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October 29, 2013

Fossil Fuel Divestment only the First Step
    by Robert Kropp

Investors join 350.org to produce a guide on divesting from fossil fuel companies. First of a three-part series.

SocialFunds.com -- “If it’s wrong to wreck the climate, then it’s wrong to profit from that wreckage.”

Thus states Bill McKibben of 350.org, whose 2012 article in Rolling Stone is credited with launching the fossil fuel divestment campaign that has spread to at least 250 US colleges and universities.

According to a recently published Oxf ord University report, more than 40 endowments of colleges and universities have divested their holdings in fossil fuel companies thus far. Also, the report continues, while previous divestment campaigns aimed at tobacco companies and apartheid in South Africa “took some years to gather pace,” the fossil fuel divestment campaign seems to be gathering more widespread support at a faster rate. “Despite its relatively short history, the fossil fuel campaign can be said to entering the second wave of divestment,” the report states. The second wave of previous campaigns occurred when divestment by prominent institutions created “a tipping point that paved the way for other universities, in the US and abroad, and select public institutions such as cities to also divest.”

Sustainable investors have wrestled with arguments of divestment versus engagement, and many have concluded that engagement provides them with the better opportunity to pressure fossil fuel companies to change their behaviors. However, in a recently published paper, the sustainable investment firm NorthStar Asset Management concluded, “Shareholder efforts to convince fossil fuel firms to expand into alternative energy businesses have proven ineffectual and, as a result some fossil fuel firms have even stopped trying. SRI investors and their fiduciaries also have a responsibility to consider the cost of NOT divesting—on people and the planet, as well as on profit.”

For investors contemplating divestment, 350.org has teamed with Green Century Capital Management and Trillium Asset Management to produce a divestment guide. Both Green Century and Trillium have offered fossil free investment opportunities for years.

According to the guide, the demands made on fossil fuels companies are threefold:
stop exploring for new hydrocarbons;
stop lobbying in Washington and state capitals to preserve their special breaks; and
pledge to keep 80% of their current reserves underground forever.

Absenting a sudden reconsideration of its business model by the industry, the guide outlines several reasons for considering divestment as an option. One specifically addresses financial risk. On the books of fossil fuel companies are reserves that the companies consider to be assets. However, a 2011 paper by Carbon Tracker entitled Unburnable Carbon pointed out that no more than 20% of the reserves currently on the books can be burned if global temperature increases are to be limited to two degree Celsius.

“Divesting now could allow investors to reduce their exposure to a possible collapse of the so-called 'carbon bubble,'” the divestment guide states.

Addressing the retail investor, the guide observes, “Whether you intended to or not, it is likely you hold
investments in fossil fuel companies.” Thus the first step in the divestment process is learning what stocks one actually owns. Reviewing investments in publicly traded companies should reveal whether one's portfolio includes holdings in the 200 companies with the largest fossil fuel reserves, a listing of which has been compiled by 350.org. Components of mutual funds can be identified through the funds' annual reports, and investors who employ financial advisors should ensure that their divestment requests are understood and carried out.

The guide concludes with recommendations for reinvestment. “Every company has an impact on climate change and is impacted by climate change,” it states. “Understanding how companies are identifying and managing these climate risks can help determine which ones are appropriate for your portfolio.” Those who invest in retirement plans are encouraged to advocate for a fossil free option.

“Heightened awareness and pressure will help bring about the changes we so urgently need to address climate change,” the guide concludes.

Next: As You Sow contributes to a report on cleantech investment.

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