Fossil Fuel Divesting FAQ

“Convince those in power to reduce our carbon pollution, push your own communities to adopt smarter practices. Invest. Divest. Remind folks there’s no contradiction between a sound environment and strong economic growth.” – President Obama at Georgetown University, June 2013

The fossil fuel divestment movement was started by Bill McKibben’s 350.org to encourage universities to implement divestment strategies for their endowment funds. Divestment is often implemented by selling the stock of the 200 companies which own the largest reserves of fossil fuels. The idea is that the coal, oil, and gas needs to stay underground if we’re to avert climate catastrophe. For more background, read our recent blog post. But you may still be left with questions, so here’s some relevant information to get started:

My spouse/partner/co-trustees have never heard of this movement.

Share the following information with them:

  • 13 universities and colleges have divested or committed to divest.
  • Over 40 religious institutions have divested or committed to divest.
  • Over 20 foundations have divested or committed to divest including the Rockefeller Brothers Fund
  • Leaders of 28 cities have pledged to work towards divestment.

Divestment could not possibly make a dent in the wallets of fossil fuel companies, so why bother?

True statement. The movement is not naïve to the powerful deep pockets of the fossil fuel industry and has its sights focused on impacting the reputation of the fossil fuel industry specifically with decision makers and shaping the politics surrounding energy issues.

Why now? Nothing is going to change.

“Past returns are no guarantee of future results” has never been more relevant.

  • According to Chatham House’s energy experts, “‘business as usual’ is no longer a credible future for the oil and gas industry. The combination of changes that the industry now faces requires epic rather than incremental responses, for the industry to evolve and prosper…Those responsible both inside and outside the industry need to try to understand what is happening now and how it may affect the future, to explain their strategies clearly and to adapt to new situations as they develop.”
  • Standard & Poor’s (S&P) studies the outlook for credit ratings of fossil fuel companies and suggests that the impact of reduced oil demand, potentially lower profitability, and declining reserve replacement would likely weigh on our business risk profile assessments of the companies under review. Their financial risk profiles would also be affected as debt coverage measures decline.

I like making money and divesting will hurt my investment returns.

This question is far from settled, but we are seeing some significant reports emerge:

  • A recent study by the investment firm Aperio Group indicates that screening out the traditional energy industry only adds a small amount of increased risk to a portfolio.
  • Advisor Partners‘ in-depth research led them to this summary: “Divestment from oil companies and other fossil fuel based companies is of interest to socially responsible investors who are concerned about climate change. Setting aside social considerations, our investment analysis suggests that removing these energy stocks from a well-diversified portfolio has little impact on investment risk; however, the evaluation of the impact on portfolio performance will depend on an investor’s perspective.”
  • IMPAX, a European asset management firm, produced a study in which they concluded: “Analysis of historical data shows that over the past seven years eliminating the fossil fuel sector from a global benchmark index would have actually had a small positive return effect. Furthermore,much of the economic effect of excluding fossil fuel stocks could have been replicated with ‘fossil-free’ energy portfolios consisting of energy efficiency and renewable energy stocks, with limited additional tracking error and improved returns.”

Isn’t it better to keep our investments in fossil fuel companies so we can be active shareowners?

If you are an active shareowner who is making headway with big oil, please keep doing it! If you’re not sure you are, check to see how your investment managers are voting their shares on important environmental issues (Ceres is a good place to start) Also, ask if they have engaged these companies in dialogue and finally, if they have filed resolutions. Then, give us a call!

Additional resources

US SIF “Investing to Curb Climate Change: A Guide for the Individual Investor

The Economist, ‘Yesterday’s Fuel’, August 3, 2013

Yes! Magazine, ‘One Thing College Alumni Can Do about Climate Change’, by Laurent Daloz, August 29, 2013

‘The Russell Family Foundation and Coal Divesture’, blog post by Richard Woo, July 2013