LAST SPRING, Archbishop Desmond Tutu, an architect of the South African freedom movement, called for “an apartheid-style boycott to save the planet.” Tutu—along with millions of people of faith and conscience—understands not only that it is morally right to address climate change, but that money talks. “People of conscience need to break their ties with corporations financing the injustice of climate change,” said Tutu.
The fossil-fuel divestment movement has its roots in grassroots mobilizing, churches, local governments, and student campaigns. The movement has grown exponentially in the U.S. since Maine’s Unity College became the first campus to divest (in 2012) and the United Church of Christ became the first denomination to formally divest (in 2013). Today, divestment from fossil fuels is gaining momentum, with increasing numbers of asset owners committing to moving their money.
In fact, this campaign has grown faster than any other previous divestment movements, including those against apartheid in South Africa and tobacco. A number of factors indicate that we are at a tipping point. Here are four: 1) last year was the hottest year on record, 2) expenses related to climate change are skyrocketing, 3) significant financial risks are now associated with fossil-fuel investments and the divestment movement is growing, 4) and the economics of renewable energy products is improving, so investments in these products is growing.
Despite unmistakable signs that climate change is spiraling out of control—from unprecedented droughts to sea-level rises—20 years of global negotiations have not slowed the emissions of heat-trapping gasses. A new, effective lever of change is clearly needed.
The boom times for fossil fuels are over—and savvy investors see the writing on the wall. Fossil-fuel investments increasingly carry significant risks. It is estimated that climate change could contribute as much as 10 percent to portfolio risk over the next 20 years.
The smart money is on fossil-fuel divestment. Technically, divestment is just the sale of an asset. It becomes a movement when socially motivated individuals, university endowments, public pension funds, foundations, and cities decide in concert to divest.
Asset owners can decide to withhold their capital from firms seen to be engaging in reprehensible activities. But in the context of a movement, divestment sends a signal. It says business as usual is no longer acceptable. It paves a way for government to enable stricter regulation of the fossil-fuel companies. It pushes corporations to speed up their transition to climate-resistant energy solutions by reinvesting their earnings in clean energy instead of fossil-fuel reserves.
Today, the movement for divestment of fossil fuels is gaining momentum, with increasing numbers of asset owners committing to divestment. In September 2014, more than 70 foundations, in collaboration with individuals, universities, faith-based groups, schools, hospitals, and cities around the world—representing $50 billion in assets under management—announced that they would divest from fossil fuels and invest in new energy solutions. The Rockefeller Brothers Fund and Stanford University were part of this historic announcement.
The good news is that divesting does not require financial sacrifice. Carbon-free assets show comparable performance when benchmarked against carbon-intensive assets.
Why not shareholder activism?
Some investors prefer shareholder activism as a way of holding corporations accountable. In many campaigns this could be the most pragmatic approach. However, the climate change horizon doesn’t allow us the luxury of a slow process of change. It is possible to divest a majority of assets from fossil fuels, while reserving a small amount for shareholder activism. The U.S. Securities and Exchange Commission, furthermore, does not permit shareholder resolutions that aim to change a company’s core business activities—and in the case of climate change, core change may be necessary.
Renewable energy investments are becoming more mainstream. The rapid expansion and more competitive pricing of renewable energy products make them a sound investment. There was a 12 percent increase in global renewable investments in 2014. Led by China and the U.S., global installations of solar capacity rose by more than 20 percent in 2014 to generate enough energy to supply about 16 million homes. Such rapid expansion will lead to a 5 to 10 percent annual decrease in the price of solar installations over the next decade.
The increasing investor demand and improving cost-competitiveness of renewable energy products are also driving the creation of new financial products. Today, it is possible to create a diversified fossil-free portfolio. There are attractive investment opportunities in every industry and asset class. Investors can also move their money to institutions that direct assets to local communities, building local resilience.
Divest-Invest Philanthropy is an example of how we can all take action. Divest-Invest works with foundations to align their investments with their social mission. In the past year, we have seen an increase in the number of participating foundations from 17 to 70, representing $4.2 billion in assets under management across the U.S., Europe, Australia, Africa, and elsewhere. We are using the transnational economy to leverage change against a global catastrophe.
The movement for fossil-fuel divestment will break our social ties with corporations that are financing climate change. Large-scale political mobilization, such as we saw in New York and around the world last September, is critical to changing government policy. Divest-Invest Philanthropy’s goal is to triple its commitment by December 2015 in line with the next U.N. climate talks in Paris.
“To serve as custodians of creation,” Desmond Tutu said, “is not an empty title; it requires that we act, and with all the urgency this dire situation demands.” For people of faith and conscience, this is an exciting example of the power of an idea whose time has come.
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