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Fossil fuel divestment

Saying no to investment in oil, coal and gas

Saying no to investment in oil, coal and gas

Across the world, people are coming together to declare they’re not willing to be complicit in an industry which, arguably, presents the greatest environmental threat to the planet today.

The movement to persuade investors to take their money out of the fossil fuel sector is already growing faster than any previous divestment campaign. And its momentum continues to build with universities, churches and institutional investors joining its ranks. But divestment is just the start. If we really want to build a fossil fuel free future, then we also need massive and urgent investment in the low-carbon alternatives.

Building momentum

Divestment from fossil fuel companies is fast becoming the ethical issue of our time. In a little over three years the campaign has grown from student protest in the US to a global movement, uniting a diverse group of individuals and organisations. Colleges and universities in the US were the first to commit to eliminating their investments in coal, oil and gas companies. And as the movement has gathered momentum, many more have followed suit, including the city of San Francisco, the World Council of Churches and the Rockefeller Foundation. The charitable foundation’s announcement in September 2014 was particularly significant, not just in terms of their $860m assets but also symbolically, given the family fortune was built on oil. In the UK the universities of Glasgow and Bedfordshire, the British Medical Association (BMA), Quakers in Britain and Oxford City Council are among those to add their pledge to divest.

 $50bn pledged to fossil fuel divestment1In total the commitments tally up to more than $50 billion, a substantial amount but a drop in the barrel of a multi trillion dollar industry. But the power of divestment is greater than its financial impact. Divestment from South Africa is considered an important factor in the dismantling of apartheid, but not because of financial pressure. A 1999 study by economists Ivo Welch and C. Paul Wazzan argued that the valuations of targeted companies and even the South African financial markets themselves were not easily visibly affected. Where it did have an impact was significantly increasing the visibility of the civil rights abuses and injustice of the South African regime. This contributed to the public opposition and international pressure exerted on the country’s government; key factors in the end of apartheid.

Environmental imperative

A key difference between the anti- apartheid and fossil fuel divestment campaigns is that while the former was based on social and ethical grounds, the latter has an underlying financial argument, underwritten by the ultimate environmental bottom line. Research published in the journal Nature in January revealed that, to achieve the international target of limiting climate change to 2°C above pre-industrial average temperatures, much of known fossil fuel reserves will have to remain unburned. The paper by UCL’s Dr Christophe McGlade and Professor Paul Ekins found that globally, a third of oil reserves, half of gas reserves and more than 80 per cent of current coal reserves should not be used before 2050 in order to meet the 2°C target.

“The relentless pursuit of new sources of carbon based energy is at best futile, at worse massively irresponsible; not just environmentally, but in terms of their investors.”

“One lesson of this work is unmistakably obvious: when you’re in a hole, stop digging,” said Bill McKibben, co-founder of 350.org, one of the first groups to call for divestment from fossil fuel stocks and a driving force between the movement. “These numbers show that unconventional and ‘extreme’ fossil fuel – Canada’s tar sands, for instance – simply have to stay in the ground.”

In February, campaigners from the Pacific Islands to South Africa and the United States to Germany rallied to the cause on Global Divestment Day. At more than 450 events in 60 countries, people stood up to demand that governments, universities and financial and religious institutions stop investing in fossil fuel companies.

Carbon bubble

The study is further evidence that the fossil fuel industry is hugely overvalued, with market valuations based on oil, gas and coal reserves which can’t be burned without catastrophic climate change. One estimate of the size of the carbon bubble is $28 trillion. The financial crisis has shown that when a bubble that size bursts, the cost doesn’t stop with investors in the companies, but is likely to have repercussions for the entire global economy. It’s a risk being taken seriously by the Bank of England, which announced in December that it is to conduct an enquiry into the risk of fossil fuel companies causing a major economic crash if future climate change rules render their carbon assets worthless.

