Is it time to stop ignoring the fossil fuel divestment campaign?
The heirs to one of the greatest oil fortunes in the world have joined the global fossil fuel divestment campaign. Is it time to stop writing it off?
When the Rockefeller Brothers Fund pledged to divest its shares of fossil fuel companies last September, it joined more than 800 institutions, governments and individual investors that have promised to do the same within the next five years. “We are quite convinced that if [John D. Rockefeller] were alive today, as an astute businessman looking out to the future, he would be moving out of fossil fuels and investing in clean, renewable energy,” Rockefeller Brothers Fund president Stephen Heintz said in a media release announcing the fund was turning its back on oil. Approximately seven per cent of the $860-million charitable fund was invested in fossil fuel companies at the time, and the exit from those positions won’t exactly move markets. But the fund is founded on the Rockefeller family’s colossal success in the oil industry, and their willingness to abandon it raised an uncomfortable question for those in the business of producing fossil fuels: was the divestment campaign about to move into the mainstream?
The divestment movement, which encourages both institutional and retail investors to fight climate change by selling off their shares in oil companies, can trace its roots to a handful of American college campuses in 2008. It was given a giant shove forward by a 2012 article in Rolling Stone by 350.org founder Bill McKibben, who wrote that, “If people come to understand the cold, mathematical truth — that the fossil-fuel industry is systematically under-mining the planet’s physical systems — it might weaken it enough to matter politically. Exxon and their ilk might drop their opposition to a fee-and-dividend solution; they might even decide to become true energy companies, this time for real.”
It’s not the first time that activists have used divestment campaigns to pursue particular policy outcomes. In the 1980s, anti-apartheid activists boycotted corporations friendly to the South African government. The same tactic was used to cut off support to the tobacco industry and even to American retailers exploiting child labor overseas, though the impact that those campaigns had is debatable.
But fossil fuel divestment is growing. As of September 2014, a 350.org offshoot campaign called Fossil Free listed 181 institutions and governments — mostly municipal — and 656 individuals who had pledged to divest.
Those pledges represent roughly $50 billion in potential lost investment in fossil fuels, including coal. A September 2014 report on oil divestment from Arabella Advisors found that 107 of those pledges were from newcomers in 2014. In addition to the Rockefeller Fund, Stanford University and the World Council of Churches have also committed to fossil fuel divestment. But $50 billion is still a small sum of money compared to the $4.88 trillion valuation of the world’s 1,750 publicly traded oil, gas and coal firms, according to an August white paper from Bloomberg New Energy Finance. ExxonMobil alone was valued at $425 billion at the time of the report.
One of the biggest flaws with the movement is that the stocks from which its participants are divesting are simply bought up by other investors, often without any notice taken by the target companies. But Kelsey Mech of Fossil Free’s Canadian campaign says divestment doesn’t need to have a direct impact on the oil companies’ bottom lines to effect change. “Divestment isn’t primarily an economic strategy… It’s mostly a moral and a political one,” she says. “When institutions like universities choose to divest from fossil fuels, it sends a really clear message that the fossil fuel industries no longer have the social license that they require to operate… It’s about showing these companies and our governments and society as a whole that we no longer want to invest in creating an unlivable future… So even though somebody else might buy the shares once we divest, we’ve still made a strong political statement.”
Mech says Canada’s divestment movement is at least a year behind that of the States, with fewer supporters and no educational institution pledging yet. The University of Calgary, the campus at the heart of the country’s oil industry, does not even have any organized activist group calling for it. “The University of Calgary is not aware of any active campaigns to have the university divest its holdings of energy company shares and has no position on the issue,” says university spokesperson Stéphane Massinon.
Leehi Yona, who’s originally from Montreal but currently studies at New Hampshire’s Dartmouth College and represents the national divestment group Students for a Just and Stable Future, says the movement at Canadian post-secondary schools is lagging not because there is greater support for the petroleum industry up north, but rather because, compared to American colleges, campuses in Canada lack both a cohesive student culture and large endowments to call for divestment with. An August 2014 report from the University of Oxford’s Stranded Assets Programme notes that U.S. college endowment funds total $406 billion. By comparison, all of Canada’s $10-billion total combined endowment is about equal to that of MIT.
Loren Falkenberg, a University of Calgary economics professor specializing in corporate ethics, says the oil divestment campaign can potentially create a damaging stigma around fossil fuels, which might in turn harm the valuations on the companies that produce them. Yet she believes the movement’s attempt to malign the industry’s social license is misguided and ultimately doomed to miss its ultimate objective, which is to reduce worldwide emissions. “If you really think that petroleum companies need to change, then what you should be saying is divest of any oil companies who aren’t building technology in carbon capture,” says Falkenberg. “They’re doing nothing about the demand. So oil companies are only responding to demand, and the key issue here is demand.”
Even if the divestment movement plays a role in the petroleum industry’s deteriorating reputation, Falkenberg says, global demand will remain high and investors who don’t care about appearances will persist. University of Calgary natural resources economist Lucija Muehlenbachs concurs, noting that while so-called “sin stocks” such as those of companies selling tobacco, alcohol and firearms often have fewer investors to draw upon, that self-imposed restriction often creates undervaluation and thus higher returns for those who continue to buy.
For its part, the industry isn’t taking the campaign’s message lightly. In an October blog post, Ken Cohen, ExxonMobil’s vice-president of public and government affairs, accused activists of being “out of step with reality.” Cohen wrote that divestment “would immediately jeopardize the basic standards of living for billions of people around the world,” adding that, “it would preclude the billions more in developing nations who are seeking to reach modern living standards from ever doing so.” Students for a Just and Stable Future’s Yona says the language in Cohen’s blog proves that industry the fears her movement’s power. “They are so worried about it,” she says, citing the blog. “Essentially it’s proving that we’re being effective.”
Falkenberg, on the other hand, says they’re both right: Cohen is correct that the world will not stop using fossil fuels overnight, but activists may be able to chip away at the industry’s reputation.
Falkenberg believes the oil and gas industry’s collective finances are unlikely to suffer much from incremental divestment but she says it should be aware of the movement’s potential impact on finding new sources of capital down the road. In turn, she believes the divestment movement should make it clear what they want industry to do differently, such as reduce emissions, and give it an incentive to find ways to do it rather than calling for an all-out investment boycott. In other words, she thinks they need to see each other more as allies and less as enemies. Until that happens, divestment may take a toll on industry, but likely won’t create the world the activists want.
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