Divestment campaign update: beyond disclosure

Fossil fuel companies beware: divestment campaigns have been picking up speed in 2015. More than 220 institutions have now formally committed to divest from oil, gas and coal companies, including pension funds, foundations, universities and religious groups.

Of these, several have appeared in the past few months. In April, Syracuse University announced plans to divest its $1.18 bn portfolio from fossil fuel companies, the largest university in the world so far to do so, followed by the School of Oriental and African Studies in London.

The Church of England has pulled £12 mn ($18.9 mn) out of tar sands and thermal coal, while the Guardian Media Group became the largest organization in the world to make a commitment when it announced it would divest its £800 mn fund from coal, oil and gas, while also launching its Keep it in the Ground campaign, which is calling on other big players to take similar steps.

The call to arms was issued alongside global climate movement 350.org, and asks two of the world’s largest health charities, the Welcome Trust and the Bill & Melinda Gates Foundation, to remove their investments from the top 200 oil, coal and gas companies in the next five years.

Brett Fleishman, a senior analyst for 350.org, reiterates that the primary aim of divestment campaigns is to stigmatize the industry and create a political space for restrictive legislation. ‘The point is that there is no evidence fossil fuel companies are going to change their practices,’ he notes. ‘The stakes are too high for the public to leave it up to big oil to save us from the dangerous climate change their products have created.’

Energy companies have started to pay attention, too – or at least their shareholders have. In April, BP’s stakeholders voted overwhelmingly to mandate the firm to regularly report on how its investments are affecting climate change; near identical proposals are expected to receive solid backing at the AGMs of Royal Dutch Shell and Statoil later this month, while Exxon will narrowly avoid having to field the question.

Fleishman concedes this is an important move, but ultimately the aim of such campaigns is to force dramatic cuts in fossil fuel emissions. ‘Disclosure is a vitally important element for shareholders to push companies to increase,’ he says. ‘That said, we are way past the appropriate time to engage companies for more transparency. At this point, engagement with the fossil fuel industry should be pushing for a freeze on capex and other ‘winding down’ proposals.’

Companies’ business models give far more cause for concern, with Shell and others increasingly spending more money on exploration even while current reserves are many times in excess of what can be burned responsibly. ‘Announcements like Shell’s have no influence over the divestment momentum, and often drive more divestment because reporting is insufficient,’ Fleishman concludes.

The Guardian campaign, and divestment movements in general, are not without their critics, however. A recent piece by Timothy Devinney, university leadership chair and professor of international business at Leeds University, suggests such campaigns could do more harm than good. There will always be other shareholders ready to own such companies, he argues, and larger fossil fuel companies will not see any change to their cash flow as a result of their shares being given up so readily.

Even if smaller companies do suffer, he continues, there’s nothing to stop larger firms using their cash flow and borrowing power to buy off their weakened rivals. Devinney argues that those behind the campaigns have forgotten that investment can also imply control, through activist proxy voting or ensuring directors with the right ideas get seats on boards.

But Fleishman and other commenters say divestment also aims to protect participating investors, particularly from carbon risk within their portfolio. ‘There are several market factors that are presenting downward pressure on the value of fossil fuel companies, including competitive alternatives, oil price volatility, government commitments to reduce CO2, and increasing production costs,’ Fleishman explains.

‘The only step to be taken at this point is a freeze on development and a comprehensive plan to wind down production to zero over a medium timeline. The science is clear: we cannot afford to burn most of the fossil fuels in companies’ reserves now.’