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January 9, 2019

The Case Against Divesting from Oil Stocks

Late last month, Barron’s ran an opinion piece that lays out the futility of divestment from fossil fuel given the critical role of industry in developing and investing in proactive climate solutions —a fact often ignored by those who push empty gesture divestment.

The authors of the piece, Thomas H. Stoner Jr. and David Schimel, are experts in predictive equity portfolio analytics and research science, respectively. Stoner and Schimel almost immediately point out the obvious opportunity the energy industry has to pivot towards climate solutions, if given the chance. In their words, “perhaps the most direct climate change solution would be to incentivize those companies to reduce emissions.” Divestment, as they highlight, ignores this opportunity.

This point echoes one of our most recent blog posts, highlighting the fact that institutions are increasingly rejecting divestment to opt for tangible sustainability efforts. With that being the case, directly investing in energy companies to encourage environmental solutions is far more proactive than giving up your stake and, in turn, voice.

Schimel and Stoner also point out that a significant portion of investment in emissions reductions technology is already sourced from the fossil fuel industry. From the op-ed:

“[It] turns out that the investments by Big Oil in carbon reducing technology are now outpacing those of venture investment into clean tech. So why shouldn’t those traditionally “dirty” companies be rewarded for their efforts? After all, the world has the most to gain if they rapidly decarbonize while meeting consumer demand for renewable energy.”

That’s right – give credit where it is due, and the fossil fuel industry is ultimately owed that. The divestment movement is seeking to ‘punish’ the industry but conveniently ignores the industry’s contributions to the solution. Apparently, ‘Big Oil’ investing in emissions reduction and developing sustainable solutions does not fit into the ‘divestment movement’ narrative and is consequently redacted from their version of the facts.

Activists have even attempted to repudiate these efforts by pointing to the intent of oil majors for investing in tech – asserting that the industry doesn’t truly care about climate change and thus, shouldn’t be hailed for their efforts. This line of thinking, however, is just symptomatic of a greater problem with the divestment movement: they’re all about symbolic empty gestures but when substantive steps are taken to address climate change, they pick it apart to discredit the effort. According to the op-ed:

“In 2016, the most recent year for which data is available, the oil majors spent a total of $6.2 billion on renewable energy firms, purchasing twice as many companies as they had the year before. (…) Some of these investments are pure business decisions. Some are naked attempts to placate angry shareholders. But the motivation matters less than the scale. And these investments are starting to pay off: in one recent five-year period, the oil sector also saw an overall drop of 12% in carbon emissions.”

The piece continues, calling out the climate and divestment community for their bias:

“These large companies have the wherewithal to make massive investments in clean technology and to decarbonize their assets. Not grading them fairly for those efforts or, worse, ignoring them entirely, makes little sense if the objective is to address climate change.”

Alternative energy sources are becoming increasingly competitive, and the fossil fuel industry does not deny that fact, contrary to activist musings. In fact, the numbers prove that they’ve embraced the evolution of the energy industry and continue to invest in new opportunities to develop reliable, secure, affordable, and sustainable energy.  Perhaps, instead of focusing on which companies or funds to punish, divestment activists should take the lead of the fossil fuel industry and direct their efforts towards pivoting to actual solutions.