Fossil Fuel Companies: To Divest or Not to Divest?

In May, First Church in Boston, a Unitarian Universalist church, held an important conversation. A panel took up the question “What are the Moral and Practical Considerations of a Fossil Fuel Divestment Strategy?”

Bill McKibben of 350.org has called for the divestment of fossil fuel stocks as a key strategy in the fight against climate change. Thoughtful professionals within the socially responsible investment and liberal religious communities have taken reasoned and moral positions both for and against this strategy. The video is a little more than an hour long. It is an key conversation in understanding how we can pressure fossil fuel companies to 1) leave fossil fuels in the ground, 2) let go of their stranglehold on American politics, 3) speed up their transition to renewable energies.

Below are my very rough notes from the video. I found the conversation of such value that I wanted to pass it along.

The participants are:
• Tim Brennan, Treasurer and Chief Financial Officer of the Unitarian Universalist Association of Congregations
• Chuck Collins, Senior Scholar at the Institute for Policy Studies
• Stephanie Leighton, Senior Portfolio Manager and Research Analyst, Trillium Asset Management LLC
• Bob Massie, President and CEO of the New Economics Institute
• Lauren Ressler, National Organizer, Responsible Endowments Coalition
• Jim Sherblom, Senior Minister, First Parish, Unitarian Universalist, Brookline, MA
• Tim Smith, Senior VP, Director of ESG Shareowner Engagement, Walden Asset Management, Boston Trust

MY NOTES (NOT A TRANSCRIPT)

Lauren Ressler, Responsible Endowments Coalition: 300 college campuses working on divestment from fossil fuel

Divestment from the 200 largest fossil fuel companies in the world based on what we know they have in their reserves. We want this completed within 5 years. And reinvestment in renewable energies.

Why divestment as a strategy?
Reputation–Put a name to the people who are causing climate change. Revoke the social license of petroleum industry.
Mobilization–close the gap between youth movements, churches, municipalities, traditional environmental orgs.
Demystification

Shareholder Advocacy–U.S. society and the globe are entrenched in a fossil fuel economy. What blocks us from a fossil fuel free future? Consumption, corporate lobbying. How do we challenge companies to rethink their energy strategies?

Bob Massie advised Bill McKibben on the divestment route. The US has failed for a disgraceful amount of time to take serious leadership on the most important issue of our time. I’m asking for aggressive federal legislation and a price on carbon. But shareholder activism has failed because structurally fossil fuel companies are commited to a business model that is designed to destroy the planet. This is a time for choosing which side your are on, not an “all of the above” strategy. At the heart of the American system is the conviction that ownership equals responsibility, when you own something you are saying you approve of it, which means that if we own fossil fuel stock then we approve of it. As long as we provide approval for fossil fuel companies making money off of the destruction of the planet then we are responsible. Divestment is the step we must take to meet our historical commitment for this time.

Case study: Impact of divestment at First parish, Unitarian Universalist. Investment portfolio: expected returns, risks and volatility, and kinds of companies in which we should be invest.

1. Divest in direct ownership of energy stocks because going forward they are likely to fail on all three of the criteria above (returns, risks, and morality)

2. But have not sought to divest from comingled stock and funds because they represent long term relationships. Short term trading to off set a divestment strategy is detrimental to building relationships with companies and against his beliefs.

If divestment means firing 16 fund managers and replacing them with less experienced people then he can’t reccomend it. But if it just means selling off energy stocks and replacing them with comparable returns, then let’s divest.

Stephanie: If not fossil fuels, then what should we invest in? Trillium has 32 years of experience. Have invested in the best of the worst companies and used shareholder activsm to make them better. We don’t invest in coal or tarsands. For 7 years now we’ve been managing fossil fuel free portfolios. They’ve performed inline with the benchmarks and various strategies that we look at. Also started the Green Century balance mutual fund. In 2008 started a Sustainable Opportunities Strategy portfolio: healthy living, green solutions (renewable energies), economic empowerment. We avoid investing in about 10 percent of S&P 1500 (avoid traditional energy). We have found that it doesn’t cost us. Use Portfolio Optimization software tool. Helps us say how volatile the portfolio will be and control the risks. We look for companies that benefit from energy efficiency plays, so that when energy prices go up so do these stocks.

