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18 Mar 2013

Can a Divestment Campaign Move the Fossil Fuel Industry?

U.S. climate activists have launched a movement to persuade universities, cities, and other groups to sell off their investments in fossil fuel companies. But while the financial impact of such divestment may be limited, the campaign could harm the companies in a critical sphere — public opinion.
By brooke jarvis

Last fall, the climate advocacy group 350.org held a series of rallies in 21 cities across the U.S., making the case that combating climate change requires fossil fuel companies to leave a large portion of their reserves in the ground — and that large-scale divestment by their shareholders could help convince them to do so. Since then, four small U.S. colleges have committed to ridding their endowments of fossil fuel investments, and more than 250 other colleges and universities have spawned student- or faculty-led divestment campaigns pushing for action in the next five years.

When the group held a rally in Seattle in November, a couple of unusual things happened.

First, the night ended with a commitment to set the divestment process in motion — a rarity in what can be a long and difficult process. Second, the promise came not from a university, but from Mike McGinn, the mayor of Seattle, making the city the first in the U.S. to embrace fossil fuel divestment.

Hampshire College divests

Students for a Just and Stable Future
Hampshire College students celebrate after the Massachusetts school pulled investments from fossil fuels in 2012.
But 350.org organizers doubt it will be the last. Within the next few weeks, the group is planning to launch a new, off-campus component of its campaign, targeting not just colleges and universities, but also governments, churches, unions, community groups, companies — almost any institution with a pension fund, endowment, or other major investment in fossil fuels.

“Cities in particular can help pinpoint the absurdity of, on the one hand, spending huge sums to build seawalls while at the same time investing in the companies that make it necessary,” 350.org founder and president, Bill McKibben, said in an email.

“The logic of divestment is pretty simple,” says Jay Carmona, who recently joined 350.org to oversee off-campus divestment projects. “If you don’t like what a company is doing, you don’t pay them to do it.”

There’s plenty of skepticism about the campaign — and not just from the fossil fuel industry, which pushed back by commissioning a study arguing that universities would lose out on high-performing investments by giving up their stocks in oil and gas companies. University administrators have expressed concern that losing those investments could impact their ability to offer scholarships and financial aid; some pension fund managers say they can have more influence on companies if they speak up as shareholders.

But enthusiasm for divestment, already high on college campuses — student referenda at Harvard and the University of North Carolina, for example, showed 72 and 77 percent support for divestment, respectively —
‘Divestment is targeting the one thing those companies can’t buy, which is their reputation.’
is leaking into the outside world. The campaign’s organizers point to Seattle’s commitment, a bill in Vermont’s state senate, a resolution to be considered by the United Church of Christ General Synod in June, and citizen-led campaigns in Portland, St. Louis, and New York City. In San Francisco, the Board of Supervisors will hold a hearing next month on a proposal to jettison $1 billion of fossil fuel investments held by the city’s pension fund.

Carmona sees these as just the beginning. While 350.org’s efforts have thus far focused primarily on campuses, the new program will encourage a much wider range of institutions and organizations to examine the impact of their investments. Cities, she says, are an obvious target: “A lot of people are trying to tackle climate change at the municipal level, and it makes little sense for them to be trying to do that while also invested in fossil fuel companies that are working against those changes.”

Mayor McGinn lists divestment alongside Seattle’s other climate initiatives, from expanding mass transit to creating a climate action plan. “I hope other cities will look at it,” he says. “I think they should. I think it’s the right thing to do.”

John Avalos, the Board of Supervisors member who introduced San Francisco’s resolution, says he was inspired by Seattle’s example and expects other cities to follow. “They want their investments to be compatible with their climate goals,” says Avalos.

But what can divestment really accomplish? While it’s been widely touted that colleges and universities have some $400 billion in endowments, only a small percentage is actually in fossil fuel stocks. Seattle found, for example, that its pension fund has invested $17.6 million with Chevron and Exxon — less than 1 percent of the total fund. While it’s likely that the fund holds shares of other fossil fuel companies, it’s still nowhere near the amount of money it would take to have a real impact on the oil giants.

