2014-07-03

Co.Exist

Is Divestment Actually The Best Strategy To End Fossil Fuels?

As the quest to have colleges end their investment in fossil fuel companies gains steam, do we know what the end game is?

Thank goodness the graduation season is finally over. I witnessed pomp and circumstance at prep schools from Orlando to the Napa Valley and at colleges from Los Angeles to the Ivy League. The surprising topic at all of these cap-and-gown fests? Endowments divesting their holdings in fossil fuel companies.

Responding to growing demands by students, the President of Pitzer College proudly announced that her institution had voted to divest. Cheers erupted. Ditto at Stanford. And in the U.K., 15,000 students signed a petition for the likes of Oxford and Imperial College in London to divest too.

Given the mounting evidence of climate change and its cost on food production, public health, and from storm damage, it’s not surprising that advocates would try to use the kind of tactics that brought attention to the tobacco industry and South Africa during apartheid. But are these unquestionably good intentions actually misguided?

One investment professional told me that the rush to dump tobacco stocks in the 1990s resulted in temporarily lower share prices, which allowed the companies to buy back their stocks at a bargain, while the businesses thrived and share prices rose again over time. And just what constitutes a "fossil fueled" stock? Exxon/Mobil and Peabody Coal for sure, but what about FedEx or Southwest Airlines that use prodigious quantities of petroleum products? What about GE or Bechtel that supply equipment and services to develop fossil fuels and convert them to energy we can use?

More to the point, beyond trying to punish these companies, what are we doing to replace the fossil fuels they profit from? Divesting tobacco stocks made sense, because no one is forced to smoke and the overall campaign got many people to quit. There are alternatives to coal, indeed clean energy like solar and wind are now cost-comparable to coal, especially as a price for carbon, mercury pollution, and toxic ash disposal is factored in, but how soon can we expect large scale alternatives to oil? And we’ll need alternatives in more than the transportation sector. What about making plastics, pharmaceuticals and cosmetics? Or making artificial rubber, something that other environmental advocates applaud as they try to end the deforestation caused by rubber tree plantations?

Finally, this kind of divestiture campaigning creates the classic "slippery slope". If endowments respond to these campaigns, how about other worthy causes, such as the companies that arguably spawned the recent recession by creating and selling questionable mortgage-backed securities (and even profited by betting against their success) like Goldman Sachs or Bank of America? Shouldn’t we be equally concerned about the "S" and "G" in corporate ESG (Environmental, Social, and Governance) practices?

Make no mistake, I’m thrilled to see these issues gaining attention from students, the press, and investment professionals, but the cheers heard at commencement speeches suggest a victory, when this is little more than a feel-good declaration of war. A more effective and comprehensive approach might be to campaign for investment criteria that cover all ESG "best practices" and clarify what we can be for instead of simply what we wish we could be against. Yes, I say "wish" we could be against, because I saw very few students, faculty, or parents at these graduations who had not arrived using those same fossil fuels for transportation and who watched students marching under floodlights powered by still more burning of carbon.

Instead of the blunt instrument of divesting, what about civilizing these companies and our own consumer choices while we’re at it? For investing, perhaps a page from the playbook of non-profits like CERES and its Blueprint for Sustainable Investing; or the ESG guidelines from Commonfund.org; or setting minimum standards for companies in a portfolio, prioritizing industry leaders in each sector and divesting the laggards, for things like carbon emissions as reported by the Carbon Disclosure Project. Or follow the example of many of the Rockefeller heirs who used shareholder resolutions to push oil companies towards more sustainable practices and development of alternatives, which will ultimately decide if fossil fuel companies will still be in business 50 or 100 years from now. After all, can you name any buggy whip makers?

Passionate support of good causes gets serious dialogue and solutions started. If the student divestiture movement does that, we will thank them one day for helping us transition to more sustainable energy and a healthier planet. But if all it accomplishes is the sale of a few shares of stock, very little will change and our fossil fuel addiction—and the pain that comes with it—will continue for generations to come.

