Is Divestment Right for me?
Divestment is the opposite of an investment – it simply means getting rid of specific stocks, bonds, or funds in an investment portfolio due to ethical, financial or political reasons.
There have been several successful divestment campaigns in recent history, including those that targeted tobacco advertising, and also the South African Apartheid regime.
The current global movement for fossil fuel divestment is about moving money out of oil, coal and gas companies for both ethical and financial reasons. According to a report from Arabella investment advisers, in just 5 years over 688 institutions and 58,000 individuals across 76 countries have now committed to divesting over $5 trillion. Some notable organizations include the the world’s biggest sovereign wealth fund, owned by Norway, Rockefeller Brothers fund, and The Lutheran World Federation.
The ethical reason behind fossil fuel divestment is in relation to the environment and the impact of fossil fuels on climate change. The financial reason for fossil fuel divestment, according to a report from Carbon Tracker, is due to a potential ‘carbon bubble’ that may leave the industry stuck with trillions of dollars of stranded assets – oil, coal and gas reserves that are unburnable – as nations move to align with the Paris climate agreement
Fossil fuel companies risk destroying investor returns
Another report outlines how fossil fuel companies may be risking over $2 trillion in the next decade, and threaten to substantially lower investor returns, by pursuing projects that could be uneconomic due to rapid advances in clean technologies and international action to limit climate change to 2˚C.
No new coal mines needed
Perhaps the most revealing conclusion of the report is that the current production from existing coal mines appears to be sufficient to meet the volume of coal required to align with the Paris Agreement. Ultimately, this may herald the end of the road for expansion of the coal sector.
There are, however, costs associated with divestment and the process of reinvestment needs to be carefully considered. For this reason, it would be wise to talk with a financial planner to weigh up the costs and benefits for your specific situation.
A powerful alternative to divestment
Apart from divestment, an alternative approach for investors to influence corporate change is through shareholder resolutions. As an investor in a company one owns a share which may give one a right to vote. Good ethical fund managers will use this vote to leverage positive corporate change.
One famous example of shareholders influencing change is when UK group, Friends of the Earth used a shareholder resolution as part of its campaign against Balfour Beatty’s plans to build a controversial dam in Turkey. Protest groups warned that the dam would make 78,000 local people homeless and drown dozens of towns and villages, including the world historic site of Hasankeyf. FoE bought £30,000 worth of shares in order to submit a resolution on the dam contract at Balfour Beatty’s AGM. Some months later, the company pulled out of the project, announcing that ‘after a thorough evaluation of the commercial, environmental and social issues, it is not in the best interests of our stakeholders to pursue the project further’.
Since the Paris Agreement in Dec 2015, there have been a record number of shareholder resolution in relation to climate change. The ICCR, or the Interfaith Center on Corporate Responsibility, tracks climate change related shareholder resolutions over time, and has recorded 257 filings in 2016, up from the record 227 in 2015. An example of one of these shareholder resolutions was with American Electric Power, a large US utility, who agreed to provide a report on their so-called “stranded assets”.
Ultimately, your money can make a huge difference, not only in your life, but also for the planet and generations to come. To further discuss how you can use your money as a force for good, contact me adrian@argonautfinancial.com.au