Tim: UUA endowment management strategy is diversification. Achieved high returns with rigorous SRI screens, 37 resolutions for shareholder advocacy, eliminate about 16% of the market, and are under the cap of investment in energy companies.

Chuck Collins: THe role of the social investment movement is to support social movements. Social movements are the engines of change, not the social investment strategies. We have a social movement that is asking for our institutions to divest from fossil fuel industry. They are defining these corporations as “rogue actors” and asking us to withdraw.

The moral question is: Why should we stay in fossil fuel industry?

The energy sectors profitability comes from shifting costs onto the rest of us. The role of the social responsiblity company is to shape the portfolios of the future.

Tim Smith– What was the strategy against apartheid in South Africa? It would be wrong to call that a divestment campaign. It was not. It was movement for sanctions against South Africa and to ask companies to withdraw or disinvest. There were numerous strategies to put pressure on companies that were in SA. One of them was to sell your stock and many universities and churches did this. But those with equal size portfolios were filing shareholder resolutions and debating at all the stockholder meetings. It’s different today to sell our shares in fossil fuel companies and pretend that we are divorced from that reality. When we sold our shares in SA, we didn’t have a dozen other ties to the company. But today we are deeply embedded in the fuel economy and so we must find many ways to fight it. But don’t downplay the power of investors working together.

Bob Massie–What does success look like in the divestment campaign?

Chuck: Success is keeping 80% of the fossil fuel assets of these corporations IN THE GROUND. The politics of that is how do we weaken the political power of the fossil fuel industry so that they can’t block innovation, so they can’t rig the rules of the game, so they can’t block a carbon tax. There are actors in this game that have disproportionate influence and we have to cut them down to democratic size. And this is how we do that. We start a movement that makes them bigger pariahs than the tobacco industry.

Tim: There are a number of ways to approach moral problems. One of them is purely transactionally. But what I have learned is that if you live only by transactions you always end up at the wrong end of the stick. You have to live by relationships with everyone in the community. And maintaining those relationships is a high moral priority. Even with the fossil fuel companies, even with Congress.

Stephanie Leighton, Trillium Assets: Right now if we went to an all renewable portfolio we would lose money. If the consumers boycott oil and choose renewables then the investors will follow.

Tim Brennan: I think Bob sells relationships short. Tim has been getting companies to leave The Heartland Institute and ALEC. The real issue here is public policy: we need a tax on carbon. The fossil fuel industry’s business is not pulling carbon from the ground, their business is making money. And when they aren’t making money from the tar sands then they’ll stop because it’s very expensive. So if you put a cost on carbon then they’ll stop heading in that direction because it won’t make any financial sense. I think Bill McKibben has sort of a misconception of what we are talking about when we talk about shareholder advocacy with the fossil fuel companies. He said,”You can’t ask a company to stop doing its business.” But you CAN out them on their lobbying expenses and getting full public disclosure on that. You can put pressure on them to change their policy positions. Believe it or not, Exxon-Mobil now supports a carbon tax. They went from being climate-change deniers to outwardly supporting a carbon tax. We have to create public pressure both within and without.

Tim Smith: When an institution sells it’s stock and it is bought up a few minutes later by someone who doesn’t care, then how does the action of selling stock make a difference to ExxonMobile.

Chuck: Exxon Mobil doesn’t care when I sell my stock, but they do care when we hold our press conference. And I agree, keep $2000 worth of stock so you can continue to contribute to these shareholder action pressures. When you take these large divestments public, then the industry begins to look weak politically and provides an opening for pressuring elected officials who can’t separate oil from policy.

