Does divestment work?
Divestment is the withdrawal of shares in coal, gas and oil companies, for reinvestment in ethical and sustainable alternatives. The aim is to accelerate positive climate action. Does it work?
It’s a question we needed to revisit recently after our meetings with Allan Gray and Ninety One (see story above), to update our knowledge and bolster our motivation.
The upshot: divestment alone cannot stop climate breakdown, but it does have massive influence. It stigmatises fossil fuel companies, in a first step towards sanctions against them; makes more money available for ethical investments, and in many instances, boosts financial returns.
“Sending a powerful message”
Divestment shifts public opinion and pressures policymakers to act.
It sends the powerful signal that the unrestrained use of fossil fuels is morally unacceptable and that fossil fuel companies that do not decarbonise must be sanctioned. Such sanctions include bans on fossil fuel advertising, the shifting of fossil fuel subsidies into renewable energy. and adequate carbon taxes.
None of these is likely without campaigns against fossil fuels.
Shifting vast sums of money"
The fossil fuel divestment movement is huge: even by 2015, it was reportedly the fastest-growing divestment movement in history, including those against apartheid and tobacco.
Over 1.667 institutions worldwide have committed to divesting a total of about $40.76 trillion from fossil fuels. These institutions include pension funds in countries like the US, UK and Australia; cities like London, Paris, New York – and Cape Town; and even a whole country, Ireland, which has passed a bill preventing public funds investing in fossil fuels. Half of all UK universities have divested.
Divestment frees up capital for environmentally and socially sustainable investments, as it should. The world needs investments in renewable energy to be scaled up six-fold to meet climate targets.
Threatening fossil fuel capital
Divestment can stop fossil fuel companies continuing with business as usual. In its 2018 annual report, Shell admitted that divestment “could have a material adverse effect on the price of our securities and our ability to access equity capital markets.”
Even conservative news outlets like Time.com have conceded: “In an extreme case, the [Climate Action 100+] investors could ditch their Shell stock – which would undermine share prices, tank the company’s valuation and drag down executive pay.”
Same or better returns
In most instances, institutions that have divested continue to earn the same or better returns, and preliminary research suggests this could hold true in South Africa too.
A 2019 survey by the Croatan Institute of 200 foundations that have divested from fossil fuels showed that 94% saw their returns either improve or remain stable.
While many pension funds have already initiated divestment, the full power of divestment activism will likely unfold once more do so.
Yet another indication that divestment works is that the fossil fuel industry and its proxies campaigns against it. If divestment were ineffective, we doubt they’d bother. For example, Texas Republicans are aggressively penalising organisations that divest by preventing the state from doing business with them.
As 350.org founder Bill McKibben said, “The logic of divestment couldn’t be simpler: if it’s wrong to wreck the climate, it’s wrong to profit from that wreckage.”
That argument alone is enough for us.
