Divestment Year In Review 2020 From CleanTechnica
Published on December 31st, 2020 | by Carolyn Fortuna
December 31st, 2020 by Carolyn Fortuna
For decades, environmentalists have warned that climate change endangers the planet. Now, more asset managers than ever are in agreement as they see a threat to the bottom line. The fossil fuel divestment campaign has captured global attention, with many high-profile institutional investors withdrawing investment from fossil fuels. The campaign has achieved particular traction among faith investors, local authorities, and education establishments such as US and European universities.
The climate crisis has put high emitting industries under pressure in an already disrupted business environment due to covid-19. Pressure from shareholder activists are prompting more investors than ever to reshape their portfolios.
What is the Divestment Movement?
Gofossilfree, an international network of campaigns and campaigners working toward freeing communities from fossil fuels, defines divestment as “the opposite of an investment – it simply means getting rid of stocks, bonds, or investment funds that are unethical or morally ambiguous.” They describe how divestment “takes the fossil fuel industry to task” for its culpability in the climate crisis. By naming this industry’s singularly destructive influence — and by highlighting the moral dimensions of climate change — they advocate for the fossil fuel divestment movement to help break the hold that the fossil fuel industry has on the world’s economy and governments.
They are asking institutions to:
- immediately freeze any new investment in fossil fuel companies
- divest from direct ownership and any commingled funds that include fossil fuel public equities and corporate bonds within 5 years
- end their fossil fuels sponsorship
Fossil fuel companies include those involved with the extraction of thermal coal for electricity generation, oil exploration, oil production, oil sands, and gas applications. Investment and innovation in renewable energy will help the world transition away from fossil fuels toward low carbon alternatives in order to meet the 2°C target outlined in the Paris Agreement.
The divestment movement has had significant influence: it places constant financial and social pressure on fossil fuel companies to mitigate the climate crisis by phasing out their current business models and shifting to renewable energy. Beyond affecting bottom lines, the divestment campaign stigmatizes the fossil fuel industry by highlighting its leading role in the climate crisis, generating public support for its censure in the process.
2020 Divestment Announcements
The divestment movement focuses on investment funds like pensions or big institutions like universities and churches. Norway’s Sovereign Wealth Fund, the Episcopal Church, and the British Medical Association are some of the biggest organizations that have divested from fossil fuels. In the UK, 50% of universities have made such commitments. The Quakers, Church of Sweden, and Rockefeller Institute are 3 high-profile divesting bodies, while denominations such as the Church of England and the Methodist Church in the UK have announced they will withdraw from some thermal coal assets and from tar sands.
In May, 42 faith institutions from 14 countries announced their divestment from fossil fuels. This is the largest-ever joint fossil fuel divestment announcement by faith institutions.
Leading investment firms such as Blackrock have begun to withdraw funds from companies that exacerbate the effects of climate change, too. BlackRock, the world’s largest asset manager, recently told clients that environmental sustainability will be a key factor in investment decisions going forward.
Dominion Energy, Inc. sold its gas transmission and storage assets to Berkshire Hathaway, Inc. in a near $10 billion deal including debt, and BP announced the $5 billion sale of its petrochemical business.
The New York State pension fund will divest from the riskiest oil and gas companies within 4 years and decarbonize its entire portfolio by 2040. This is significant, as it is the biggest in the world to take this type of comprehensive climate action including divestment — valued at over $500 billion.
Lloyd’s, the world’s biggest insurance market, has bowed to pressure from environmental campaigners and set a market-wide policy to stop new insurance cover for coal, oil sands, and Arctic energy projects by January 2022, according to the Guardian. Lloyd’s also intends to pull out of the fossil fuel business altogether by 2030.
Recently some notable developments included Storebrands’ (a Nordic hedge fund worth more than $90 billion) move to divest from Exxon, Chevron, and Rio Tinto.
In the UK, the government-backed National Employment Savings Trust (NEST) – the biggest pension fund – announced that it will start divesting from companies involved in coal mining, oil from tar sands, and Arctic drilling.
Although they stopped short of pledging an end to fossil fuel finance, 450 of the world’s publicly financed development banks have pledged to tie together their efforts to rescue the global economy from the covid-19 crisis and the climate emergency, using their financial muscle to assist a green recovery for poor countries.
The Blame is on the Fossil Fuel Companies
When fossil fuels are burned, they release carbon dioxide and other greenhouse gases, which, in turn, trap heat in our atmosphere, making them the primary contributors to global warming and climate change. Fossil fuel companies are directly responsible for the climate crisis, as their commodity of fossil fuels releases heat-trapping greenhouse gases into the atmosphere. Global warming is caused primarily from putting too much carbon into the atmosphere when coal, gas, and oil are burned to generate electricity or to offer mobility. The Union of Concerned Scientists analogizes these gases that spread around the planet like a blanket, keeping in solar heat that would otherwise be radiated out into space.
It’s a direct cause and effect. And the fossil fuel companies’ influence isn’t just in the past — they have plans to cultivate fossil fuels for the next several decades.
For countries to achieve the Paris climate agreement goal of keeping temperatures from rising more than 1.5 degrees Celsius above pre-industrial levels, the vast majority of untapped fossil fuels left in the world have to remain in the ground. This can only happen if fossil fuel companies are forced to either stop doing business as they know it or to fundamentally reconfigure their business models.
Institutional Investors are Hearing the Call to Divest
Recent divestment announcements show that investors withdraw their funds to either mitigate financial risks or for ethical reasons.
84% of activists surveyed in the 2020 Global Divestment Study say the timetable from initial investment to a corporate divestment is 6 months. Moreover, 72% of companies in the Study admit they’ve held onto assets too long. 52% of companies say the need to fund new technology investments will make them more likely to divest over the next 12 months. It can seem counter-intuitive, as achievable valuations are likely to be lower, but the evidence shows that divesting in a downturn boosts returns.
Researchers at the School of Environment, Enterprise, and Development at the University of Waterloo conducted a 2017 analysis that suggests divestment announcements have a statistically significant negative impact on the price of fossil fuel shares. Their study aggregates the impact of more than 20 announcements across 200 publicly traded fossil fuel companies. The results suggest that share prices dropped on the days that institutional investors announced they were divesting of fossil fuels.
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