In Why Climate Change Divestment Will Not Work, Scott Wisor argues that the fossil fuel divestment movement “will at best be completely ineffective, and at worst distract activists from far more effective strategies of combating climate change.” He is, to put it quite plainly, wrong. Of course, if we are asking if divestment will single-handedly stop climate change, then divestment will not work in that sense. However, if we are asking whether divestment can meaningfully contribute to progress on climate change, then, contrary to Wisor’s rather selective characterization of the movement, the answer is yes.
Of course, just like the Apartheid and Sudan divestment movement—both of which Wisor praises—fossil fuel divestment is not the sole solution to the problem it is tackling. Like all divestment movements, fossil fuel divestment has its limitations and will only be successful in conjunction with broader action. Nonetheless, the movement is already having significant positive impacts and is continuing to grow and learn as it does so.
Shining Light on the Carbon Bubble
Let’s start off by looking at the incredible amount of awareness that the divestment movement has raised about the concept of carbon asset risk (colloquially referred to as the $28 trillion carbon bubble)—a concept that refers to the fact that the listed reserves of fossil fuels on the financial markets and those held by governments and companies are jointly up to 5 times greater than can be burnt if we are to limit global warming below the internationally agreed upon 2°C target. Awareness around this incredible contradiction and the need to address it has grown exponentially over the last few years, thanks in no small part to the divestment movement.
What’s more, despite the fact that we already have more reserves than we can afford to burn, fossil fuel companies are expending great amounts of capital, approximately 1 percent of global GDP, on exploring new reserves—ironically, about the same percentage of global GDP that the International Energy Agency concluded is required to invest in the clean economy in order to stay below the 2°C target. If the logic behind the carbon bubble is right, it is financially irresponsible for fossil fuel companies to be dedicating such enormous sums of money to developing new reserves which might not be exploitable. Instead, they should increasingly deliver growth to shareholders by redeploying capital into buybacks, special dividends, or perhaps even renewable energy—Conoco oil is one of the few companies that has started to do something like this. Wisor, however, claims that the movement’s demand of asking fossil fuel companies to stop exploring new reserves is unreasonable. He fails to see that not only is doing so morally laudable, but increasingly financially prudent too.[1. Of course, some of the demands of parts of the divestment movement are more radical, such as the demand to leave 80 percent of current reserves in the ground, but given that doing so is what is required to stand a 1-in-5 chance of staying below 2°C, those demands show just how far off course we currently are.]
A Poorly Defined Distraction
Wisor argues that the target of the fossil fuel divestment movement—namely, the 200 companies with the highest amount of carbon reserves—is poorly defined. I agree that the target could certainly be more nuanced, but what Wisor fails to see is that fossil fuel divestment is still a very new conversation, and so well-defined targets are hard to come by.[2. I believe we should target the most carbon- and capital-intensive reserves, as some fossil fuel divestment campaigns are starting to do, by focusing on coal, oil sands, and unconventional oil and gas. That is not to say that broader divestment isn’t called for, only that the most carbon and capital intensive reserves are the most important targets.]
Thanks in no small part to the divestment movement, the tools to analyze carbon risk are just beginning to be created, so while the top 200 companies are not the perfect target, they’re a good starting point.
Wisor also assumes that divestment is a distraction that draws strength away from movements aimed at “enacting meaningful change,” but where he finds evidence for this I am not sure. For many involved divestment is explicitly a solidarity tactic aimed at supporting the broader climate movement. Here in Washington State we are drawing on the social capital of the divestment movement to push for a price on carbon—a policy Wisor himself applauds. Of course, we should dedicate proportionate amounts of time and effort to divestment, as we also need to be focusing on broader climate action if we are to tackle this crisis. But many divestment activists I know are doing that anyway.
Divestment’s Financial Savvy
Wisor also ignores one of the major reasons for fossil fuel divestment; namely, that it’s an increasingly sound financial investment decision to make, which can help to shield investors from tens of trillions of dollar worth of losses associated with an industry in decline. Much of the fossil fuel industry is already underperforming relative to the market despite a general absence of climate regulation and only nascent awareness of the carbon bubble. Furthermore, due to a combination of economic factors, including the rapid decrease of alternative energy costs, the increasing costs of fossil fuel extraction, increases in energy efficiency, changing social norms, increased environmental regulation, and suppressed growth in key economies, the fossil fuel industry is in increasing amounts of trouble.
In spite of these trends the fossil fuel industry is gambling trillions of dollars on new investments in high-capital, low-return projects, which depend on high fossil fuel prices to remain financially viable. However, the industry’s bullish projections of high prices and increased demand are not materializing. Given that much of the fossil fuel industry is currently in denial about these trends, divesting institutions and individuals can protect themselves from an industry that is set to potentially take on significant losses, which will only be magnified by concerns around the carbon bubble. Of course, many divestment players are relatively small, but the movement is causing much larger investors to rethink the wisdom of staying invested in fossil fuels, which has the potential to shift large amounts of capital in line with the 2°C target.
In conclusion, while the moral, financial, and political case for divestment is multi-faceted, what’s clear is that it is inconsistent for institutions and individuals who are committed to addressing climate change to continue to invest in companies whose business model is dramatically out of line with doing so. By divesting, individuals and institutions can make a powerful statement that they are no longer investing in climate failure; and they can help to shift moral, social, and market norms while protecting themselves from the losses set to be visited upon an industry in decline.