Divest, Then Reinvest
In January, The National Oceanic and Atmospheric Administration (NOAA) reported that 2019 was the second hottest year on record, following closely behind 2016. The planet’s five warmest years have all occurred since 2015, and nine of the ten warmest years have occurred since 2005.
There is now overwhelming scientific consensus that CO2 emissions from fossil-fuels are a primary cause for our rising average global temperatures. The US Environmental Protection Agency (EPA) states, “Human activities are responsible for almost all of the increase in greenhouse gases in the atmosphere over the last 15 years.” The obvious remedy? A steep reduction of CO2 emissions.
Financial investments are made with an eye for future opportunities and risks. While fossil fuels remain in use today, forecasts consistently show production costs declining and demand rising for renewable energy, electric vehicles, and the electrification of homes and buildings.
According to the US Energy Information Agency, in 2018 only 17% of US energy generation came from renewable sources, including hydropower, wind, biomass, solar, and municipal solid waste. The potential to increase this proportion creates an extraordinary investment opportunity.
Within the socially responsible investment (SRI) community, there are different notions about the most effective means to deploy investment capital in the fight against climate change. Some believe that shareholder activism creates more leverage. In this model, investors own shares in companies with certain fossil-fuel holdings. As shareholders, they are then in a position to engage with company management to encourage an operational or product transition to minimize their carbon footprint, thereby modeling improvements for their industries.
The other investment approach is the complete divestment option. Investors who take this approach believe that the climate crisis has come to a head, and that engagement has not yielded adequate results. These investors sell out entirely of companies involved in the extraction, refining, and infrastructure of the fossil-fuel sector. The idea is to accelerate the transition to carbon-free operations by creating public pressure on fossil-fuel companies; stigmatizing them can help fast-track the shift to renewable energy and technologies.
In both approaches, investors push for investment in promising operational or product breakthroughs that might help the world break its fossil-fuel addiction. Sensible investors will of course diversify across a broad range of sectors and industries as part of a prudent overall strategy.
Natural Investments began offering fossil-fuel-free investment strategies to our clients in 2012. In 2019 we managed client assets of greater than $195 million in these strategies. Whether our clients choose the engagement route or divestment, we are gratified to join the climate fight with our Natural Investments clients.