But organizers argue that political and cultural impacts are at least as important as financial ones. “Divestment is targeting the one thing that those companies can’t buy, which is their reputation,” says Carmona.

Many people have compared the fossil fuel divestment campaign to the well-known divestment campaign that targeted the South African
Despite student enthusiasm, there is no sign yet of a critical mass of support from university administrators.
apartheid regime in the 1980s. But the fossil fuel initiative may be more akin to divestment 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. The more widespread divestment becomes, campaigners believe, the deeper the association.

In fact, a 1999 study argued that even the South African campaign didn’t create substantial financial pressure on companies doing business with the regime, since socially “indifferent” investors were quick to take advantage of undervalued stock prices after divestment temporarily caused them to fall. The strongest impact of the campaign was in influencing public opinion: Every university that announced it was dumping its stock helped paint involvement with the South African regime as a moral failure.

For all the student enthusiasm about fossil fuel divestment on university campuses, there’s no sign yet of anything like a critical mass of support from university administrators, a number of whom have protested that fossil fuel divestment undercuts the primary purpose of endowments: Generating maximum return on investments in order to fund school operations. Students at Bowdoin College say this is why administrators rejected their divestment request.

Mark Orlowski of the Sustainable Endowments Institute contends that, for universities, one possible answer to the economic question is to invest in their own energy efficiency programs. He maintains that university investments now tied up in fossil fuels could actually produce much better returns if redeployed as “green revolving funds” that invest in on-campus energy efficiency projects and then continually reinvest the savings. The median return on such green funds in 2012, the institute concluded in a study, was 28 percent.

And while fossil fuels are good investments now, climate change means that may not always be the case. An analysis earlier this month by the credit rating agency Standard & Poor’s and the non-profit Carbon Tracker Initiative warned that oil companies are likely to become much riskier
‘We want a future that is not reliant on taking fossil fuel reserves and putting them in the atmosphere,’ says Seattle’s mayor.
investments in the future. Indeed, some large institutional investors warn that not responding to climate change constitutes a significant economic risk. A 2012 memo from several major investment networks responsible for more than $22.5 trillion in assets put it bluntly: “Further delay in implementing adequately ambitious climate and clean energy policy will increase investment risk for institutional investors and jeopardize the investments and retirement savings of millions of citizens.”

Campaigns targeting governments will have to overcome the same economic objections as those targeting universities, and then some. “Pension funds have different mechanics than endowments, including state and even federal laws governing how they can be invested,” says Carmona. “There’s a new learning curve.”

That has certainly been the case in Seattle. When McGinn sent a letter asking the pension system governing board to look into divesting fossil fuel stocks from $2.6 billion in retirement funds it controls, he found that Seattle hadn’t yet developed a protocol for making such decisions. Divestment, it turned out, is new territory for the city: The board is now working on developing a system for evaluating whether — and how — to do so.

Divestment advocates say that process is actually an advantage of their campaign — a chance for institutions to take a more active role in ensuring that their investments reflect their values. That’s an important need, says Mindy Lubber, president of the sustainable investing group, Ceres, and director of the Investor Network on Climate Risk. Lubber has worked with many large-scale institutional investors, including government pension funds with hundreds of billions in assets. Many of them, she says, recognize that “the economics of fossil fuels, in the long-term, are catastrophic for companies, for sectors, and for the economy.”

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Still, she believes that many funds whose managers are concerned about climate change are unlikely to divest: “Their fundamental belief is that they could probably get more done as owners of the companies. Their theory of change is different: Hold on to those stocks, file shareholder resolutions, engage with the boards, change the practices.”

McKibben argues that simply pushing for changed practices is insufficient when it comes to fossil fuel companies. “Our job is to help people come to understand that these are now rogue industries—that, quite literally, if their business plans are followed, the planet tanks,” he says.

As the fossil fuel divestment movement grows, more institutions will have to grapple with the economic, ethical, and strategic questions it raises. “By joining in the divestment movement,” says McGinn, “we’re making a statement about what kind of future economy we want — one that is not reliant on taking the fossil fuel reserves we have and putting them into the atmosphere.”

