From Canadian campuses and churches to American foundations and Norway's parliament, a debate is raging over whether to divest out of fossil-fuel investments.
Thirty campuses in Canada have divestment campaigns to move out of fossil-fuel holdings. No university has announced plans to divest, and some, such as the University of Calgary, have ruled that option out. But change is afoot: Concordia University is creating a $5-million fossil-free fund, while faculty and students at the University of British Columbia and University of Victoria have voted in favour of divesting. Several churches have divested. And one Toronto-based foundation this year took its investments out of oil sands and coal and is putting them into renewable energy – including one initiative that converts zoo manure into biogas.
Global efforts are gaining momentum. Last year, the Rockefeller Brothers Fund pulled out of fossil-fuel investments, and so did the World Council of Churches. Last month, Oxford University pledged to avoid investments in coal and oil sands firms. This month, Norway's parliament voted to shed coal-related investments from its $890-billion sovereign-wealth fund, which is the world's largest. And just last week in Australia, the Royal Australasian College of Physicians said it is divesting from fossil fuels "due to health impacts of climate change." Stanford University has gotten out of coal and so has French insurer Axa SA.
Some draw parallels to a generation ago, when the anti-apartheid movement swelled in campuses, churches and community groups, backing a boycott, divestments and sanctions against the South African regime. (This comparison, too, is subject of debate as the methods and issues differ.) And opinions are split on the effectiveness of these divestment campaigns and the degree to which they'll actually impact climate change.
For Desmond Wilson, director of finance at the $40-million Catherine Donnelly Foundation, the decision to divest in February – just as oil prices were plummeting – wasn't taken lightly and made only after months of researching financial risks, to better understand carbon bubbles, stranded assets and opportunities in clean energy.
"For us as a foundation, deciding to divest is a big deal because our practice in managing our investments – we like to think of ourselves as a socially responsible investor – is to stress the engagement approach. So to divest is a very unique thing to do and not typical at all," said Mr. Wilson. "But we felt this issue was so important, that this was one way to stimulate a discussion around the important issue of climate change."
It was also an opportunity to re-direct some funds into areas they want to support such as alternative energy, among them solar energy and ZooShare, a co-operative that converts zoo waste and food waste into biogas. "If we're going to be serious about climate change, we're going to have to give the supports and encouragement that's going to see us evolve to a low-carbon economy."
On campuses, Kelsey Mech, a co-ordinator at Fossil Free Canada, estimates this past spring saw more than ten thousand students come out in favour of divestment. The goal of the divestment campaigns is to ultimately spur a shift "to a clean and just energy future," she said. "When large institutions like universities choose to divest from fossil fuels, it sends a clear message that these industries no longer have the social licence they require to operate."
Within university departments though, views are mixed. At the University of British Columbia's economics department, two well-regarded professors stand in opposition: Kevin Milligan is not in favour of the divestment campaign; his colleague, David Green, is.
"I really question whether this does anything," said Prof. Milligan. One reason is that if a group of people move out of an asset, all it takes is one deep-pocketed investor to swoop in, taking advantage of a dip in the share price to buy up the stock. So the financial hit to the company is small. (He said divesting is very different from the South African boycott, where groups of, say, tourists refusing to travel really did ramp up the economic pressure.)
Another factor, he says, is that making decisions about a fund that is collectively held leads to a moral quagmire – if oil is deemed immoral by some, then what about cars (or cigarettes or dairy) for others? He also questions why pressure is aimed at producers rather than consumers, who continue to drive demand for oil. "If there were not consumers, no one would be digging the oil out of the ground. The only reason it has value is because people want to buy stuff. So I don't see why all the moral culpability is on the producers side." He thinks local efforts, such as his university's move to use more geothermal energy, along with individual decisions on investing, are more effective.
In the other camp, Prof. Green says it's important to "establish the social norm that we are moving to a carbon-free society." He figures the role of a university is to look for ways to change those norms. "If we don't ask the big questions about what is really driving our problems and how to get society to change, who will?"
UBC's funds currently have about $100-million invested in fossil-fuel-related firms of its total endowment of about $1.3-billion. The board's committee will make a recommendation on the divestment proposal this fall. There are other thorny issues. Some energy companies are also growing players in renewable energy.
And while becoming "fossil free" is increasingly popular, it is an ambiguous definition, which in some cases still includes large emitters, said Alan Harman, portfolio manager at ScotiaMcLeod who manages socially responsible and fossil-free funds. He is concerned that the focus on divesting may be overshadowing other SRI criteria, such as governance or human rights.
More than $50-billion has so far been divested globally, an amount that is climbing, but is still a fraction of the total market cap in the sector, at $4.5-trillion.
Another question centres on performance – whether moving out of these investments carries a financial penalty. In fact, an RBC review of the literature shows "socially responsible investing does not result in lower investment returns," while the FTSE Developed index excluding fossil fuels has outperformed the main developed index in four of the past five years. And analysis by Morgan Stanley has found sustainable equity funds "met or exceeded median returns" for five of the six different equity classes it examined.
Concordia University's foundation, in what appears to be a first among universities in Canada, is creating a new sustainable fund, which will screen out fossil fuels and tobacco. The $5-million fund (of a total $130-million endowment) will start this fall, with scope for it to be expanded over time. "We're not divesting. We are creating a sustainable investment fund," said spokeswoman Chris Mota. One motivation, she says, was from students. "It was brewing. You could see it on university campuses. And it was going to come to our campus sooner rather than later."
The discussion has spilled into the United Church of Canada, which has received proposals from congregations to divest out of fossil fuels – some of them from Alberta. The church has about $2-million of its $130-million in these types of holdings and the matter will be voted on in August, said chief financial officer Erik Mathiesen. Some churches in Toronto and Ottawa have already divested.
Across the pond, Cambridge University has struck a working group that will take 10 months to investigate what the endowment should be doing on climate change, exploring options from energy efficiency financing to whether to divest from coal and oil sands holdings, said Ellen Quigley, who is part of the working group.
One key spur to re-thinking investment strategies landed last week, when G7 leaders including Stephen Harper pledged to phase out fossil fuels by 2100.
The G7 announcement means this "certainly is not something that's avoidable as a discussion any more. Over the longer term, you're going to have to make a transition at some point, and the question for investors is when, not if," said Martin Grosskopf, who runs an AGF global sustainable-growth equity fund that doesn't have fossil-fuel-related firms.
While the actual divestment dollars may still seem small, the players moving out are influential, he noted.
"With Rockefeller, that's not a big amount of money. But the impact they had just in terms of lending their name to this issue has been huge. … Sometimes big changes happen with small ripples."
Support for the divestment movement has also sprung from a surprising quarter: Shell's former chairman Mark Moody-Stuart said this month divestment is a "rational" and that it is "distressing" that industry has not made much progress in addressing the threat of climate change.
For Mr. Wilson, at the Toronto foundation, the motivation was both moral and financial. "We see a financial risk in holding these stocks" due to a growing likelihood that some reserves will have to stay in the ground, he said. And though its normal approach is to hold a stock and try to influence corporate behaviour, in this case, "if the business-as-usual model is not challenged, it's unsustainable. … This seems to be an issue that's on a different scale."
What's the word
Divestment: The selling of an asset, subsidiary or investment. Divestment is an especially appropriate term when the sale is being made by a corporation because of social goals or a change in corporate strategy.