Students started the fossil fuel divestment movement on a handful of college campuses in 2011. Four years later, the cause–which asks investors to sell holdings in the industry directly causing climate change–has grown to include cities, foundations, insurance companies, pension funds, and churches that hold a combined $2.6 trillion in assets. That’s a small but not meaningless percentage of the world’s estimated $241 trillion in global wealth that refuses to touch dirty-energy stocks.
At an event in New York City on September 22, investors, climate experts, and activists including actor Leonardo DiCaprio highlighted this rapid momentum. DiCaprio and his foundation committed to joining more than 436 institutions and more than 2,000 individuals in 43 countries that have so far made commitments. The $2.6 trillion in assets, totaled in a report by Arabella Advisors, is an impressive 50-fold increase from the $52 billion in divestment commitments from 181 institutions calculated by the same firm at this time last year.
“Clearly our movement is growing faster than anyone expected,” says May Boeve, executive director of the global grassroots activism organization 350.org. “These numbers mean a lot of things, but one of the most important things they mean is that as world leaders gather in Paris at the end of this year, we need governments to divest, also.”
Advocates don’t distinguish much between the financial and moral reasons for divestment. Scientists predict that in order to limit the world to a 2 degree Celsius temperature rise and avoid catastrophic climate change, most of today’s fossil fuel reserves will need to be left in the ground. To a long-term-minded investor, that means fossil fuel stocks are overvalued–especially as carbon regulations are put in place and renewable energy becomes more competitive. The coal industry especially may already be seeing these effects in stock prices, and financial analyses by the likes of Citigroup, HSBC, and the World Bank have all warned of the financial risks of fossil fuel assets in a “carbon constrained world.” The world’s largest private coal company, Peabody Energy Corporation, has acknowledged divestment as a material risk to its profits. Compared to the movement’s beginnings, now private companies and pension funds make up the large majority of assets committed to divestment.
“As shareholders, you have to ask yourself a question: Why is this industry spending over $600 billion a year looking for new reserves when they cannot burn 80% of the reserves that are currently on their balance sheet today?” says Tom Van Dyke, managing director for socially responsible investment at Royal Bank of Canada and founder of the shareholder advocacy group As You Sow. “We’re the first generation that’s able to understand what carbon risk is about, and we’re the last generation that’s going to be able to do anything about it,” he says.
Among the institutions included in the total, there are widely varying definitions of fossil fuel divestment. A number are more narrowly focused on the coal sector, which is a much easier sell than the full spectrum of carbon-causing energy sources. Earlier this month, the University of California announced it was selling its $200 million investment in coal and tar sands companies, but said its decision was based on financial considerations that did not extend to conventional oil or gas. Similarly, in the largest divestment commitment to date, Norway’s $900 billion sovereign wealth fund said it would divest from 122 coal companies, citing climate and financial risks. But the nation, which is among the world’s top crude oil and gas exporters, unsurprisingly isn’t touching those sectors.
Today, investors have more tools at their disposal for divesting. There is a variety of fossil fuel-free investment funds available, and As You Sow recently launched a new tool that allows investors to see how much their own fund holdings are invested in the fossil fuel industry. The report also notes investors representing $785 billion in assets have pledged both to divest and to reinvest in clean energy.
Yet divestment is a controversial tactic. Some experts believe everyone’s energy would be better spent pushing for national policies. And given the profitability of oil companies today, the wealthiest climate advocates aren’t jumping to sell their holdings: George Soros has invested more in coal recently. And Bill Gates has said he does not see a “direct path” between divesting and solving climate change. “I think it’s wonderful that students care and now the Pope cares,” he said at a Financial Times forum. “But the energy of caring, I think you need to direct it towards something that solves the problem.”
A University of California, Santa Cruz student and leader at Fossil Free UC, Alden Phinney, would disagree. Speaking at the event, he said: “I invite you to stand with students or get out of the way, because it’s past time for real climate leadership.”