest from Fossil Fuels (gofossilfree.org)
• Global Divestment Mobilisation 2017 (a project of 350.org)
•  Assets pledged to fossil fuel divestment surpass $5 trillion says 2016 report from divestinvest.org

Featured image: demonstrator at May 2017 divestment march in the Philippines. Photo courtesy 350.org.
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Earth Matters, a weekly feature that focuses on conservation, sustainability, recycling and healthy living, is sponsored by Maria Luisa Boutique and Strawtown Studio.