To answer this question, I conducted a survey of responsible investors who are signatories to the United Nation’s Principles for Responsible Investment and of fossil divestment campaigners (students). A total of 77 people responded to this question in the survey on fossil fuel divestment and climate risk. Organisations directly and indirectly involved in the investment activities comprised more than 50% of the respondents, followed by students (36.21%). Geographically, almost half of the respondents are from UK, followed by the U.S. and Australia combine representing another quarter of total respondents.
Response to the survey suggest that the responsible investors disagree with the fact that fossil fuel divestment is the best strategy to address climate change, while the student community less confidently agree. Responsible investors might have weighed other options to address climate change like implementing appropriate climate mitigation policies, increasing clean energy share in power generation, plus impact of divestment on the portfolio, before passing on the judgement. Opinion of responsible investors also suggest that a certain segment of the group favor divestment as a legitimate step to address climate change. These might be university endowments, foundations, and/or churches who have taken an ethical standing on fossil fuel divestment and decided to divest fossil equities from their portfolio.Other responsible investors like pension funds who face much more stringent regulatory constraint than endowments and religious investors may not divest just for ethical reasons. This thought was very well reflected by Mayor Mike McGinn of the City of Seattle, U.S. in his statement on fossil fuel divestment that ‘state and federal law on fiduciary responsibility requires board members to only invest funds to achieve a social or environmental objective when the resulting return on investment and related risk are comparable to other available investments’[1]. Past divestment experience (South-African, Sudan etc.) suggest that divesting fossil equities leads to reduced diversification opportunities to investors, increase portfolio risk, and additional transaction costs. Due to the mentioned reasons, among others, responsible investors might have passed the judgement that fossil fuel divestment is not the best strategy to address climate change. On the other hand, students less confidently agree that fossil fuel divestment is the best strategy to address climate change. This may be due to the ethical standing of the student community (campaigners) who consider climate change as a ‘deep moral issue’. Campaigners believe in the legitimacy of fossil fuel divestment by giving ‘carbon budget’ arguments and relying on the success of South-African anti-apartheid divestment campaign, which pushed U.S. government to enact regulation banning U.S. corporations to do business in South Africa.
Various recent articles published by academicians, investors, media professionals take different positions on the fossil fuel divestment issue, most giving reasons to justify their viewpoint. Opponents of the divestment movement suggest that divesting fossil equities will reduce financial resources of oil and gas companies, which in turn will hinder their capability to research, develop and implement carbon capture and storage technologies (CCS)[2]. Others are of the opinion that divestment will hurt oil and gas companies’ capability to undertake projects in difficult technical and political environment by constraining inflow of capital. Since in the near future dependence on fossil fuels (especially oil and gas) will only grow due to rapid industrialization in developing countries, the opponents advocate that transition to natural gas is crucial to address the issue of climate change, not divestment. Perhaps the biggest example of this came from the U.S. where carbon intensity of electricity produced in U.S during 2007-12 fell by 13%, mostly due to shift from coal to natural gas (U.S. Energy Information Administration, 2013)[3]. Proponents of divestment argue that in an era of political capture—where corporate lobbyists dictate national policy—the climate movement is using divestment to bypass a broken political system [4]. Divestment campaigners see themselves as counteracting the lobbying efforts of fossil fuel industry in delaying climate legislation, hence, justifying their standpoint. Regardless of the debate, what is without doubt is that the divestment campaign has been extremely successful in creating high profile debates on climate change and terming ‘divestment’ as a ‘deep moral issue’.
So will the fossil fuel divestment movement be the biggest driver in shifting away from the fossil fuels? I will publish survey responses to this question in the coming week.
[1] http://mayormcginn.seattle.gov/next-steps-on-fossil-fuel-divestment/
[3] U.S Energy Information Administration. (2013) U.S. Energy-Related Carbon Dioxide Emissions, 2012.
[4] http://read.hipporeads.com/can-divestment-combat-climate-change/
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