Divestment: Do we need a balanced approach to drive change?
Ruben Langbroek, GRESB | 26 October 2015
In his recent article, The case for fossil fuel divestment, Arran Gare states that “There is only one right way to act, to divest from all shareholdings in fossil fuel companies.” In response to this bold statement, I’d like to shed some light on the topic of divestment, with the aim to provide a more nuanced picture.
It is clear that climate change is happening and that we urgently need to make the transition to a low-carbon and energy efficient economy, but the reality imposes complex and practical challenges. Divestment isn’t the (only) answer to these challenges, and at least it should be part of a balanced and holistic approach aimed to drive sustained change.
There already has been quite some public discussion about the divestment movement. It received major media attention last year when the ANU decided to divest from seven fossil fuel companies. The reactions from opponents were pretty extreme, and the decision was even attacked as “bizarre” and “stupid” by then Prime Minister Tony Abbott. Although I don’t agree with that view, it can’t be denied that the effectiveness of the scale of divestment by public institutions and universities is questionable.
Some experts have already pointed out that all fossil fuel divestment comes down to is changing the ownership of shares, not the total amount of capital invested in fossil fuel companies. As such, small-scale divestment by public institutions is not considered to be an effective tool for addressing the environmental challenges – certainly not considering that potential new shareholders are likely to be much less interested in serving the so-called “public good” than the current institutional shareholders.
Importantly, by remaining active owners and shareholders, public institutions have a greater chance of driving change than they do by stepping away from the table. They should join forces and use their shareholder power to positively influence corporate behaviour and drive change.
Further, the action of moving out of fossil fuels as suggested by Dr Gare won’t lead to less carbon emissions; investments in renewable energy sources will. However, the current (growing) energy demand needed to keep mature economies stable, and needed to provide emerging countries the opportunity to create wealth for their growing urban populations, cannot be instantly replaced by renewable energy sources. The constraints of renewables, tied to issues such as efficiency, intermittency and infrastructure, have recently led Bill Gates proclaiming we need an “energy miracle”. As long as there is no large-scale viable alternative to fossil fuels, and initiatives to reduce energy demand (such as reinstating the carbon pricing scheme) remain limited, moving out of fossil fuels doesn’t solve the actual underlying problem.
Moreover, large scale divestment – not just by public institutions – could lead to the collapse of the carbon bubble and as such to a strong increase of stranded assets, which will adversely impact global economies. This might actually put the fundamental systems, which Dr Gare said we should protect, at risk just as well. The negative impact of disruptive action on a global scale probably isn’t the desired effect of the “important symbolic act” he is referring to. Decarbonisation of the economy must be managed responsibly and over time (even though we might be running out of the latter).
To conclude, fossil fuel divestment as an ethical statement does create a stronger sense of urgency for change in the short term, and might create movement in the fossil fuel industry, but ultimately doesn’t drive sustained change. Or, as renowned psychologist Frederick Herzberger once stated: “A kick in the ass produces movement, not motivation.”
Ruben Langbroek is head of Asia-Pacific at GRESB.