Divestment Year in Review 2018 — #CleanTechnica Report

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From school children to individuals, companies, and corporations, the global fossil fuel divestment movement has challenged the right of the fossil fuel industry to damage the environment. By divesting from fossil fuels, we are requiring polluters to take responsibility for their products and hitting them where it hurts the most — their stock values and investor dividends. In this “CleanTechnica 2018 Divestment Year in Review,” we’ll be looking at the progress that the people-powered grassroots movement has accomplished toward shifting small and large investments away from fossil fuels and into a greener, low-carbon economy.

Over 1000 institutions with managed investments worth almost $8 trillion have committed to divest from fossil fuels. Fund managers and fiduciaries are increasingly aware of the risks of climate breakdown and deciding of their own accord to divest from morally unsound and financially risky industries.

Standout 2018 Divestments

Momentum for divestment has only accelerated: pledges span 37 countries with over 65% of commitments coming from outside the US. The divestment sources now include major capital cities, mainstream banks and insurance companies, massive pension funds, faith groups, cultural, health, and educational institutions — all of which serve billions of people. 350.org outlines how 2018 trends about divestment have pointed to:

• the exponential rate of growth in the number of institutions and total funds divested from fossil fuels companies
• the global breakdown of divestments including numerous commitments on every continent
• politically significant commitments such as those of the sovereign wealth funds of Ireland, Norway, and city divestments of Cape Town and New York
• the sector breakdown of divestment actions, which demonstrates the moral leadership of the faith sector on the issue of divestment

The latest commitments propelling the campaign to over 1000 institutions that have divested include:

• AG2R la mondiale (US$114 billion)
• Australian Vision Super Fund (US$9 billion)
• Brandeis University (US$997 million)

Want a full list of divestment commitments? Click here.

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Recent Global Decisions that Affect Fossil Fuel Portfolios

The Paris Agreement set out aims to limit the global mean temperature increase ‘well below’ 2 °C. That goal will diminish global carbon budgets for the 21st century in order to reduce CO2 emissions. Logically, as a result, a considerable share of fossil fuels will remain underground that might have otherwise been extracted and sold at tremendous profits.

COP24 (the informal name for the 24th Conference of the Parties to the United Nations Framework Convention on Climate Change) met in December, 2018 in Poland to work out and adopt a package of decisions ensuring the full implementation of the Paris Agreement, in accordance with the decisions adopted in Paris (COP21) and in Marrakesh (CMA1.1) as well as to support the implementation of national commitments.

On December 12, May Boeve, executive director of 350.org, seemed uncertain that diplomats to the COP24 would find common ground.

“When this movement started in 2012, we aimed to catalyse a truly global shift in public attitudes to the fossil fuel industry, and people’s willingness to challenge the institutions that financially support it. While diplomats at the UN climate talks are having a hard time making progress, our movement has changed how society perceives the role of fossil fuel corporations and is actively keeping fossil fuels in the ground.”

A short paper published in Nature also outlines concurrent challenges in delaying the recommendations in the Paris agreement until 2030 while complying with the 2° C target:

• higher CO2 prices
• a strong drop in fossil fuel prices because of the rapid reduction in demand
• stranded assets of fossil fuel-based infrastructure
• a strong acceleration in the required ramp-up of low-carbon technologies

By December 15, however, an all-night bargaining session concluded with a plan to reach the Paris Agreement’s goals to curb global warming, according to the New York Times. Diplomats from nearly 200 countries reached consensus on a detailed set of rules which will, ultimately, require every country in the world to follow a uniform set of standards for measuring its planet-warming emissions and tracking its climate policies. Here is the big picture of that accord.

• Countries must accelerate plans to cut emissions ahead of another round of talks in 2020.
• Richer countries must delineate the kinds of aid they intend to offer to help poorer nations install more clean energy or build resilience against natural disasters.
• Countries that are struggling to meet their emissions goals can follow a new process to get back on track.

The accord should intensify the divestment effect as climate policy ambition increases and the policy implementation dates come closer.

Why Companies and Individuals are Divesting

While the divestment trend is expanding exponentially, two responses to a climate policy suggest a lag between climate action announcements and action implementations of policies to reduce CO2 emissions.

