The report contends that our
“carbon budget” between now and 2050 – if we want to avoid a rise in average
global temperatures of more than 2 degrees C (which would bring tremendous
damage and human suffering to our global human society) – is 565 gigatons of
carbon dioxide. The total known reserves
of coal, oil, and gas represent a carbon potential (if burned) of 2,795
gigatons, which means that about 80% of the known reserves are “unburnable” if
we are to avoid a really nasty climate for us, our children, and grandchildren.
The report points out that
fossil fuel companies account for reserves as assets, and analysts and
investors determine the value of those companies based on these assets. If 80%
of these assets are unburnable (and therefore worthless) these valuations are
way off. Further, because these
companies represent such a large portion of economy and the financial markets,
this valuation error represents a major systemic risk for the global financial
systems.
One of the co-founders of
the Carbon Tracker Initiative, recently published an article, “Why the ‘Do the Math’ Tour Doesn’t Add Up”
on GreenBiz questioning the value and effectiveness of divestment as a response
to this dilemma.
In the article Cary
Krosinsky points out that “there is a severe systemic problem,” and that
instead of pointing figures we should be rolling up our sleeves and figure out
“what we should really be doing.” I always tend to prefer good faith,
solutions-based approaches, and couldn’t agree more that this is a systemic
problem, and that one divestment campaign is going to solve it.
But I think the intent behind
the divestment movement is to highlight that good faith efforts haven’t (yet)
been effective enough, fast enough. And
it is one piece in a larger effort – apartheid didn’t end only because of
divestment, it was one part of a much longer, sustained effort that included a
lot of hardship and sacrifice by countless advocates, undertaking many
strategies.
Krosinsky also questions why
oil services companies aren’t being targeted for divestment, but the Fossil
Free campaign is pretty clear on this, stating: “There are many more companies that contribute indirectly to climate
change–the multinationals that build drilling equipment, lay oil pipelines,
transport coal, and utilities that buy and trade electricity. But right now, we
need to be laser-focused on keeping all that coal, gas and oil in the ground,
and these 200 companies are the ones that own the vast majority of those
reserves.”
I think the more relevant
question around if the divestment math adds up, relates to the impact
divestment will actually have on the financials and activities of fossil fuel
companies. Everyone I’ve talked to in the financial sector seems to agree that
the impact on stock prices won’t likely be that significant.
The VP for Investments at
Bowdoin supported this view, summarizing in this recent article what was my initial reaction to the
divestment movement: “Markets are
efficient and it is unclear if one group of investors decides to boycott a
specific sector that there is any meaningful result… Other investors will step
in and buy cheaper securities.”
There’s an estimated $400
billion in college endowments in the US. At Middlebury, 3.6% of the endowment
is invested in fossil fuels. I have no idea if this is indicative of other
endowments, but let’s assume for a minute it is, and be generous in assuming 5%
of total endowment dollars are invested in fossil fuels – about $20 billion
dollars. Exxon Mobil alone has a market cap of $404 billion. On average, more
than 13 million shares are traded every day – that’s over $1 billion worth of
shares per day at current stock price, for just one of the 200 companies
targeted.
It seems like if all the
endowments in the country sold all fossil fuel stocks, there’s a good chance
that the markets and companies would barely notice, much less leave 80% of
their reserves in the ground as a result.
But again, it seems to me
that the divestment movement is realistic about this, and recognizes that its
power is in highlighting the fact that climate change is a moral issue.
Harvard students summed up
this idea well in this recent Crimson article: “Divestment may not pose an immediate threat to
the annual turnover of the biggest companies, yet it does help to undermine the
social and political capital of a powerful industry. More than anything,
divestment is a moral statement.”
Do you think this will help
the general public recognize that climate change driven by extracting and
burning fossil fuels is an urgent, moral human rights issue?
Stay going.
...
Although I'm not sure that's good news for the divestment movement. The more I look at this, the more convinced I become that the best thing for the goals of the campaign would be if most endowments continue to refuse to divest. 
