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December 06, 2013

Divest or Engage a Serious Question for More than Investors
    by Robert Kropp

UK think tank Meteos convenes an investor dialogue on risks to energy holdings and recommends more analysis of the effects of climate change mitigation on stranded fossil fuel assets.

SocialFunds.com -- Bill McKibben of 350.org frames divestment of fossil fuel holdings as a moral issue, a tactic that does appear to strike at the heart of the matter. If, as an investor, you continue to profit from the actions of companies most responsible for the worsening effects of climate change, then you are part of the problem.

“If it’s wrong to wreck the climate, then it’s wrong to profit from that wreckage,” McKibben wrote in an influential 2012 article published in Rolling Stone.

350.org's “fossil fuel divestment campaign has spread to over 300 colleges and universities and more than 100 cities, states and religious institutions across the United States,” the organization reported today. And 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.

But even as sustainable investors firms Green Century Capital Management and Trillium Asset Management—both of which have offered fossil free investment opportunities for years—team with 350.org to produce a guide on divestment, other influential sustainable investors are counseling increased shareowner engagement as the more effective action.

In a paper published earlier this year, the Interf aith Center on Corporate Responsibility (ICCR) stated, “The majority of the energy sector remains mired in its old model and demonstrates through its actions that it is in apparent denial of the terrible price future generations will pay for its resistance to reform and/or to conform to measures that can produce change.”

Nevertheless, the organization argued, “To divest is to relinquish those shares to another owner who may not be practicing active ownership...ICCR members advocate for amplifying our collective voice by bringing more shareholder advocates to the table – that is, we support engagement.”

Shareowner advocate Simon Billenness agreed with ICCR. Following an exchange with McKibben at this year's SRI Conference on Sustainable, Responsible, Impact Investing during which the latter described the strategy of engagement with fossil fuel companies as having failed, Billenness wrote:

“It is that combination of divestment AND advocacy that has only marginal impact on the fossil fuel companies thus far. However, for social investors to abandon shareholder advocacy entirely – as Bill McKibben advocates – and to divest from all fossil fuel company stocks would be to throw away one of the more effective tools in the investor toolbox.”

Focusing more specifically on financial risk, the UK-based think tank Meteos recently published a paper entitled Syste ms not Silos: Investor Perspectives on the Energy System.

“The fact that energy contributes so much both to economic activity and political stability often leads analysts to conclude that the main characteristics of today’s fossil fuel-reliant system are immutable,” the report states. “Investors do not necessarily all share this view. There is a risk, they argue, that the energy system contains the seeds of its own destruction.”

Investors taking part in the EnergyFutures dialogue convened by Meteos included APG, Aviva, Alliance Trust, Bank of America Merrill Lynch, HSBC, Robeco, Sarasin, and USS. Ironically, Bank of America has provided $6.4 billion in funding for the coal industry during the past two years alone, according to the Rainforest Action Network (RAN).

The dialogue convened by Meteos highlighted “The growing body of broker research reviewing the potential impact of climate change on portfolios, and in particular the risk of being saddled with 'stranded' high-carbon assets.” Among the several recommendations arrived at by the investors were included the following:
more climate-related research in order to enhance understanding of risk;
greater transparency and disclosure from investee companies; and
improved understanding of public policy and regulation, and their investment implications.

“Governments are unreliable allies when votes are at stake,” Sophia Tickell of Meteos blogged. “But it is to them that we must look for coherent and long-term energy policy that addresses climate change.”

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