The Divestment Movement Needs To Make Environmental Impacts Explicit

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Environmentalists, governments, major institutions, and individuals the world over have called for a halt to fossil fuel investments. However, many, like the University of Cambridge, say they will aim to “divest from all direct and indirect investments in fossil fuels” by the year 2030, taking on a staggered withdrawal. Why is it that fossil fuel and other carbon-intensive industries continue to receive funding in the short term, even as the divestment movement gains transcendent strength?

The divestment movement tries to increase awareness about the need for climate action and seeks the ultimate demise of the fossil fuel industry. This war on carbon through responsible investing isn’t detrimental to investors; on the contrary, research indicates that the investment performance of portfolios that exclude fossil fuel production companies does not significantly differ in terms of risk and return from unrestricted portfolios.

Yet all measures suggest that fossil fuels will continue to play a dominant role in the energy mix for some time.

The majority of divestment campaigns are asking institutions to:

  • Immediately freeze any new investment in fossil fuel companies
  • Divest from direct ownership and any commingled funds that include fossil fuel public equities and corporate bonds within 5 years
  • End their fossil fuels sponsorship

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Recent divestment stats point to a divergence of perspectives:

  • Major funds: Commitments from more than 1,200 commitments from pension funds, philanthropic foundations, faith-based organizations, and other institutional investors with more than $14 trillion in assets withdrawn, according to GoFossilFree.org
  • Personal accounts: Individual investors offer fewer than 60,000 commitments worldwide, representing just over $5 billion (individual investors in the US alone reach nearly $25 trillion)

The disparity between public and private divestment represents a gap in mobilizing public opinion.

The Divestment Movement & Companies’ Carbon Contributions

According to the Intergovernmental Panel on Climate Change, no more than one-fifth of the current proven fossil fuel reserves can be burned to mitigate climate change. Investments that propel fossil fuel extraction, production, and distribution are essential to the industry’s existence.

A recent Nature Climate Change commentary by Felix Mormann of Texas A&M University School of Law argues that critical shortcomings inhibit the divestment movement from achieving its stated goals of disempowering the fossil fuel industry and removing its funding. “The divestment movement deserves huge credit for shining a spotlight on the crucial role that capital markets have to play in the war on carbon,” emphasizes Mormann. “But the more I studied it, the clearer it became that major reforms are needed if the movement is to achieve its stated goals and move the needle on corporate climate action.”

Mormann says the most fundamental shortcoming lies in the divestment movement’s failure to properly differentiate among companies based on their relative contributions to global warming and climate change. The absence of a meaningful global price on carbon, he continues, is the reason why more major and personal investors don’t divest.

“Drawing a binary divestment line between fossil and non-fossil stocks misses the reality that, when it comes to climate action, there are good actors and bad actors on both sides of the divide,” Mormann concludes. “The current focus on extractive and energy companies has undoubtedly proven media-effective. But it misrepresents the complex push-and-pull dynamics across the value chain of energy and other climate-relevant products and services.”

One reform that Mormann suggests is to rebrand beyond fossil fuel divestment toward a more nuanced campaign for low-carbon investment and fossil fuel industry re-investment. To do so, he says, the fossil vs. non-fossil distinction should be abandoned in favor of a more sophisticated assessment of companies’ climate impact and governance, modeled after the ratings of creditworthiness that have long been the norm for capital markets.

“Think of a rating agency à la Moody’s or Standard & Poor’s, only for climate change,” explains Mormann. The international non-profit CDP rates companies annually on their climate impact and action. By scoring companies and cities, CDP aims to incentivize and guide them on a journey through disclosure towards becoming a leader on environmental transparency and action.

What would be the effect of such ratings for the binary fossil vs. non-fossil divestment criterion? Mormann suggests the distinction could inspire many more capital markets, companies, and personal investors in the quest to combat global climate change.

Effects of Business Practices on the Environment

Accurate reporting of energy and carbon usage is essential, and research into the environmental effects of business practices is quite promising.

  • Carbon focused and environment focused companies tend to dissociate the 2 strategies, so integration across environmental emphases, dual passive strategy, transformational integration, and carbon identification can move companies past passive strategies toward proactivity.
  • Machine learning can help practitioners to become more aware of their energy and carbon footprints.
  • Interfaces for tracking real-time energy consumption and carbon emissions and generating standardized online appendices can provide energy efficient reinforcement algorithms.
  • IoT technologies can collect real-time data with high credibility to perceive environmental impact caused during the entire life cycle of the product in a multi-stage (from cradle to gate) carbon emission evaluation.
  • Carbon budgets can communicate the challenges we face in aiming to hold warming to 1.5 °C and to well below 2 °C — the limits of global average temperature increase set out in the United Nations Paris Agreement.
  •  Knowledge of the relative contribution of gasoline- versus diesel-powered vehicles is highly relevant for policymaking, as vehicular emissions contribute a significant portion to fine particulate matter (PM2.5) air pollution in urban areas.
  • Reductions in energy, water, raw materials, production, and labor hours through logistic optimization can be achieved by implementing and monitoring cleaner and more sustainable strategies via the application of tools and creation of indexes that allow an accurate qualitative and quantitative monitoring of a situation/process as well as its future trend.
  • Improving sustainability performances can take into consideration multiple environmental impact categories, as well as the entire value chain and life cycle perspectives.

Final Thoughts about the Divestment Movement’s Next Steps

What’s clear is that carbon has to go, and tracking the environmental effects of fossil fuels can have a direct correlation on investors’ future actions.

In a paper published in the journal the Proceedings of the National Academy of Sciences, NOAA researchers reported the first-ever national scale estimate of fossil-fuel derived carbon dioxide (CO2) emissions obtained by observing CO2 and its naturally occurring radioisotope, carbon-14, from air samples collected by NOAA’s Global Greenhouse Gas Reference Network. Knowing the location, date, and time when the air samples were taken, the research team used a model of atmospheric transport to disentangle the CO2variations due to fossil fuel combustion from other natural sources and sinks and traced the human-made variations to the fossil CO2 sources at the surface.

“Carbon-14 allows us to pull back the veil and isolate CO2 emitted from fossil fuel combustion,” said Lehman, one of the paper’s authors. “It provides us with a tracer we can track to sources on the ground. We can then add these up and compare to other emissions estimates at various time and space scales.”


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Carolyn Fortuna

Carolyn Fortuna, PhD, is a writer, researcher, and educator with a lifelong dedication to ecojustice. Carolyn has won awards from the Anti-Defamation League, The International Literacy Association, and The Leavey Foundation. Carolyn is a small-time investor in Tesla and an owner of a 2022 Tesla Model Y as well as a 2017 Chevy Bolt. Please follow Carolyn on Substack: https://carolynfortuna.substack.com/.

Carolyn Fortuna has 1307 posts and counting. See all posts by Carolyn Fortuna