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October 25, 2017

What They’re Saying This Week: Divestment is Plain Old Ineffective

As the 2017 school year begins to approach Thanksgiving recess, commentary from across the country continues to find divestment is a failing effort on college campuses, cities, and pension funds alike. The reason: divestment is not only costly, it is ineffective at achieving the environmental goals its backers claim to seek.

For starters, divestment means removing investments from energy companies that not only provide clean-burning natural gas and critical oil supplies, but that are also investing substantial resources in renewable technologies like wind and solar. According to Bloomberg’s Sustainable Finance Brief:

The world’s biggest oil companies more than doubled their number of annual clean energy acquisitions, project investments and venture capital stakes, to 44 in 2016 from 21 the year before, according to research published Oct. 24 by Bloomberg New Energy Finance. In the past 15 years, they’ve completed 428 transactions and spent $6.2 billion building stakes in clean energy companies, amid pressure to diversify their businesses and accelerate green growth.”

If benefiting the environment is the ultimate goal, why divest from the companies that are leading energy development of all types?

A report in Inside Sources this week also called out the ineffectiveness of divestment, despite the publicity it creates:

“Divestment continues to create a lot of noise, closing branches and bringing hundreds of people out with signs and chants. It still has yet to make a significant impact on any energy infrastructure project. While Energy Transfer Partners acknowledged in court filings that protest activities made finding funding for the Dakota Access Pipeline more difficult, they were able to find the money, and the pipeline was completed in the end.”

Another opinion piece this week in the Albany Times Union discusses why New York should avoid costly efforts to divest, and to instead protect its pensioners while being realistic about divestment’s non-impact on the environment. As the piece articulates, divestment is “little more than a symbolic act that many environmentalists and State Comptroller Thomas DiNapoli believe is less effective than shareholder engagement in changing companies’ policies.” From the article:

“As First Deputy Comptroller Pete Grannis, who served as commissioner for the Department of Environmental Conservation, said: “Who’s going to buy those shares that you are going to be divesting?” Companies can easily find other investors. DiNapoli, a Democrat and environmental advocate who has increased the state Common Retirement Fund’s green portfolio, also opposes turning over investment decisions to politically minded legislators. “My fiduciary duty requires me to focus on the long-term value of the Fund,” he said, arguing that his team’s job is to make the most financially beneficial decisions on behalf of the CRF’s retirees and workers. Moreover, the proposed Fossil Fuel Divestment Act could compromise the retirement security of a million New York public servants and their families. Although the CRF is considered relatively well-funded, if the bill were to pass, poor investments could threaten the benefits of everyone who has paid into the $190 billion state pension fund. If funding shortfalls grew, taxpayers would be on the hook.”

An opinion in the Financial Times also echoed this sentiment in the context of European entities looking to divest:

“If you are not a shareholder you can exert no pressure — you are simply a protestor waving a placard. The campaigners would do better to buy shares rather than sell them and use their shareholding to force the companies to explain their views and plans in detail.”

Jeffrey Kupfer, an Adjunct Professor at Carnegie Mellon University’s Heinz College and former acting Deputy Secretary at the U.S. Dept of Energy, also called out the emptiness of divestment: From his remarks in the Financial Times”

As Cambridge university evaluates the issue, it should not only consider the points you made, but it should look to decisions by its peer institutions in the US, such as Harvard and Stanford. Those universities have weighed — and ultimately rejected — the calls for divestment. Also in the US, municipal pension boards in Seattle and Oakland, California, as well as the state treasurer of Vermont (all places known for their strong environmental and sustainability policies) have rejected divestment because of the serious financial impacts. In its decision, the Seattle board recognised that divesting “would negatively affect expected investment performance, even if pursued on a limited scale (eg only coal) or if pursued over many years”. Diversifying our fuel mix and addressing the environmental impacts of energy production and usage are certainly worthy goals. But advocates for divestment need to realise that there are a lot more productive ways to make a real impact.”

This week’s news is just another sampling of the many voices that continue to say no to costly, ineffective divestment.