It wasn’t that long ago that if you were an institutional investor — a bank, insurance company, or pension fund — investments in oil, gas, and coal were considered smart plays. Shares in ExxonMobil, Shell, and all the other companies who extract and distribute fossil fuels paid excellent dividends and often experienced significant appreciation in value as well. If you were a fund manager, you would be almost derelict in your duty to your clients if you didn’t invest in oil, gas, and coal companies.
Things in this life change very slowly if they ever change at all, according to The Eagles. But change they do. Some of the biggest institutional investors in the world like the Church of England have begun unloading their holdings in oil, gas and coal companies. By the end of 2018, the divestment movement saw more than $8 trillion in assets diverted from fossil fuels and transferred to other investment opportunities. By the end of 2019, that figure had increased to $11 trillion.
Last week, New York State comptroller, Thomas DiNapoli, announced the Empire State would begin divesting its $226 billion employee pension fund from gas and oil companies if they don’t come up with a business plan that is aligned with the goals of the Paris climate accord within 4 years. The state’s entire pension fund portfolio will be decarbonized over the next two decades, he said. “Achieving net-zero carbon emissions by 2040 will put the fund in a strong position for the future mapped out in the Paris Agreement.” DiNapoli says divestment remains a “last resort but is “an investment tool we can apply to companies that consistently put our investment’s long-term value at risk.”
Writing in the New York Times, Bill McKibben, climate activist extraordinaire, was positively gleeful. “It’s a huge win, obviously, for the activists who have fought for eight years to get Albany to divest from fossil fuel companies and for the global divestment campaign. Endowments and portfolios worth more than than $14 trillion have joined the fight. This new move is the largest by a pension fund in the United States…but it also represents something else: capitulations that taken together suggest the once-dominant fossil fuel industry has reached a low in financial and political power.”
DiNapoli has been warning the purveyors of liquid death for years they must alter their behavior. In 2017, he prodded ExxonMobil to “analyze how worldwide efforts to adopt the Paris Agreement goals for reducing global warming might impact its business.” That could have been a turning point, McKibben says, but two months later the company said the Paris Agreement would have no effect on its business and it could pump all its reserves of oil and gas. Since then, leaked documents have disclosed that ExxonMobil is planning to significantly increase its emissions by ramping up production. Gotta make hay while the sun shines, people!
DiNapoli deserves credit for standing up to the still-considerable power of the fossil fuel industry, McKibben says, even if it comes late in the game. And his position has been enhanced by his track record as someone who has tried to work collaboratively with the industry but been rebuffed. Other investors are paying attention not just because of the climate threat but also because the fossil fuel industry has been the worst-performing sector of the American economy for many years.
Its problems are twofold, McKibben writes. It faces a growing resistance movement rooted in the undeniable fact that its products are wrecking the Earth’s climate. And it faces formidable technological challenges from solar and wind energy producers who can provide the same service in a way that is cleaner and cheaper.
“These realities will destroy the coal, gas and oil barons; the only question is, how fast. Big Oil’s strategy at this point is delay, but that course gets harder and harder, especially as the Trump administration exits and with it the shield of protection the industry has enjoyed,” McKibben adds.
But things are changing. As recently as 2013, ExxonMobil was the biggest company on the planet. By the fall of this year, it wasn’t even the biggest energy company, having been briefly surpassed in market capitalization by renewable energy provider NextEra Energy. Last week ExxonMobil disclosed it would cut its $30 billion exploration and capital expenditure budget for 2021 in half and write off up to $20 billion in natural gas assets that it now acknowledges it will never pump. McKibben writes,
This fall from grace for oil and gas companies can’t come fast enough. It recalls the collapsing fortunes of the coal industry over the past decade, a slide that Mr. DiNapoli helped to exacerbate by divesting the New York State pension fund from coal this past summer.
Not only does the decline of Big Oil mean less carbon in the long run; it also means less political influence in the short run and hence less power to slow down the steps necessary for a transition to carbon-free energy. Big Oil’s influence on the Republican Party remains large, but President-elect Joe Biden doesn’t face the same hulking beast his predecessors have had to work around. If Mr. DiNapoli can stand up to these forces, it augurs well for what the new administration may accomplish.”
Last month set the global mark for the hottest November ever recorded, and it seems increasingly certain that despite a growing La Niña cooling in the Pacific, 2020 will tie or break the record for the hottest year. The planet is heating rapidly, but — as the news from Albany makes clear — so is the movement to do something about it.
The Take Away
The news about New York state’s retirement fund moving away from fossil fuel investments is welcome but one has to note that this will be a slow and steady process that will take 20 years to complete. As a portent of what the future may be for fossil fuel companies, it has symbolic significance. But the effects of a warming environment now appear to be cascading, as the Earth approaches a trigger point that will likely render it uninhabitable for humans.
Some say we should stop talking about saving the Earth. The planet will survive just as it has for billions of years. Species will flourish and species will go extinct. What we need to focus on is saving ourselves from joining the long list of species that have disappeared from the face of the Earth. The fact that New York is joining a trickle of divestments that is slowly turning into a flood is all well and good, but will it be too little, too late?
We need to stop seeing the nozzle at the end of the hose at the gas station as a welcome part of our comfortable lifestyle. We need to get out of our business as usual, things can go on like this forever comfort zone. The time to act is now and it will take all of us working to together to make the changes necessary to keep our beleaguered planet a place where the human species can thrive.
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