Jan Zeber, an analyst for right-leaning think tank and 55 Tufton St resident, TaxPayers Alliance, argued that divestment is ineffective and bad value for the taxpayer in an article for CapX, an outlet founded to “make the case for popular capitalism”.
Here, two campaigners involved in the divestment movement respond.
Phil MacDonald, member of Divest London
A Taxpayer’s Alliance article dismissing fossil fuel divestment as “pointless posturing” manages to miss the main point of this rapidly growing movement.
The Taxpayer’s Alliance can’t see past the money: divestment is not about (directly) bankrupting the fossil fuel industry — divestment is about taking the social licence that has allowed megacompanies like Exxon to corrupt our politics.
By winning divestment commitments from our institutions, whether it’s our universities, our churches, or our parliament, we stigmatize the fossil fuel industry.
The oil and gas industry needs permits and licences to operate, but first it needs a social license. Without that social licence, the industry is pushed out of politics, and its political influence disappears.
So there’s a clear way for divestment to help drive the transition to a fossil free economy, but the Taxpayer’s Alliance has another gripe: “the lower returns for those pursuing divestment”. This is based on the idea that the funds and endowments that get rid of fossil fuels will not make the same profits: and often that will hurt the taxpayer.
But the article doesn’t offer any evidence for this, and if we look, we find the data shows the opposite is true. Fossil free funds outperform conventional funds. Global investment in solar power alone now outstrips investment in all fossil fuels combined. And when we look at the UK alone, since the 2008 financial crisis, growth (and returns) in the green sectors raced ahead of the rest of the economy.
So divested funds can expect better returns in the short-term, but the financial argument that’s won over $6 trillion worth of funds so far is to protect from the risk of stranded assets.
The Taxpayers Alliance says “the market has grown weary” of the idea, but in reality, it’s widely discussed. Many pension funds suffered from the 2016 bankruptcies of Peabody and Arch Coal – now asset managers are warning oil and gas stocks could fall within five years. Prudent pension funds are getting out of these risky investments.
Divestment goes straight for the jugular of the companies responsible for climate change, and serves the interests of investors, pension holders, and taxpayers. So it’s no surprise that the Taxpayer’s Alliance – a shadowy organisation backed by a small number of very wealthy businessmen – would oppose it.
Michelle Furtado, Director, FuturEcoLogic Ltd and member of Worthing Climate Action Network
Climate change is a real and present danger. Its early effects are being felt across weather systems, changing seasons and habitats. Ancient, previously stable landscapes are rapidly changing, for example those seen across melting glaciers or permafrost regions. These events will have profound implications for all of us.
Against an unstoppable move towards renewables and low carbon energy sources, fossil fuel conglomerates have continued to deny climate change, to deny the part the burning of fossil fuels has in climate change, and to prevent any affirmative action to reduce the use of fossil fuels. Indeed, they continue to invest and develop plastic processing facilities, despite the obvious environmental impacts and the potential impacts for human health.
Their intense lobbying is failing – the UK has ratified the UN Paris Agreement and has its own Climate Change Act, both of which require urgent action to hit carbon reduction targets.
Divestment of fossil fuels is a growing global movement, as the author, Jan Zeber, points out. New York City has committed to divest £5bn fossil fuel holdings of their £189bn public pension fund and the Catholic church continues to increase the number of institutions divesting their holdings. Furthermore, the UN Principles for Responsible Investment pilot framework suggests it is strategically prudent to divest high-carbon holdings.
Climate change risk management and investments concerns have been raised by significant figures across the financial world. Christine Lagarde, IMF Chief, said that “we will be toasted, roasted and grilled” if the world fails to take “critical decisions” on climate change. Mark Carney, the Bank of England Governor, has spoken many times about the risks associated with climate change;
- physical risk – loss of assets, property damage or disruption to trade
- liability risk – parties seeking compensation for loss through inaction
- transition risk – market disruption during low-carbon transition
Lloyd’s of London and the University of Oxford Smith School of Enterprise and the Environment released a report in Feb 2017 about stranded-assets. It states;
“Asset stranding is already taking place in some industries. For example, the increase in renewable energy generation, worsening air pollution, and decreasing water availability caused by climate change, coupled with widespread social pressure to reduce China’s demand for thermal coal, have negatively impacted coal-mining assets in Australia.”
One author of the Lloyd’s report states that the divestment movement poses little risk to fossil fuel companies;
“Even if the maximum possible capital was divested from fossil fuel companies, their shares prices are unlikely to suffer precipitous declines.”
Importantly though, he goes on to say:
“our research shows that a campaign can create long-term impact on the value of target firms through a process of stigmatisation. The outcome of this stigmatisation process, which the fossil fuel divestment campaign has triggered, poses a far-reaching threat to fossil fuel companies and the vast energy value chain. Any direct impacts of divestment pale in comparison.”
Zeber further cites an Oxford ethicist, as stating that if the motivations behind divestment are to hurt companies share value, “then these campaigns are misguided.” My fellow local divestment campaigners are fully aware of the challenges in making any dents financially on these behemoth corporations. We watched as the Deepwater Horizon spill created huge litigation costs, all of which were absorbed by BP, buoyed by rising oil prices. We are not naïve.
However, the reputational risk for companies exploiting and destroying the environment are gaining traction. Increasingly global companies are expunging damaging practices to ensure their brands maintain their gloss for the consumer. Palm oil, single use plastics, factory farming, all these polluting and destructive practices are rightly being held to account.
None of this however, is Zeber’s key concern about the divestment movement. It is the potential impact to the tax-payer, through poorly performing public-sector pension funds and government liabilities.
In another article by the TaxPayers Alliance, Zeber cites investment return studies showing divested portfolios under-performing by 0.23-0.7 percent.
There is a specific duty whereby pension fund committees must achieve the best returns on behalf of their pension holders, of which I will be one in future. This is accepted, however, there is also a duty-of-care to fully comprehend the potential threats to an investment portfolio.
Evaluating an investment portfolio, or organisation, or community, by interrogating the climatic models against global supply chains, infrastructure, societal and environmental capacity is no simple task. Yet, without arming ourselves with this knowledge we are walking, eyes-open, towards a highly volatile future. The TaxPayers Alliance should be arguing for transparency and fully risk-assessed public-sector investment portfolios weighted against the anticipated UK costs of climate change.
The Stern Review, published some 12 years ago, laid out the dire economic impact of ‘business-as-usual’ human activity, with UK GDP taking a negative impact of 5% year- on-year-on-year, for the foreseeable future, using its best-case figures. Investment opportunities exist and more will be created to deliver the huge range of interventions required to maintain a stable global habitat. Forward-thinking and future-proofing corporate strategies and business models will be the ones who succeed on a changing planet.
Without a rapid flow of global funds towards infrastructure, technological and innovative solutions, the looming costs of climate change, only one of several planetary boundaries human activity impacts, will cost any tax-payer far more. Indeed, there is a case showing that investment in the ‘green economy’ will be the only way to mitigate climate impacts and adaptive solutions. Regardless, the prudent stewardship of our environment and resources is required to underpin global and local economic activity.
I would argue that it is both the realities of climate change risk and stigmatisation that presents powerful motivations to divest.
Image: Backbone Campaign/Flickr CC BY 2.0