Fossil fuel divestment has received considerable criticism for what will become our generation’s defining struggle. For the white-collar stakeholders with vested interests in maintaining business as usual – those at the helm of both corporations and investment institutions alike –divestment resembles a breach of trust.
Many institutions control, invest and spend the capital of others. In the interest of ensuring those spending decisions are made sensibly, a legal framework of fiduciary responsibility exists for decision makers. So, when the call is made for our institutional stakeholders to divest, the response often takes the form of a crude argument along the lines of “our hands are tied.” From the Bank of England to eco-financial policy think tanks like Carbon Tracker Initiative, many strong voices do acknowledge that the fossil fuel industry faces severe risks as climate policy frameworks and a burgeoning green sector threaten the industry’s bottom line. This fact is a foot in the door for proponents of divestment, as it begins to appear not only as a financial responsibly, but a fiduciary necessity.
Yet, divestment is about more than realigning capital markets, voicing shareholder discontent with unethical decision-making and obliging university governors to make symbolic gestures. Divestment is now, as it has been historically, about starting a conversation.
A growing body of evidence suggests that, should portfolio managers elect to reallocate their investments away from the destruction of the planet, the variance in rates of return are often negligible. Yet there are still vulnerabilities to these veins of thought. For one, by framing the issue at hand as a market failure, divestment advocates expose themselves to arguments claiming the market will address the problem without intervention. According to the International Energy Agency, fossil fuel extraction costs will skyrocket relative to those of renewables, and market mechanisms will shift the $950 billion’s worth of capital expenditure on fossil fuels towards something more sustainable.
Figureheads of the environmental left such as Naomi Klein in her 2014 “This Changes Everything” criticize legislative and market framework-based solutions as inherently incapable of addressing the roots of change–only the symptoms. These criticisms are most poignant when we consider how ineffective international carbon credit markets were at actuating any real changes. This vein of thought is nostalgic for clear legislation that worked directly, rather than acting through complex financial derivatives and the monetization and trade of carbon flows. Concerns that divestment is an ineffective tool for meaningful change are therefore not unreasonable.
Consider for a moment how the campaign for disengaging investments from apartheid South Africa played out, or how universities, state governments and handfuls of other institutions made the choice to divest from the tobacco industry in the 1990s. Perhaps, as even proponents of divestment note, no discernable financial pressure resulted directly from these two examples of capital-flight activism. Often, as investors fled, less discerning ones stepped in to replace them. In both of these historic cases, divestment forced upon the institutions which lead us – from places of higher learning to our institutions of governance and of faith – a moment of reflection. Divestment campaigns force our boards of governors, our statesmen and our moral leaders to consider, as the Drew Gilpin Faust, the President of Harvard University, considered in 1990, if it were in their interest to profit from activities that “create a substantial and unjustified risk of harm to other human beings.”
The hope – or perhaps the necessity – that drives any campaign to divest is that each and every one of us deliberates with others and, finally, acts upon these discussions. Then, and only then, does divestment figure strongly as an impetus for change.