ABOUT THE AUTHOR


Brooke Jarvis is an independent journalist based in Seattle. Her work has appeared in Rolling Stone, The Washington Post, Sierra Magazine, Aeon Magazine, and The American Prospect, among others. She spent three years as web editor of YES! Magazine. Previously, she has been in charge of compost and recycling programs for a remote leprosy settlement in Hawaii and built trails in state and national parks across the country.

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COMMENTS


As a geology student and resident of texas with family in the industry your assessment of the industry is very wrong. The companies are not worried about anything whatsoever, and are hiring faster than ever. I'm sure they wouldn't be doing this if they were afraid of a carbon tax, divestment, etc., each of which will have little to no impact on.

Divestment is more of a symbolic gesture and will have little to no impact just like the opposition to the Keystone XL. You are better off keeping the stock and using that money to support renewables or energy efficiency than sell and get less benefit. I do believe something has to be done about climate change, but am constantly frustrated by activists (many of whom know absolutely nothing about science) making irrational demands and accomplishing nothing.

For example: instead of trying to ban fracking why not require methane capture, and tax extraction? (The second part of this was proposed by Obama.) This money could be used for subsidies for renewables, smart grid, etc.

Posted by Andrew on 20 Mar 2013


Global corporate and sovereign (nation-state) investments in fossil exploration and development this year will be something around $600 billion. The International Energy Agency reports global public subsidies for fossils are also approximately $600 billion. Meanwhile, all types of economic analyses indicate all nation's need to transform in a rapid and orderly fashion to 100 percent clean energy, which is now fundamentally feasible.

This interesting situation would seem to lead to an interesting question.

Posted by James Newberry on 20 Mar 2013


And nobody drove or flew to the rally, correct?

Other than being a symbolic gesture of desiring change, what would divestment accomplish - except the transfer of wealth to other shareholders?

Lets say we could quadruple our fuel-efficiency tomorrow and get 100+ mpg for all 240,000,000 cars. We'd only be reducing, not eliminating, fossil fuel consumption, and we'd still consume billions of barrels of oil per year.

There is no magic wand or protest sign that can eliminate our need for fossil fuel anytime soon!

Posted by Greg Durocher on 21 Mar 2013


I stopped buying energy for our house in 2004 when we added a PV system to our solar heated house in NJ. Buying petroleum products is the same or worse as investing in stocks or bonds.
People complain about the oil companies for various reasons. But never change any of their behaviours.

It has to start with individuals making small changes. But when I discuss these things with people they all have made-up reasons why making any change would never work. Bottom line is that people will not change until they are forced to. By that time the earth will not be the same as it is today. And our children will look at us and say What were you thinking? You knew what was going to happen.

Posted by Richard Hollabaugh on 22 Mar 2013


We are at war and Rex Tillerson can stop it. By re-inventing ExxonMobil (competitive oil companies following suit) Rex can take on the leadership role in the global transition from carbon-based to carbon-free energy technology.

In the LONG TERM, the climate will stabilize, and humanity will have a chance at surviving the droughts, famines, water crises, weather devastation, disease, and other traumas from ecocide.

In the SHORT TERM, Rex can avert what could be a collapse of share value and corporate capitalization that will result from the divestiture campaign (war). Oil companies reinventing themselves as energy companies will save them from economic ruin.

Rex can take the lead by calling upon his colleagues to agree in concept to reinvent, and to announce a concrete year-by-year plan to retire and dismantle the carbon infrastructure (refineries) and the wells and pipelines that feed them.

Hand-in-hand would be to announce their concrete plans to shift corporate investments from carbon infrastructure expansion to little-known ARPA-E innovation successes as well as the already well-known carbon-free energy.

Rex Tillerson is the top of the petroleum food chain. He could do it if he were to just decide. We need to compel him to. Join in and http://TellRex.com

Posted by Doug Grandt on 22 Mar 2013


See this in last month's Guardian:

http://www.theguardian.com/environment/2013/oct/08/campaign-against-fossil-fuel-growing
Posted by Paul Schaafsma on 22 Nov 2013



 

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