Quietly and without fanfare, on September 9, Harvard University announced that it would divest its vast endowment from fossil fuels. For the world’s richest university to divest is a triumph for climate activists. But Harvard’s announcement is hardly unique. To date, more than 1240 institutions globally with assets over $14.5 trillion have committed to divest or have divested from fossil fuels, including the University of California system, New York state’s pension funds, the Maine Public Employee Retirement System, Norway’s Government Pension Fund, over 400 faith institutions, and many civic associations and nonprofits.
Divesting is Good Economics
The divestment movement aims to break the hold that the fossil fuel industry has on economies and governments. Increasingly though, divestment decisions are based largely, if not solely, on economic self-interest. In the early 1980’s, fossil fuel stocks comprised seven of the top ten companies in the S&P 500. Today, no fossil fuel company is in that class. For the past decade or so, the energy sector has lagged almost every other industry on the world market, causing investors to lose billions. In contrast, funds that have divested from fossil fuels have not experienced negative consequences–investment returns were either neutral or positive.
As the world moves away from fossil fuels, that sector is becoming more volatile and riskier. The price of renewables continues to fall dramatically while that of fossil fuels has remained fairly constant, and may increase if more nations adopt carbon pricing and other regulations in response to the increasingly catastrophic impacts of climate change. According to researchers at Oxford, if solar, wind, batteries, and hydrogen follow their current exponentially increasing deployment trends for another decade, we will likely achieve a near-net-zero emissions energy system within 25 years. In the words of Mark Schlissel, the president of the University of Michigan, this means that “fossil fuel assets will diminish in value . . . perhaps more quickly than many realize,” and that there is a “growing appreciation of the long-term financial risks” of fossil fuels investments among investors.
Banks, insurance companies & institutional investors are taking notice
There have been important successes. According to recent commitments, no major U.S. bank will fund drilling in the Arctic National Wildlife Refuge. BlackRock, the world’s largest asset manager,
announced a sweeping new set of policies which purportedly aim to put climate change and sustainability at the center of its business model, including divesting from companies that make more than 25% of profits from thermal coal. Vanguard, the mutual fund giant, has committed to the Net Zero Asset Managers Initiative, publicly pledging to slash its emissions by 2030 and achieve net zero emissions across all of its investment products by 2050. Globally, 31 insurers have vowed to restrict underwriting for coal projects. Several insurers have also stopped underwriting projects producing or transporting oil sands.
But there is still a long way to go. For instance, BlackRock remains the largest investor in coal, oil and gas, and forest-destroying agribusiness. It is also the largest investor in the companies behind 12 contested coal, oil, and gas expansion projects that would blow through half of the remaining global carbon budget to keep us in line with Paris targets. Vanguard, despite its announcements, still has no formal coal exit policy and no proactive plans to address environmental issues, and the group appears to be significantly trailing its peers on the road to net zero. Insurance companies are still underwriting fossil fuel projects.
To divest or to influence companies from within?
Some especially large pension funds and institutional investors that want to keep pouring money into fossil fuels argue that divestment is not effective and that it is better to influence fossil companies through the leverage they can exert as shareholders, such as by supporting climate-friendly shareholder resolutions. Activist investors have had a few recent wins. Notably, activist investor Engine No. 1 spent roughly $12.5 million to win three board seats at Exxon Mobil Corp. However, the big institutions that have argued for using their leverage have often dragged their feet when it comes to supporting climate-friendly shareholder resolutions.
How is California doing in all of this?
Here in California, CalPERS and CalSTRS are the nation’s two largest pension funds. In 2015, SB 185 was enacted, requiring both funds to divest from companies that receive at least half their revenues from coal mining. A recent report has found that the pension funds have only divested a small portion of its coal-related holdings. Recognizing this, our Sierra Club Motherlode Conservation Committee in its last meeting in August voted in favor of a resolution that supports a Sierra Club California campaign for total CA divestment from all fossil fuels, including CALPERS, CALSTRS, and all other state, city and county funds.
What can you do?
So, if you are interested in joining the divestment movement, how do you do it? A few possibilities:
1. Join an organization, such as:
– Stop the Money Pipeline Coalition: https://stopthemoneypipeline.com/
– Fossil Free California: www.fossilfreeca.org
– Fossil Free Future: https://fossilfreefuture.earth/
2. Urge elected officials to support legislation or resolutions calling for divestment of public funds.
3. If you are part of a pension fund, you can urge your pension fund to divest.
– There are existing campaigns to get CalSTRS and CalPERS to divest: https://fossilfreeca.org/divestment-campaigns/.
– President Biden recently signed an executive order that calls for the Federal Retirement Thrift Investment Board to review whether to remove fossil fuel securities from the TSP (the federal employee pension fund). There have also been several bills introduced in Congress to allow TSP members to divest.
4. Divest yourself. Here are some resources to help you do it:
– https://fossilfreeca.org/move-your-money/
– https://stopthemoneypipeline.com/move-your-money/
– https://mazaskatalks.org/divestyourself