Tim Brennan: HSBC report recently showed a range of risks related to fossil fuel companies.

Bob Massie: I have talked with Jeremy Grantham who said it used to be that you stuck a pipe in the ground and oil came out. Now you have to goes miles under the sea or tar sands extraction.

Jim Sherblom: It’s useful to step outside of the US because we are a “maturing economy” and we have a really warped view of the world. By 2050 every economist who is NOT an American sees the world economy at about three times the current size and that energy is about at the same proportion of the world economy as it is now. So it’s three times the size, and NONE of it is carbon based. If you buy that picture in 2050, then there’s no reason why these companies have to go out of business, though most of them will because they are going to be stuck in their old ways and not able to make the transitions fast enough. BUt for investors who are looking at the right companies and the new companies that will rise up to fill the gap, there is money to be made in renewables in the coming years.

Tim: What’s an example of an engagement with a fossil fuel company that has directly resulted in the reduction in the use of fossil fuels? There’s a group called the Carbon Disclosure Project, which has investors with $87 trillion worth of assets. We put forward a shareholder resolution to get companies to reveal the greenhouse gas emissions. When they do, then we tell them that they have to study the IPPC statement saying that we have to reduce greenhouse gas emissions by 80% by 2050 and ask them to present a plan for how they are going to do that. There are hundreds of companies whose disclosures, policies, and practices have changed because of shareholder activism.

Bob Massie: Can divestment and engagement be reconciled? Engagement is a powerful tool. However, engagement is intensified when there is a strong community that says “This is a fundamental moral question and we are not going to allow our names to be used as owners or supporters of a particular company and therefore being seen to endorse its stock.” So the more people who divest actually strengthens the engagers because they can go to the company and say, “Look,I’m the only one left who will talk to you.” Students are rising up not because they were invited to engage but because they were convicted by the moral question of ownership. And they were being asked to abandon the approval that ownership implies. And that’s why I think that divestment, because of the urgency, is a particular strategy for a particular historical moment.

Tim Smith: The public engaged investor can make a major contribution. But the “asks” need to be much more robust. While energy in the streets is very important, especially at influencing Congress, but I’m saying that when investors with a $10 trillion portfolio talk to their representatives, I think that matters too.

Stephanie Leighton: How can we influence developing countries to take a renewal energy path? China is an example of how it is taking the lead on renewables but also being constrained by its levels of pollution. China will lead the world on renewables, and it’s a shame that the U.S. isn’t taking this lead.

When you look at the future of fossil fuel industry outlook, I’d give it a “D.” Oil is a commodity and it’s not a good investment. Fossil-fuel free investments is where the good growth is.

Tim Smith: We are always going to have a vigorous debate between whether we should sell stock or engage through advocacy. That’s fine. Some environmental companies have said they want to own minimal stock in ExxonMobil if those shares can be effective. We have to remember the fiduciary responsibilities of boards and you need to educate them on the future volatility and risk of fossil fuel companies.

Jim SHerblom: Divestment is a symbolic issue for those who don’t have the portfolio or who don’t have the time to be committed to the shareholder relationship.

Bob Massie: I started ICNR and believe in that approach … up to point. As Randal Robinson used to say, “If you want politicians to lead then you start a parade and they make their way to the front.” The divestment campaign is the “parade.” If individuals are called to divestment, then it should carry over to the institutions that represent us.

Chuck Collins: We all agree that we need a tax on carbon. Big Green has been too wedded to an “inside” strategy. 350 and others are saying we are going to be commited to an “outside” strategy. If for institutional reasons you can’t divest, at least don’t talk down the “outside” strategy. Talk it up. The moral question is should we remain invested in fossil fuel given the climate urgency and I would say no.

Lauren Ressler: Institutions are made up of people. Find out about campus-based fossil fuel campaigns and support them on your campus. Join Summer Heat. –THE END

 

 

 

 

 

 

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