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Fossil fuel divestment: Opposing the financing of climate change injustice

Image credit: Joe Brusky (Flickr: Creative Commons)

The fossil fuel divestment campaign, one of the important members of the climate change movement, reached its sixth birthday this month. This moment coincided with a significant milestone. Six years on from the decision of Hampshire College Massachusetts to pull out from fossil fuel investments, the global fossil fuel divestment total for universities has now breached the £80 billion mark. But does the symbolic action of divestment simplify the big picture issue, and potentially polarise parties rather than increase our level of direct engagement with fossil fuel corporates? Considering the growth of the campaign, it’s worth contemplating the value of divestment as a strategy to combat climate change. How has the movement evolved, what have been the corporate ramifications for CO2 emissions, and, ultimately, how effective has the campaign been at catalysing change?

Six years is a critical time. The campaign is youthful enough to remain self-possessed of ceaseless energy. Yet, just as a six year old shopping with their parents is learning that endless demands and irritabilities are not the best approach to influence purchasing habits, the divestment campaign is mastering the craft of influence via momentum, ingenuity and dexterity. Across the university landscape, the UK has emerged as the campaign’s world leader with 54 of the 113 universities worldwide that have made pledges. The movement is also gaining ground in New Zealand, Australia and the Republic of Ireland, with 25%, 14%, and 29%, respectively, of university institutions committing to divest their endowment from fossil fuels.

The movement has not been limited to the university sector. Last week, NZ Super Fund announced that it had moved its NZ$14 billion global passive equity portfolio, which accounts for 40% of the overall fund, into low-carbon investments. This move comes off the back of pledges made by leading investors around the world to divest from fossil fuels, including Australia’s two largest ASX-listed ‘ethical’ investment managers: Australian Ethical and Hunter Hall Investment Management. Globally, key financial decision-makers are recognising that beyond the societal and ethical implications, climate change presents material risks for long-term investors, and adjusting financial portfolios allows the capture of opportunities stemming from the transition to a low-carbon economy.

Despite the growing momentum of the fossil fuel divestment campaign, however, criticism has been levelled at the movement from both sides. Whilst one of Australia’s largest investment managers, AMP Capital, has recently divested from munitions and tobacco, the investment giant has stated that divestment is not the best or most appropriate response for fossil fuel companies, calling instead on government to steer environmental policy.

Indeed, it’s undeniable that whether share market investment is taking place or not, greenhouse gases are still being emitted by fossil fuel companies. Further, there are concerns that the divestment campaign leads to a black and white debate that divestment is a quick and easy solution. Bill Gates levelled criticism at the movement in 2015 and suggested that shareholders should instead use their seat at the table to flex their financial muscle and engage corporations. An investor who sells their stake in, say, Royal Dutch Shell, no longer has a voice in the company’s strategic direction, and those shares will be bought by individuals who may only have financial motives.

Ultimately, despite these concerns, the movement has irrefutably drawn attention to the issue, and research by Oxford University suggests that it has become the fastest growing divestment campaign in history, surpassing those targeting the tobacco industry and apartheid in South Africa. Regardless of the divestment campaign, if the climate targets are adhered to, at today’s market value, the fossil fuel reserves already pre-baked in balance sheets and share prices are overdone by about $20 trillion dollars. A report by the Grantham Research Institute suggests that between 60 to 80% of coal, oil and gas reserves of publicly listed companies are ‘unburnable’ to keep within the 2°C limit. Given the extent of these ‘stranded assets’, the foreseeable evolution to a low-carbon economy will likely revolutionise financial markets at an unparalleled magnitude.

Whilst fossil fuel divestment isn’t a single or easy fix for the broader challenges of climate change, the campaign is certainly an important member of the family. Together, alongside active engagement with fossil fuel corporates, effective investment in clean energy alternatives, structural economic changes and policy engagement, the movement forms an important and growing role in accelerating the global shift to renewable technology and the mitigation of climate change injustice.

Tom Perfrement is the Climate Change and Energy Security Fellow at Young Australians in International Affairs.

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