A recent column in the Daily Kos attempts to undermine the work done to expose the real costs and (often very limited) divestment decisions recently made by universities. Unfortunately, the writer misses some key facts – much like the divestment movement itself.
Myth: The column notes that “the fossil fuel industry seems to be taking the divestment campaign pretty seriously. And for good reason, as the list of divesting institutions has grown to encompass a total value of $3.4 trillion dollars and numerous high-profile divesters.”
Fact: Despite the claim that $3.4 trillion dollars has been “divested,” the truth under the hood looks a bit different. As DivestmentFacts.com has highlighted before, even 350.org itself stated “the $3.4 trillion represents the total amount of assets represented by institutions, not the amount of money divested, which is difficult to track due to varying degrees of disclosure.” 350.org’s own executive director May Boeve even claimed that 3.7 percent of a portfolio is typically invested directly in fossil fuels. So, by 350.org’s own admission, the $3.4 trillion figure is, as the New York Times put it, “hardly a precise calculation.”
Even Mother Jones took issue with earlier claims that $2.6 trillion had been divested, noting “there’s a catch. That big number—$2.6 trillion—has nothing to do with the amount of money that is actually being pulled out of fossil fuel stocks. In fact, the investment consultancy behind today’s report has no idea how much money the institutions surveyed have invested in fossil fuels, and thus how much they have pledged to divest. Instead, that number refers to the total size of all the assets held by those institutions—hence the word ‘representing’ in the quote above from the report. And that’s a huge difference.”
The Daily Kos blogger also seems to think it’s crazy that the industry would respond to efforts by divestment activists if it didn’t think it would have an impact on targeted companies. Yet even those in the pro-divestment camp have admitted that divestment is not about actually impacting the practices of targeted companies or reducing carbon emissions, but about maligning the reputation of energy companies. According to 350.org Director May Boeve, “The purpose of divestment is to make the point that the [fossil fuel] industry is losing legitimacy. It’s about their reputation, which is less quantifiable but equally damaging.” Is the industry really not supposed to engage in a campaign that has the sole intent of tarnishing its reputation with misleading facts that even Mother Jones takes issue with?
Myth: The “growth” of divestment is all relative.
Fact: A number of recent pledges to divest have been largely empty gestures on behalf of universities utilizing the “Syracuse model,” an effort to make universities give up their “direct” holdings in fossil fuels while leaving all of their holdings in co-mingled funds in place. The move enables institutions and the divestment movement to count new wins, while the university avoids the costs of actually divesting. So next time you see a new divestment announcement, make sure to read the fine print.
Myth: Daily Kos notes that “there are good reasons for those divestment wins that have nothing at all to do with the environment.”
Fact: Before we get to those “good reasons,” let’s take a minute to discuss what divestment does for the environment other than attempting to undercut the reputation of certain fossil fuel companies. Bill Gates, for instance, an ardent supporter of investing in renewable energy and reducing carbon emissions, has vocally supported engagement over “false” divestment, stating recently that “my concern is that I love the fact that students and people care about climate change, and I don’t want to make them think that if they get people to divest that they’ve solved climate change” and that “false solutions like divestment or ‘Oh, it’s easy to do’ hurt our ability to fix the problems. Distinguishing a real solution from a false solution is actually very complicated.”
Numerous other academics agree that divestment is an empty solution to solving environmental concerns. According to Robert Stavins, the director of Harvard’s environmental economics program, “The concerns of the students are understandable but the message from the divestment movement is fundamentally misguided. We should be focusing on actions that will make a real difference.”
Myth: The Daily Kos column notes that, “On a purely economic level, divestment makes sense from avoiding future stranded assets and presently-bankrupt coal companies, to simple metrics of market performance. For example, a 2015 analysis found that those who divested from fossil fuels in 2010 would be outperforming those still invested in 2015.”
Fact: As DivestmentFacts.com has highlighted before, the firm that conducted this 2015 analysis, investment analytics firm MSCI, itself acknowledges that divestment creates “significant” investment risks and ignores all the other asset classes that benefit from fossil fuels. As for the report itself, the first thing to know is that it only examines investment history going back to November 2010, a limited window for any endowment to rely upon.
Even then, the MSCI report, which compares the performance of two funds (one with energy stocks; the other, allegedly, without) over a five-year period, shows quite clearly that the only times that the non-energy portfolio performed better than the energy portfolio were in the most recent years, when underlying commodity prices for oil and gas hit a decade-low. Remy Briand, head of research with MSCI, also wrote in a recent blog that “[Divesment] is not optimal from a financial perspective … because it can create significant short-term risk by potentially deviating sharply from market risk and returns. In addition, such an approach largely ignores fixed assets from non-energy sectors that are at risk of being stranded due to their dependence on burning fossil fuel reserves.”
Myth: The Daily Kos continues, “A 2016 analysis found that New York’s pension system would have had an additional $5.3 billion had it divested in 2012, translating to $4,500 for each pensioner.”
Fact: For starters, this 2016 analysis is actually sourced to Corporate Knights, a ‘magazine for clean capitalism.’ It’s worth mentioning that this report is the product of a publication clearly with its own viewpoint on the divestment issue. If the blogger is quick to shun off any report with funding from an industry source – even though that report was conducted and written entirely independently – then surely the same should go for a pro-divestment publication with a source like this one?
Putting that aside, this report also looks entirely at performance over the last five years and provides no basis for what will happen in the future. Given the recent 13-year low in oil prices, it is not surprising these two reports would have found, retrospectively, that not holding energy stocks at that point in time would have been a good financial call. The problem with that logic? For one, the majority of colleges’ stocks are likely to have been bought at a higher price than they would be sold for today. Buying high and selling low hardly seems to be a sensible investment strategy, a point borne out by the fact that many analysts see the industry as a medium to long term buying opportunity.
Secondly, prices are beginning to rebound with many forecasting growth in the future. If this report truly looked at the historical price swings in the commodity market it would understand that looking just over a 5-year time window does not accurately portray performance. After all, the endowments and pensions funds approached to divest are in for the long haul; short sighted investment decisions are better left alone.
As even noted by 350.org activist Naomi Klein, “Fossil fuel stocks aren’t performing very well right now. So opponents have just lost their best argument. They won’t lose it for long. So that’s another reason to pound away at it.” So while it may be well and good for activists to push short-term reports that find divestment is a good strategy over a 2, 3, or 5 year time horizon, for institutions actually considering these decisions it is important they have the information they need to make a real economic decision for the future.
As to who is really “divesting from the facts,” it seems this blogger has some catching up to do.