Forget the candy hearts, chocolate, the local Cineplex and bistro this weekend. St. Valentine’s Day somehow has been hijacked by Global Disinvestment Day, which means you should protest fossil fuels and encourage shareholders to submit proxy resolutions to leave oil, coal and gas resources untapped. Your significant others are guaranteed to love it because … Gaia.
Behind this movement are nominally religious shareholder activists such as As You Sow, as well as the World Council of Churches, filmdom’s The Hulk (Mark Ruffalo) and extreme-environmentalist rabble rousers Bill McKibben and Naomi Klein. Figuring out the endgame of divestment advocates isn’t difficult – Naomi Klein laid it all out for us in a recent interview in Grist:
Another point I would make, [about] carbon pricing, is that when we make the argument that this is a rogue sector, that their business plan is at odds with life on earth, we are creating an intellectual and political space where it es much easier to tax those profits, to increase royalties, and even to nationalize panies. This is not just about the fact that we want to separate ourselves from panies, it’s also that we have a right to those profits. If those profits are so illegitimate that Harvard shouldn’t be invested in them, they’re also so illegitimate that taxpayers have a right to them to pay for a transition away from fossil fuels, and to pay the bills for a crisis created by this sector. It’s not just about dissociating ourselves from their profits, but potentially getting a much larger piece of them. [emphases added]
Because nationalizing the oil industry has recognized such wonderful benefits for the citizens of Venezuela, right? And the same people who brought us the Affordable Care Act and the Transportation Security Administration can run an pany as professionally and efficiently as ExxonMobil, Chevron, ConocoPhillips, et al.? Really?
As You Sow’s leadership explained its support of divestment in the progressive publication Grist this past October:
The most attention-grabbing event during the week of the U.N. Climate Summit was the People’s Climate March, of course. But the second most attention-grabbing event was perhaps the Divest-Invest coalition’s announcement that at least 656 individuals and 181 institutions and local governments had signed onto their pledge, from actor Mark Ruffalo to the British Medical Association to the World Council of Churches. These investors collectively control more than $50 billion, and they have promised to make no new investments in the largest 200 oil, gas, and panies, sell their existing fossil fuel assets within five years, and invest in clean energy….
So is divestment just a diversion from the work that matters most — convincing governments to adopt carbon caps or taxes? Not according to the activists who are working on both causes at once. They argue that divestment campaigns aid the climate movement by creating opportunities within institutions to discuss climate change. They focus minds on the fact that four-fifths of known fossil fuel reserves need to stay in the ground if we’re to avert the worst of climate change, and the fact that strong future carbon regulations would undermine the profitability of fossil panies, and the fact that the cost of extracting fossil fuels keeps rising as we run out of easy-to-reach reserves and start tapping “unconventional” ones like the Canadian tar sands.
“This is the first time there’s been a lot of analysis of panies: Where’s demand going? Are these investments sound?” says Danielle Fugere, president of As You Sow, which promotes environmental and social corporate responsibility through shareholder advocacy. “That dialogue has been important. The divestment movement happened along with other [climate] movements, so I do believe it’s been incredibly important in raising issues and fundamentally engaging the munity.”
Sigh. Writing in the Wall Street Journal, Daniel R. Fischel, chairman and president of the economic consulting firm Compass Lexecon, warns that divestment is a “feel-good folly.”
No single piece of financial advice is more widely accepted by academics and savvy investors than portfolio diversification to increase returns and manage risk. Divestment advocates typically assume that investors can exclude fossil-fuel stocks with little or no loss. One California-based investment manager, for example, was quoted in a recent Rolling Stone article as saying that divestment would have “very low impact. If you take the panies out, you’re still very well diversified.”
Our research shows the opposite: Of the 10 major industry sectors in the U.S. equity markets, energy has the lowest correlation with all others—which means it has the largest potential diversification benefit. The sector with the second-lowest correlation with others is utilities, which includes many fossil-fuel divestment targets such as Southern Company and Duke Energy.
Fishel adds that activists advocating for, say, a university to divest from fossil fuels will not only cause the school’s endowment to lose 0.7 percentage points each year, but as well the school will incur greater costs to ensure all future ply with the anti-fossil fuel agenda. “[M]anagement fees charged by mutual funds with an environmental focus appear to be, on average, greater than those funds without such a focus. Our research indicates that the largest ‘green’ funds have average expenses three times greater than those of the largest mutual funds that invest in energy firms.” And this:
The potential for lower investment returns after divestment is real, and substantial. The National Association of College and University Business Officers (Nacubo) has estimated the assets in university endowments to be $456 billion. A 0.7% decrease in the collective portfolio performance of these endowments would decrease annual growth by nearly $3.2 billion annually. Nacubo has estimated $23 billion in university endowments are invested in energy stocks. An increase pliance or management costs of 1% to maintain a fossil-fuel-free endowment would further decrease annual growth by an additional $230 million. A reduction in wealth of this magnitude could have a substantial impact on the ability of universities to achieve their goals, such as the research, services and scholarships that they offer.
panies and investors take it on the chin from activists’ divestment strategies, what about the rank-and-file energy consumers? Or how about those people who are living in energy poverty as defined by the International Energy Agency? The Center for Global Development says a $500 investment in solar-generated energy may elevate one person out of poverty, but a $500 investment in natural gas-generated electricity will elevate four people from poverty. This 4-to-1 ratio, if applied in a country the size of India – where one out of four of the nation’s 1.25 billion people is energy impoverished, and which received $4 billion for solar development from U.S. agencies – might have benefited eight million people in a best-case scenario, but would’ve assisted 32 million if the same amount of money had been spent on natural-gas power stations.It’s pretty clear the divestment strategy isn’t on the side of the angels, Cupid or otherwise.