[Image: Abstract via Shuttestock]

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9 Comments

  • Knock your self out with your misguided views and politically driven science, which is an oxymoron in its self. I will be happy to invest and take the profits. It always surprises me how very smart people don't have any understanding of people. If you are going to accomplish your goal of getting rid of fossil fuels you must come up with a viable substitute and one from the free market. Remember this... everyone wants to buy but no one wants to be sold. You guys are selling crap a majority of people don't believe or afford...I know, I know I am not as enlightened or as smart, I just don't understand.

    Keep your elite head in the sand.

  • Peter Murtha

    Hi Kurtis, Thanks for noticing my comment. I sense from you a heady mix of right-wing anger and fear of change. While I don't waste breath arguing with climate deniers, I will point out for the benefit of the readers that our campaign does not seek to eradicate fossil fuels, say next week (as you seem to believe), but rather to begin in earnest a smooth transition to a low carbon economy. We very much believe that the "market" will enable this transition once the cost of carbon pollution is factored in, but until that occurs even the great progress that has been made in deploying cost-competitive solar and wind will be grossly insufficient to avert dangerous climate change.

    Now take a deep breath and enjoy the remainder of your day!

  • So your solution is a tax on the energy market to subsidizes the product that can not make it in the free market. I appreciate your response but that is not free market solutions. Remember... no one wants to be sold and your selling a tax on a superior product to make you so called solution viable.

    Wow not only are you selling a solution that will, at maximum have a minimum effect on the overall temperature but you are omnipresent with you description of me. I would encourage you to look at all the science as I have and understand things are more dynamic than just taxing a critical product to the worlds economy or are you going to start taxing volcanoes, the sun or possibly every time a person passes gas.

    I breath and sleep well...I not the one trying to run everyone else life. Oh... did that sound right wing or libertarian or liberal...I am not sure. Thanks again for your follow up and sorry I can not wish you well in your endeavor to give government more money to waste.

  • Peter Murtha

    Kurtis,

    You're not listening. My solution is to finally make the fossil fuel industry responsible for the damage their product causes, and that alters the price equation versus clean renewables. However, given that you refuse to accept the overwhelming scientific consensus you don't acknowledge the damage fossil fuels cause — making further conversation rather pointless.

  • Peter Murtha

    It has never been the goal of the divestment campaign to “punish” the industry, but rather to create the political space for a transformation to a low carbon economy. To hold global warming to a 2° C rise — necessary for avoiding the most dangerous aspects of climate change — only 20% of proven oil & gas and coal reserves can be burned. Virtually all major oil companies acknowledge manmade climate change, yet insist on not only utilizing all of their existing reserves, but also spending billions of dollars exploring for new reserves — knowing that it will destroy our climate.

    Our campaign spotlights the industry’s destructive “business plan” and its effective control of the U.S. Congress to do its bidding. By stigmatizing the industry it becomes much more problematic for Congressional reps to be linked to them — finally permitting legislation to be passed placing a fair price on carbon pollution. Renewable energy and energy efficiency solutions will then finally emerge.

  • ghinner

    ...be a moving feast, as "the bad guys" score's would be relative to whichever potential investment holds the highest score.

    Only from here should divestment begin, and in doing so use the same framework to determine where, in the third step, to direct the capital.

  • ghinner

    What is this, an article on FastCo by someone who actually knows what they're talking about!? Who'd a thunk it :P

    I agree that simply divesting in and of itself is not the victory. Some may say it is only the first step. But IMO, it's not even the first step, it should be the second step.

    The first step as you've put forward Terry is to create an investment framework that incorporates appropriate ESG criteria for scoring investments, alongside a set of parameters for determining an acceptable portfolio balance of investments along an ESG/Sustainability continuum. In addition to this, it would necessary to create long term balance-of-portfolio objectives.

    For example, you could have "In 2015 the University of Queensland finds a 15% level of investment in "the bad guys" acceptable, with the objective to reduce this investment to 10% by 2017, and 0% by 2020, relative to current ESG continuum practice scores." That last bit is because the continuum would...