Divestment campaigns: Fight the power?

No, not Eli but The Economist. You’ll be unsurprised to learn that they have a somewhat different perspective, closer to mine, or perhaps vice versa.

They do some half-hearted “analysis” of the South Africa and Israel disinvestment campaigns, but really all they do is point at a couple of graphs and say “its hard to see anything here”; by the Economist’s standards, that’s rubbish. Some may like:

On the other hand, there is little evidence that ethical investing—or its close cousins, sustainable investment, environmental, social and governance (ESG) policies and corporate social responsibility (CSR)—diminish returns. A survey published in 2009 of academic papers that focused on CSR, including environmental measures, found a mildly positive correlation between the pursuit of socially responsible policies and financial performance. A more recent study by MSCI, an index firm, covered the period from February 2007 to March 2015; it found that investment portfolios with greater exposure to firms with high ESG ratings, or to firms that had recently increased their rating, performed better than the market as a whole.

And then we’re back on the idea of “stranded assets”:

Mercer contends, it will not be possible for energy companies to exploit all their known reserves: some will become “stranded assets”. The average annual returns from coal could fall by anywhere between 18% and 74% over the next 35 years…

As to whether disinvestment might work:

A second question is whether divestment will make any difference to firms’ behaviour. It is impossible to sell an energy company’s shares without a buyer, and the buyer will presumably care less about climate change. For the energy company, life may even get easier… 350.org’s divestment campaign in Britain, says raising the cost of capital isn’t really the point. The real aim is to deny energy companies the political, social and cultural backing to influence decisions on climate change… Energy producers have seen their share prices slide over the past year—but that is down to a lower oil price, rather than an environmental epiphany among investors. Ironically, the price slide has been driven by the emergence of fracking as a new source of oil: something green campaigners are dead against. But tougher regulations to stem climate change are also emerging. The battle for hearts and wallets, like the planet, is heating up.

I don’t have any deep thoughts on this, but I’m interested, which is why this post is mostly quotes.

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13 thoughts on “Divestment campaigns: Fight the power?”

  1. The five top fuel consuming (and CO2 emitting, for those keeping score) countries are China, the U.S., India, Russia and China will consume about 60% of the world’s energy in 2040 (and account for a similar percentage of emissions.

    The second five countries account for about 10%, so it really is the top 5 countries that matter.

    And each of these five countries has been pursuing (and promoting their pursuit) of green energy sources to the rest of the world. To hear them all talk, green energy is going to take over the world.

    However, their planned expansion programs for nuclear, hydroelectric, solar and wind,biofuels and natural gas are not going to do the job.

    In fact, if everything that is on the planning boards gets built in those five countries, the percentages of renewable and nuclear energy used will climb from 17% today to 20% in 2040. And that’s if the DOE estimates of fuel consumption (819.6 quads projected for 2040) are correct. If my more pessimistic projections are more accurate our world will be burning about 965 quads by then. And if that energy isn’t coming from nuclear, hydroelectric, renewables”, it will come from fossil fuels.

    We will be using twice as much fossil fuels in 2040 as we did in 2010. I don’t think that sector is as risky as environmentalist wish to persuade us it is. There should be willing–well, eager–buyers for divested shares. I wish it were otherwise.

    [Admin note: you were on moderation; I’ve now taken you off -W]

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  2. Given the relative volumes invested directly by private investors who care about such things (or invested indirectly through funds catering to investors who care about such things) versus institutional investors in general, and private investors who do not care about anything but the numbers, I’d be extremely surprised if it did make much difference. There’s a reason Neil Woodford is a big name, despite his heavy weighting to horribly unethical investments like tobacco companies…

    My view here is basically the same as on nuclear new-build: it’s the economics that actually matters. If that happens to line up with the priorities of “green campaigners” then it can look like said campaigners are making difference, but if not, then it won’t. The truth of the matter is that the opinions of “green campaigners” aren’t actually worth a fart in a colander when it comes to decisions involving significant sums of money, and any time it looks like they are, it’s probably just a co-incidence.

    Which is not to say that divestment or ethical investment is pointless – there’s value in doing what you believe to be the right thing regardless of whether you think it’s actually going to make a difference. But we shouldn’t kid ourselves that individual investment decisions of this nature can significantly alter the course of the world economy.

    (Full disclosure: I’m a member of the Scottish Green Party and I try to be an ethical investor. But I also try not to kid myself about the magnitude of my importance.)

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  3. From the article in the Economist:

    The average annual returns from coal could fall by anywhere between 18% and 74% over the next 35 years…

    Isn’t this the best possible reason for individuals and institutions to divest from coal, sooner rather than later? I certainly don’t want to be left holding those stranded assets.

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  4. I remain confused by divestment. If one is an investor in a company, presumably one has a vote at the stockholder’s table. If not, one has nothing but a symbolic processional in the opposite direction and a receipt from their broker. Activist investors CAN influence boards of directors and even fire them. It would seem that this would be a greater reason for making and using capital than an analysis of whether capitalistic investment is more fulfilling as a pseudoprotest.

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  5. BobFromLi, #5: this is related to the point I made earlier about how small the proportion of direct investors is. The fact is that the vast (and I mean vast) bulk of shares are held by institutional investors, who are concerned with continuity and stability above all else, and who will usually oppose any and all attempts to rock the boat. Activist investors are (generally speaking) a tiny, inconsequential minority.

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  6. I can see the sense in comments above about the relatively minor role of divestment campaigns. But sometimes things change in ways that aren’t predictable in advance. Fossil fuel divestment campaigns might play an important role in shaping public opinion, and then eventually shaping energy markets, in the future.

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  7. Negative prestige can help balance out the negative externalities of fossil fuels. A coal company is going to have to pay an engineer more than a solar company to obtain her services. We want that to be the case as long as carbon pollution isn’t priced appropriately, and divestment helps increase the price premium that fossil fuel companies have to pay.

    That’s just one reason in favor of divestment.

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  8. Divestment is actually “feeding the power”. Big Oil, BP, owned by the Rothschild family and the British crown, Rockefellers, for example, don’t sell shares in their companies to raise cash, and are unaffected by divestment. Little guys (relatively) are the ones affected; transporters, small oil drilling contractors and refiners, borrow money from the international bankers above. Divestment benefits Big Oil since Big Oil is also banking and money-lending. Big Oil is also increasing its fossil fuel investments; David (?) Rothschild tried to buy Indonesia’s largest coal mining company a few years ago,

    [You mean Nat? That was Bumi, and it was disaster http://www.ft.com/cms/s/0/e68a21fa-b406-11e3-a102-00144feabdc0.html#axzz3fFJMAQEt -W]

    Al Gore bought 20 Gulf oil drilling rigs after making “An Inconvenient Truth”, and there’s a serious agenda by big oil to start Arctic drilling – an oil field larger than the Gulf. Fossil fuel divestment is manipulation to increase the control of resources by the .01% – a scam.

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  9. deleted comment saved and reposted on different site as another example of fascist censorship in left-wing media.

    [My; you are impatient. And rude -W]

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