Questions and answers: universities and divestment in South Africa

Divestment at Wits University

Question: Is divestment a radical fringe movement?

Response: Policy in climate change evolves at a very rapid pace – what may have seemed radical a few years back is now mainstream. More than half of universities in the United Kingdom have divested, for example (88/165). Many international cities, like London and New – and Cape Town – have divested; even whole countries like Ireland and Norway. A full list of the more than 1500 institutions around the world that have divested can be viewed here.

Question: If we divest from coal and other fossil fuel companies, won’t we be destroying people’s jobs?

Response: Not really. In the long term, you will be creating more jobs, because renewable alternatives are more jobs-intensive than fossil fuels. And in the short term, you won’t be taking anyone’s job away either, because divestment doesn’t shut down companies over night; it just makes it harder for them to raise new capital without adjusting their business model. Divestment is far from being a big enough movement in South Africa at the moment to have immediate, significant direct financial impacts. Even a relatively big investor like Wits does not have the power, even if it wanted to, to destroy anyone’s job. The primary impact of divestment at the moment is ethical and social – sending a signal to society at large that it is no acceptable to be investing in companies that are systematically undermining our collective human rights. Continued investment in fossil fuels is in fact far more risky to employment in the long run, because the energy transition to renewables is economically and socially inevitable; and clinging to fossil jobs risks the abrupt collapse of fossil businesses. It’s preferable to use divestment now as one of the pressures forcing business and policymakers to adopt a managed just transition.

Question: Are financial investments and retirement funds too complex to divest from fossil fuels?

Response: A number of ‘Green Funds’ have emerged in response to high demand and impressive yields from investments in the ‘’Green Revolution’’. Having a five-ten year divestment plan allows apply time for implementing divestment commitments. 

Question: Does divestment mean that the University will lose money? 

Response: Financial imperatives in these very challenging times are clearly legitimate, but need to be balanced against ethical and social interests. Divestment is becoming financially prudent. Fossil fuel asset values are declining, with high likelihood of stranded assets and a carbon bubble. Conversely, financial returns from the global renewable energy market are growing rapidly. Moreover, positioning Wits as a pioneering ethical ‘Green University’ with major research strengths in climate change may facilitate access to climate change financing mechanisms, such as the Green Climate Fund to which the ‘’G7 nations’’ recently reiterated its commitment of $100 billion per year. 

Question: Will divesting from fossil fuels impacts on the profits of the fossil fuel industry and negatively affect jobs in the coal and related sectors?

Response: Without doubt, it is important to ensure a ‘’Just Transition’’ for workers and communities involved in coal and other extractive mining, and to secure their livelihoods. Compared with the coal mining sector, renewable energy is more labour-intensive, and provides safer work conditions and more opportunities for skill building. There are costed plans for a transition to renewable energy in South Africa. Moreover, the world is learning fast that a robust environment is essential for a robust economy. Paradoxically, by protecting the fossil fuel industry, we are accelerating climate change and thereby destroying livelihoods, especially those of subsistence farmers throughout Africa who are among the population groups most affected by intensifying droughts, floods and temperature extremes. Indeed, ”Environmental racism’’, driven by the fossil fuel and other polluting industries, makes mostly low-income, Black and other communities of colour victims of the pollution from elite, wealthy communities. 

Question: Is a fossil fuel intensive economy still necessary and cost-effective for solving development problems in South Africa? 

Response: This argument is used to justify new explorations of fossil fuels, to stack the odds against renewable energy producers and to block any substantive carbon pricing or taxation. There is much evidence, however, that the interests of fossil fuels are actually at the root of many of South Africa’s developmental problems, rather than setting a path towards development. The fossil fuel industry has fomented corruption, inequality, deadly pollution and land degradation, all with heavy economic and social costs. The corruption around power stations at ESKOM, and the recent Powerships ’emergency’ leasing over 20 years at R225 billion are but two examples. The multiple constraints, arduous regulatory approvals and lengthy delays in licensing that renewable energy producers face in South Africa are designed to serve the coal lobby, proponents of nuclear energy and corrupt officials. Renewable energy, generated by multiple small-to-medium sized producers, is less amenable to the large-scale corruption or price fixing that characterises contracts with the fossil fuel industry. Moreover, by pursuing a fossil fuel-intensive development model, we are ignoring the fact that this is no longer the most effective way to build an equitable, stable and thriving economy. The government’s failure to promulgate policies compatible with our long-term best interests threatens the attainment of our commitments to the Paris Agreement, and sets the stage for a climate catastrophe. 

Importantly, the operating costs of renewable energy are now cost-comparative with coal-based energy, especially given the solar and wind resources in the country. The hidden costs of fossil fuels – air pollution and carbon emissions – are not accounted for in these calculations. Existing carbon pricing or carbon taxation in South Africa does little to offset the true costs of air pollution and carbon emissions, which instead are borne by communities surrounding power plants and future generations. If costs of pollution and carbon emissions were taken into account, the fossil fuel industry would be unable to compete with renewables, and funds from carbon taxation would be available to assist vulnerable groups to cope with the sequalae of CO2. Accepting the principal of divestment sends a strong signal that the fossil fuel industry business model is illegitimate, unjust. Delegitimising the industry is a key step towards creating a policy climate which facilitates expansion of renewable energy. 

Question: Will divestment of university financial reserves will jeopardise research funding from the fossil fuel industry? 

Response: Divestment of financial assets and pension funds is NOT tied to receipt of research funding from industry or engagement with industry through participation in company boards, for example. Universities globally have make a clear distinction between divestment of financial stocks, investment funds and pension funds on the one hand and research funding on the other. Industry obtains major benefits from research partnerships with Wits University and oftentimes rely heavily on academics at the University to provide critical technical and other inputs into their work, especially during this period of major flux in the industry. Many companies are requesting assistance in decarbonisation, and are well aware of the need for rapid reform. There are few specialist research groups and experts in South Africa and an industry partner would struggle to find another university in South Africa that is able to provide the research expertise that is available at Wits University. Divestment can also be used as a lever in these interactions, where companies who achieve their targets for reducing emissions are then not divested from.  Divestment in a considered manner, that is accompanied by engagement with affected companies, is unlikely to affect research funding. Ultimately, decisions of a University around divestment must centre on ethical principles primarily, and only secondarily on relations with industry.