Why 350.org’s divestment campaign is on the money

The Sustainable Shareholder

Why 350.org’s divestment campaign is on the money

Author and thought leader Bill McKibben of 350.org toured the nation recently trying to persuade young and old alike that we’re in a climate-change emergency and must immediately reduce carbon use or face threats to humanity and ecosystems not seen in millennia.

Like Al Gore and others, McKibben faces the primary obstacle of apathy in America regarding humanity’s impact on climate change. After all, our lifestyles have not yet been negatively impacted by rising carbon in the atmosphere. Even in the face of Hurricane Sandy and more severe firestorms, the rapid loss of species, massive deforestation, and the melting glaciers and poles, most people still don’t take climate change seriously enough to believe that these emergent realities ought to change human behavior.

Rather, governments and big business hold firm in the name of job preservation and creation, as if the global economy will matter if ecological collapse occurs. And investors, even ones that claim to be sustainable or socially responsible, don’t seem to protest either, as they quietly include fossil fuel companies in their portfolios. 

Some activist shareholders in the socially responsible investment (SRI) arena argue that only owners of stock in fossil fuel companies can influence them by encouraging them to acknowledge climate change risk and produce reports on how it may affect share value. Divestment, industry insiders suggest, doesn’t apply enough pressure to achieve the desired outcome.

But divestment is sometimes an appropriate strategy. I was a college freshman in 1984 and was part of a takeover of the Tufts University administration building to demand divestment from endowment companies doing business in South Africa during the apartheid regime. Critics then argued similarly that divestment not only couldn’t foster a regime change, but might actually economically harm the people these actions intend to help. 

Since both Nelson Mandela and Desmond Tutu later attributed the fall of apartheid in part to American students’ meaningful pressure on endowments and national policies, we have surely seen that there can be a right side of history to be on in such matters. Now, because our planet and its species are in grave danger, we are in a similar situation today. The question is, what should we do about it? In particular, what should capitalists do about it? 

While it is true that divesting doesn’t directly change corporate behavior, certainly a massive trend to sell off stocks in this industry would result in their lower value. If the industry were less attractive as a long-term investment, that would undoubtedly force changes within these companies. 

More importantly, one can very easily make the argument that as civilization gradually shifts away from fossil fuel energy and towards renewable resources, it is imprudent — perhaps even a breach of fiduciary responsibility — to bet on the long-term financial viability of the fossil-fuel industry. Yes, a diminishing supply will raise prices for consumers, which at the moment appears to reward shareholders well, but investors are supposed to look ahead into the future and anticipate areas of strong economic growth, and one cannot reasonably conclude this will be the case for fossil fuels. 

Yes, one can profit in the short term off these industries, or get in on the latest environmental insanity caused by hydraulic fracturing, but this process of extracting financial gain from environmentally stupid business practices must end, especially if one claims to invest in a sustainable or responsible manner. To invest in fossil fuels as if there were no real consequences ignores their direct contribution to ecosystem collapse. Do we truly want to wait until the effects of climate change are irreversible and life threatening before we realize we should change our behavior? The warning signs are already upon us.

The time to stop rewarding shareholders for having faith in the fossil fuel industry has arrived. The SRI industry uses a variety of excuses for why it generally continues to support fossil fuels, or to prefer natural gas over oil as a “better” option, but the primary rationale seems to be one of doing less harm or favoring financial return rather than being truly concerned about ecological or human welfare. 

SRI money managers also suggest that stock ownership keeps the voice of pressure on such companies; the problem with this logic is that shareholder advocacy can’t possibly force a fossil fuel company to stop its core business of extracting and distributing fossil fuels. Certainly investors can pressure companies to report on their carbon footprint or on how climate change could negatively impact their bottom line, but such transparency doesn’t solve the core problem of stopping carbon emissions or demanding that these companies stop looking for more sources of carbon-based fuels and instead invest in renewable energy. No fossil fuel company is going to voluntarily stop production to save the planet from self-destructing; it is up to the world’s citizens, and our elected officials, to do so. 

As investors, we have a choice of where we wish to put our dollars. Yes, we may all still use transportation that relies on fossil fuels — surely a form of capital investment — but continuing to invest our financial surplus in the stock of such companies as an expression of faith in the sector’s long-term viability surely does not pressure these companies into changing their ways. It is foolishly naïve and short-sighted to believe otherwise.

This is precisely why my firm has created a fossil-fuel-free portfolio for investors who can’t bear to invest in fossil fuels. The time has come to put our money where our values are, and money managers and mutual funds that claim to be sustainable or socially responsible should look very closely at what these words truly mean and reflect upon whether they should use such terminology if they don’t measure up to such a standard.

Similarly, companies in this space should see the writing on the wall: The day will come when a price on carbon emissions is set by the federal government and when the SEC will require corporate transparency and accountability regarding climate-change risk. Those companies that understand these developments, and plan for this regulatory shift while developing renewable energy production capacity, will certainly have the competitive advantage.

Photocollage by GreenBiz Group