• The “green paradox” hypothesizes that near-term CO2 emissions will rise above the ‘well below’ 2 °C baseline as fossil fuel owners frontload supply from their endowments. They’ll do so to evade the negative consequences of future fossil fuel price drops due to planned climate policies.
• The “divestment effect” argues that near-term CO2 emissions will decrease below the baseline as investors avoid fossil fuel-based infrastructures with high emission intensities, high capital costs, and long technical lifetimes that could become stranded.

The moral argument: Countries around the world can emit up to 565 more gigatons of carbon dioxide and stay below 2°C of warming, but anything more than that level prescribes catastrophe. The authors of the landmark report by the UN Intergovernmental Panel on Climate Change (IPCC), written by the world’s leading climate scientists, have warned there are only a dozen years for global warming to be kept to a maximum of 1.5 C. Beyond that point, even half a degree will significantly worsen the risks of drought, floods, extreme heat, and poverty for hundreds of millions of people.

Burning the fossil fuel reserves that corporations now have would result in emitting 2,795 gigatons of carbon dioxide, according to GoFossilFree — 5 times the safe amount. Fossil fuel companies are planning to burn it all — unless we rise up to stop them with climate action policies and divestment.

Financial incentives: Fossil fuel reserves are defined as economically and technically recoverable sources of crude oil, natural gas, and thermal coal. Using analytics to maintain a persistent view on an investment portfolio, many capital investment groups are suggesting that their clients turn to Fossil Free indices, which outperformed many 2018 benchmarks that contained fossil fuels. Despite being among the top 500 wealthiest corporations, the energy sector (coal, oil, and gas) performance lagged behind the market for the last 5 years plus. The S&P 500 Fossil Fuel Free Index is designed to measure the performance of companies in the S&P 500 that do not own fossil fuel reserves.

Conditions are Right for Decarbonization

There is a transition underway to a greener, low-carbon economy. Businesses that successfully decarbonize their operations in line with global energy transition commitments may be more likely to protect their investments, grow their portfolios, and avoid increased costs from carbon pricing.

Best practices during this transition point to investments that meet science-based targets (SBTs) and decarbonize operations. Companies should evaluate investments for financial and environmental performance to achieve carbon targets and mitigate risks associated with hidden future carbon prices.

The Task Force on Climate-Related Disclosures (TCFD) released its first Status Report a few months ago, providing an overview of current disclosure practices and their alignment with the core elements of the TCFD. The work and recommendations of the Task Force will help firms understand what financial markets want from disclosure in order to measure and respond to climate change risks and encourage firms to align their disclosures with investors’ needs. 513 organizations have expressed their support for the TCFD recommendations, signaling growing momentum for climate-related disclosures. Reporting that is aligned with the recommendations of the TCFD increases transparency with internal and external stakeholders for financially material climate-related risks and opportunities.

For example, investment in coal storage, meant to improve the condition of the coal and reduce the amount purchased and combusted, has been found to have significant hidden carbon emissions. This supposedly green investment turns out to be brown. Businesses should now prioritize investments, consider environmental and financial performance, and report in line with TCFD recommendations. With high capital cost and long-lived assets, the electricity sector also is particularly susceptible to the divestment effect.

Reactions to the Fossil Fuel Industry’s Weakening Value

Conventional business advice has, until recently, examined financial returns of capital investments without factoring in hidden financial and environmental considerations, such as reduced carbon taxes, penalties, and emissions. Divestment is now a threat, opportunity, and strategic imperative that is influencing the thinking of senior corporate executives in every financial sector. Options include incorporating low-carbon technology in their operations, substituting greener materials into their products, improving process and product designs, enhancing management practices, and adopting different business models.

Businesses that successfully adapt will reduce their exposure to regulatory and carbon pricing risks while improving energy and resource efficiency. Companies that delay action could be left behind, as competitors act to align business strategies with the transition. If policymakers provide clear signals that strong climate policies will be imposed in the future, then divestment will reduce carbon lock-in and the low-carbon technology phase-in will ramp up earlier.

Graphics: GoFossilFree

Photos: LabRoots, RedGreenandBlue