Speaking Through Your Spending: Divesting from Fossil Fuels

Last week, in response to the threats posed by climate change, The World Bank made a blockbuster announcement: After 2019, it will no longer finance oil and gas extraction. It shared its decision at  the One Planet Summit, convened by bank president Yim Yong Kim,  U.N. Secretary General António Guterres, and French President Emmanuel Macron to further the agenda of  the two-year-old Paris Agreement.

The  international financial institution, which provides development loans to countries, had previously invested some $1 billion in the oil and gas sector. According to Years of Living Dangerously, though, the move was simply common sense: “The World Bank’s mission is to end poverty and support prosperity. They can’t do that without stopping climate change.”

The initiative seems to have had a domino effect. Just a week later, France’s parliament passed a law to ban all oil and gas exploration and production by 2040, and New York’s Governor Andrew Cuomo urged the state’s pension fund to stop investing in fossil fuels and create a “roadmap” to withdrawal from the sector.

You don’t have to be a multibillion-dollar investor like the World Bank to participate in the divestment trend, however. As we look to the new year, climate advocates may wish to join the international movement of public and private organizations that are eliminating fossil fuels from their financial holdings.

What Is Divestment?

First associated with South Africa’s anti-apartheid movement, divestment means withdrawing money from companies, stocks, funds, and industries that contravene one’s values or mission. It was kick-started in 2012 with the  “Keep It in the Ground” movement, which seeks to halt all fossil fuel development. Now part of the mainstream, divestment is one tool in the toolkit of “socially responsible investing” (SRI), or screening companies and financial products against environmental, social, and governance criteria.

It’s not merely a symbolic gesture. (Although that’s important, because climate-action leaders are role models.)  Both withdrawing money and reinvesting it elsewhere can leverage positive change by sending economic signals. As former New York Mayor and business titan Michael Bloomberg wrote in an op-ed  last year, “A properly functioning market will price in the risks associated with climate change and reward firms that mitigate them.”

A Growing Trend

Forbes magazine has predicted, “Climate change could be the most important long-term trend for investors.” In part, that’s because fossil fuel companies are starting to look risky. Even as the Trump Administration attempts to boost the coal sector, carbon regulations, taxes, and the plummeting costs of renewables bring uncertainties to once blue-chip investments. Forbes noted that if nations hew to the Paris Agreements to keep global warming below 2 degrees C, most existing oil and gas reserves may become “stranded assets.”

In fact, organizations may soon consider it their fiduciary duty to carefully weigh any new investments in fossil fuels, according to the Global Fossil Fuel Divestment and Clean Energy Investment Movement, an annual report by Arabella Advisors. Thus, divesting offers us a hedge against the physical, social, legal, and financial risks of climate change.

Arabella Advisors noted that as of late 2016, the value of investment funds committed to some form of divestment from fossil fuel companies had doubled, to $5 trillion. Nonprofits such as faith-based institutions and philanthropies continue to lead the way in this arena, the report found. But divestment is also spreading to new sectors–even Fortune 500 companies. State and local governments and tens of thousands of individual investors have pledged to or begun the process.

During the “Leading the Way” session at ecoAmerica’s American Climate Leadership Summit, our board member Lisa Renstrom summed up this trend, noting that divestment “allows us to summon our spirit and resources to ‘be the change.'” She added, “it’s the right financial decision as well.” (Watch the Facebook Live video here; Renstrom’s comments run from 19:30 to 24:00.)

Types of Divestment

Strictly speaking, full divestment would mean purging all coal, oil, and gas holdings from institutional or personal investments. That may sound dramatic, but as  “part of a diversified portfolio, renewables and alternative energy may prove to be stronger long-term investment than coal and other fossil fuels,” according to Healthcare Without Harm, which advocates for climate action within the health sector.

Another divestment option is to remove the biggest carbon emitters from your portfolio. The Carbon Underground 200, which tracks the top 200 publicly traded companies with the largest reserves of coal, oil, and gas, can help with that.

You can also pull out of investments in a specific fossil fuel, such as coal, as SSM Health, a large Catholic hospital system in St. Louis, MO, did.  This step can be combined with redirecting investments into greener ones.  You can also simply “freeze” any further fossil fuel investments. At a minimum, you can ask your portfolio managers whether they are “climate proofing” investments and urge them to include environmental sustainability in their investment decisions.

Resources

Are you ready to divest? Then visit DivestInvest to join 780 organizations and nearly 60,000 individuals who’ve pledged to:

• Make no new investments in the top 200 oil, gas, and coal companies
• Sell existing investments tied to these investments within 3-5 years
• Invest in climate solutions, such as renewable energy, energy efficiency, sustainable agriculture, water efficiency, and more

Still thinking about it? These resources offer more information:

• The Carbon Disclosure Project offers assessments of different companies’ sustainability levels.
• Fossil Free Funds can help you screen mutual funds and exchange-traded funds in your or your organization’s portfolio or retirement plan that include fossil fuel companies.
• Fossil Free Indexes offers “carbon responsible” research and investing products and services geared to the transition to a low-carbon economy.
• Fund Votes and CERES track how mutual funds and company shareholders vote on climate-related resolutions, respectively.

Want the convenience of getting our blog in your inbox? Subscribe today!