“Divestment itself is only half of the equation. Massive investment in renewable energy infrastructure is needed to make the transition to a low carbon economy.”

It also shows that the relentless pursuit of new sources of carbon based energy is at best futile, at worse massively irresponsible; not just environmentally, but in terms of their investors. Sourcing oil and gas from unconventional sources, such as fracking and oil sands, costs considerably more than from conventional sources. Analysis by the Carbon Tracker Initiative published in November 2014 argued that over the next decade investors in Canadian oil sands need high oil prices of more than $95 a barrel to give a decent return. US fracking typically has a break-even point of $70 a barrel. With US crude oil currently priced at around $50 a barrel, divestment looks like a shrewd move on economic grounds alone.

“Companies spent over $670 billion (£430 billion) last year searching for and developing new fossil fuel resources. Investors in these companies should also question spending such budgets,” said Paul Ekins, co-author of the UCL report. “The greater global attention to climate policy also means that fossil fuel companies are becoming increasingly risky for investors in terms of the delivery of long-term returns. I would expect prudent investors in energy to shift increasingly towards low-carbon energy sources.”

Positive reinvestment

Divestment itself is only half of the equation. Massive investment in renewable energy infrastructure is needed to make the transition to a low carbon economy. The International Energy Association estimates that an additional $1.1 trillion in low-carbon investments is needed each year until 2050, in the energy sector alone, to keep global temperature rise below the 2°C target. The real success of the movement may eventually be measured not in how much is divested from fossil fuels, but how much of this is reinvested in the alternatives.

“The more people who declare they have a moral and financial objection to profiting from such an environmentally harmful industry, the more focus we will be able to bring onto building its successor.”

Even if you don’t consider yourself an investor, the likelihood is that your money is to some degree invested in the industry. You may not have direct investments in oil and gas companies but most pension funds do, and with five oil and gas producers and seven mining companies currently in the FTSE100, any investment in the index is likely to have some exposure to them. You should also consider your bank. Financial campaign group Move your money has reported that in 2012, in excess of £66 billion was invested by UK banks into fossil fuel extraction alone. With enough consumer pressure, banks and pension funds could be persuaded to cut off funding to oil and gas, particularly from unconventional means like fracking, and re-flow this money to give a significant boost to the low carbon economy.

Divest yourself

Triodos Bank research on fossil fuel divestmentSo what can you do to divest yourself? Individually you can look into your finances and whether you are investing in fossil fuels, directly or indirectly. Call on your bank and pension provider to withdraw funding from the industry, and move your money if you’re not satisfied with their response. And as a consumer you can become less dependent on fossil fuels by for instance investing in energy efficient measures or solar panels. Collectively we can encourage energy companies to put more resources into developing renewable energy sources, stop pursuing unconventional resources and commit to leaving some of their conventional resources underground. And we can put pressure on government to increase support for renewables, and drop subsidies and support for fossil fuels, particularly from unconventional sources like fracking.

Ultimately, as the divestment campaign continues to grow, the hope is that it will create a virtuous circle. The more people who declare they have a moral and financial objection to profiting from such an environmentally harmful industry, the more focus we will be able to bring onto building its successor.

As Desmond Tutu put it; “We cannot necessarily bankrupt the fossil fuel industry. But we can take steps to reduce its political clout, and hold those who rake in the profits accountable for cleaning up the mess.”



words: Will Ferguson

photography: Diego Restivo, Charlene Wolf, 350.org


Triodos Bank
Positive investment in renewable energy

Triodos Bank not only excludes fossil fuel companies from its lending and investment funds, but is an active investor in renewable energy, financing 376 projects across Europe. The renewable energy projects we finance have a combined generating capacity of 2,280 MW of energy, or enough energy to meet the electricity needs of the equivalent of 1,480,000 European households. You can find out more about the renewable energy projects we lend to in the UK and across Europe here. Or find out about Triodos Bank’s vision for a new energy system and how we have to work together in a community of  action to make it happen.

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