Environmental activists are pushing investors to drop fossil fuel stocks in hundreds of events around the world for the first Global Divestment Day, but the energy industry and its allies are fighting back, arguing that such efforts actually hurt the activists’ goals.
The divestment push, which has primarily occurred on college campuses, runs parallel to calls on policymakers and businesses to address climate change. The activists’ aim is to send a message to markets that large oil, natural gas and coal companies are risky bets as the world becomes warmer from burning greenhouse gas-emitting fossil fuels.
“Divestment is a moral argument. We’re making the case that if it’s wrong to perpetuate climate destruction then it’s wrong to invest in climate destruction,” said 350.org spokesman Karthik Ganapathy, adding that investment in such companies is “a tacit endorsement of a company’s business model.”
But others, including academics and think tanks, say the campaign obfuscates and even runs counter to the goal of reining in emissions from fossil fuels, which scientists blame for driving climate change.
“These are worthy goals. The idea is to decarbonize the economy,” said Andrew Holland, senior fellow for energy and climate with nonpartisan think tank the American Security Project. “What we find is not that the objectives are wrong, but that the tactics are not effective.”
The fossil fuel industry and its allies are beginning to engage the issue after ceding much of the staging ground to the divestment movement. Activity ramped up this week during the run-up to Global Divestment Day, which began Friday and runs through Saturday.
The Independent Petroleum Association of America paid for a study that compared university endowment portfolios with and without energy stocks — those with energy stocks fared better than those without. American Energy Alliance, a conservative advocacy group that is partially funded by the Koch Brothers, touted the role fossil fuels play in providing low-cost energy to impoverished communities around the world. The Environmental Policy Alliance, another conservative group, produced a cartoon titled “Breaking Up With Fossil Fuels Is Hard To Do” that features an oil barrel dressed in a pink bow, high heels and lipstick that aimed to show how many products are derived from fossil fuels.
Even before this week, divestment was on the fossil fuel companies’ radar.
“[D]ivestment represents a diversion from the real search for technological solutions to managing climate risks that energy companies like ours are pursuing,” Ken Cohen, vice president of public and government affairs with ExxonMobil, wrote in October.
Still, the industry contends the effort isn’t hurting companies’ bottom lines. It just wants to defend itself against a campaign that portrays oil, natural gas and coal companies as the villain.
“This doesn’t impact company valuations. If it actually did impact company valuations, then industry absolutely would be concerned,” Chris Tucker, managing director with FTI Consulting, which has several energy industry clients. “There’s a media component to it obviously, and I think that’s why you’re seeing more industry involvement.”
Ganapathy said the industry’s recent actions are a reflection of the success of the divestment campaign, which has grown to include philanthropies and faith groups. The effort has received tacit endorsement from United Nations Secretary-General Ban Ki-Moon, who later this year will oversee international climate negotiations that aim to strike a deal governing emissions to keep temperatures from rising 2 degrees Celsius by 2100.
“They can’t just ignore it. They have to address it in some way,” Ganapathy said.
Divestment boosters contend that fossil fuel companies are overvalued because climate policies eventually will make the assets they hold either expensive or difficult to burn. Those “stranded assets,” they contend, would weigh down pension funds and other endowments that have invested hundreds of billions of dollars in fossil fuels.
“Companies are valued as if all those reserves are coming out, which is this tension — like, something’s got to give. The center cannot hold,” said Hayden Higgins, an organizer with DC Divest.
While the movement is growing, it’s still small. Daniel Fischel, a consultant and former University of Chicago law school dean who conducted the petroleum association-backed study, noted university endowments have invested $23 billion in energy stocks. That’s less than 1 percent of the $3.8 trillion market capitalization for the 200 top fossil fuel companies that activists are targeting for divestment.
Holland noted, as laid out in a new American Security Project report, that oil and gas companies are immune to stigma. A symbolic, morality-driven gesture such as divestment, therefore, will do little to sway action.
Dropping fossil fuel stocks also silences the voice climate-conscious investors could have within companies through shareholder activism. That’s the rationale Harvard University President Drew Faust used when her school rejected calls from students to divest from fossil fuels.
Robert Stavins, a prominent climate change expert and director of the Harvard Environmental Economics Program, backed up his boss’s decision. He noted that divestment wouldn’t hurt companies’ financial positions, so it would not deter their pursuit of new resources and development of existing ones. Only policy that makes emitting greenhouse gases more expensive could act as a deterrent to business as usual.
“[A] major problem is that symbolic actions often substitute for truly effective actions by allowing us to fool ourselves into thinking we are doing something meaningful about a problem when we are not,” Stavins said in a March 2014 op-ed for Yale Environment 360.
Divestment proponents contend shareholder activism is slow.
“Shareholder engagement has been tried for about 20 years with fossil fuel companies,” Ganapathy said. “Shareholder engagement has failed to solve the problem. The onus is on shareholder engagement activists that shows that that works.”
Many fossil fuel companies already bake a carbon price into their forecasts. Others, such as ExxonMobil and Royal Dutch Shell, have honored requests from their shareholders to describe potential threats to company value presented by emission-reduction policies that attempt to keep global temperatures from rising 2 degrees Celsius by 2100. BP shareholders last month proposed a similar resolution.
But ExxonMobil and Shell said nations were unlikely to implement policies to keep global temperatures from rising that much. Scientists agree. As such, the oil companies said they would continue business as usual, as they determined climate policies weren’t a threat to their models.
“For-profit companies are going to make decisions based on what they think is going to maximize their values. And if increasing diversification from traditional energy sources is going to increase value, that’s what they’re going to do,” Fischel told the Washington Examiner.
