Have you heard of the movement to have university endowments divest their portfolios from fossil fuels? If so, you may have heard this is a moral stance for the climate, but maybe just a symbolic one, or even a gimmick since someone else would just buy the stock they sell. Or that it is too financially risky for big funds to do. </p>
That is no longer true, if it ever was. In the year since the Rockefeller Brothers Fund joined this movement, $2.6 trillion worth of funds have pledged to divest from all fossil fuels, or from the most carbon-intensive ones, all within five years. Institutions like Stanford University and Norway’s $8 billion pension fund know divestment can be implemented responsibly over time. And thanks to a combination of momentum and a solid financial logic at its core, divestment is now a force that is helping shape an emerging pro-climate consensus in financial markets.
Here’s the logic behind divestment. We know to keep the climate livable — below 2 C warming — most fossil fuel reserves on company books just can’t be burned. Ever. But the financial system still assumes they will be and are thus worth as much as $20 trillion — this is built into the value of fossil fuel stocks. If we protect the climate, most of those carbon assets are, instead, a financial bubble — a “carbon bubble.” It is now mainstream to worry over losing money if this “stranded assets” logic takes hold and the bubble bursts.
But it is not enough to analyze and react, because financial bubbles are inflated and burst by the collective actions of investors. Our action or inaction impacts the outcome — only in this case our very future depends on which self-fulfilling prophecy we craft. If investors continue to believe all reserves will be burned, companies will continue to access capital and invest it in building a fossil fuel future sure to destroy the global economy and the value of our funds with it; but if a critical mass of investors acts as if most reserves will not be burned, fossil fuel stock prices will fall and investments will shift from extracting reserves to clean energy, as it becomes clear where the world is heading.
Divestment shapes market expectations towards this second option because it explicitly rejects the self-fulfilling belief that carbon reserves are all burnable, and the business models dependent on devastating the climate. That is not “socially responsible investment” — it’s a matter of survival.
With the climate summit in Paris this fall, the University of Waterloo should take up this issue now and join those who have pledged to divest their endowment from fossil fuels.
You can learn more about the energy investment crossroad we find ourselves at on the evening of Nov. 5, at “Beyond carbon: investing in clean energy and a livable climate,” a fireside chat with Canadian clean-tech investor Tom Rand. He will discuss both the stark realities we face and the hopeful opportunities that we can now seize on. For more event details see www.beyond-carbon-tom-rand.eventbrite.com.
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PhD Candidate, Environment and Resource Studies