Fossil fuel divestment is not the answer

The world is hurtling toward climate change disaster, and we must act. The Unitarian Universalist Association’s 2006 Statement of Conscience, “Threat of Global Warming/Climate Change,” calls us to use “the ownership rights of the denomination’s financial resources to positively ad­dress the global warming/climate change crisis.”

There is a vigorous debate under way about exactly which tactics investors concerned about climate change should be employing. Author and activist Bill McKibben has called on investors to divest their portfolios of securities in the two hundred publicly traded companies with the largest proven coal, oil, and gas reserves. Other investors, including the UUA and most socially responsible investment (SRI) firms, have taken a different approach—using their leverage as shareowners to pressure the companies to address the crisis.

In advocating for divestment McKibben presents a stark, either/or choice: divest, or side with those who turn their backs. This is both simplistic and unfair to those who have dedicated years of their lives to seeking justice through shareholder advocacy. [See Fred Small’s companion article, “Fossil fuel divestment is moral, strategic,” for a counterpoint.]

McKibben points to the anti-apartheid movement as a model, and indeed there are some parallels, but also significant differences. I went back to Robert Kinloch Massie’s brilliant book, Loosing the Bonds: The United States and South Africa in the Apartheid Years, for some lessons. Two points jumped out:

1. The success of the anti-apartheid movement is often remembered as a triumph of divestment. In reality, an array of economic tactics were used, including total divestment (there were several lists of target companies), promotion of the Sullivan Principles (a code of conduct for companies operating in South Africa), ratings of companies on compliance with those principles, selective divestment of companies based on their ratings, and shareowner engagement.
2. Divestment gets lumped together with disinvestment, but they are really quite distinct. While some shareowners divested, others used their ownership positions to press companies to disinvest; that is, to reduce or eliminate their capital investments in South Africa. It was disinvestment, particularly the cessation of lending to the South African government by U.S. banks, which was most effective in weakening the regime.
3. The call for divestment by 350.org is both too broad and too narrow. Bob Walker, vice president of Ethical Funds, writing on responsible-investor.com, says, “350.org does not differentiate between companies that are making substantial efforts to reduce impacts and those that [are] not. This is unfair and makes enemies out of organizations and people who ought to be our allies.”

The approach that the UUA takes, which is similar to that taken by the leading SRI firms, is to avoid investments in companies that perform poorly on an array of environmental, social, and governance issues. Using this approach, our exposure to fossil fuel companies is only about 3.5 percent of the portfolio, well below their representation in the market but essential to maintaining a diversified portfolio.

The UUA is also an active shareowner, collaborating with other investors through the Interfaith Center on Corporate Responsibility and the Investor Network on Climate Risk. This year we filed one of the first two “carbon bubble” resolutions, challenging Alpha Natural Resources to justify the valuation of its reserves in light of the possibility that fossil fuels might lose value once the United States shifts definitively away from non-renewable energy sources.

The UUA’s Committee on Socially Responsible Investing and Investment Committee have been studying the issue and consulting with leaders in the SRI field. They all agree that more needs to be done. Here are some of the steps they are taking:

• Tightening stock selection screens on carbon-intensive industries;
• Researching funds that invest capital in companies providing climate solutions;
• Pressuring companies to disclose lobbying expenditures and to cease supporting organizations such as the climate-science-denying Heartland Institute;
• Making the investor case to policy makers that placing a cost on carbon is pro-business, pro-jobs, and pro-investment; and
• Creating opportunities at General Assembly for learning and discussion.

In the anti-apartheid movement, it was the multiplicity of actions by investors that contributed to a just outcome. And that is what we need now—a rising tide of pressure from many sources pushing government and companies to take the necessary steps towards a sustainable, low-carbon global energy future.