LIKE previous student-led boycotts of tobacco companies and banks with operations in South Africa, the global fossil fuel divestment campaign is rumbling into action. With high profile backing from the Guardian newspaper and a student blockade of the university administration at Harvard this week, its supporters want to cripple the world’s oil and gas companies by striking where it hurts — at their finances.
The movement is an elaborate charade, which is too inconsistent and impractical to succeed. Even the campaigners admit they are not entirely serious — that their chances of shutting down ExxonMobil or Royal Dutch Shell are roughly zero, and that their own lights would go out if they did. It is a political campaign for carbon taxes and green laws in financial disguise.
The proponents are unworried by the inconsistencies of their demands. When I spoke to Bill McKibben, the movement’s founder, on the picket line at Harvard this week, he was happy that ‘the movement is blowing up in an encouraging way’ despite his alma mater’s refusal to comply. Apart from a lack of sleep, having spent one night ‘in some bushes in a sleeping bag’, he was feeling extremely buoyant.
So he should be; any campaign that has achieved such influence with so little logic deserves grudging respect. The fact that philanthropic endowments such as the Gates Foundation and the Wellcome Trust — the primary targets of the Guardian’s campaign — are now facing public criticism for no coherent reason is a tribute to the power of an idea, even if it is half-baked.
A more focused campaign — for example, to make investors sell stocks in the coal-mining and coal-burning companies that produce the most greenhouse gas emissions — would be more sensible and likely to work. As it is, my advice to any foundation that finds itself a divestment target is to act like the placard-wavers: make a grand symbolic gesture and carry on as normal.
Targeting Big Oil in this way is both too narrow and too broad. It is too narrow because there is no logic to blaming the producers of energy raw materials, rather than the companies and people that consume energy
Mr McKibben unquestionably made a serious point in his original Rolling Stone article in 2012, which started the campaign. He noted that oil-producing companies and countries hold reserves of several times the amount that can be used for electricity and gas without raising the earth’s temperature more than two degrees — a rise that many scientists define as the safe limit.
If you believe in the potentially catastrophic effects of global warming, as I do, this is a sobering thought. It implies that investors value energy companies based on reserves that, if fully used, could wreak climatic havoc. The gulf between financial valuations and societal wellbeing has led to warnings of energy assets being ‘stranded’ because they cannot actually be used.
But Mr McKibben jumps from this to the conclusion that investors should divest entirely from oil and gas companies. The movement has started by shaming endowments, hoping to produce a ripple effect and transform energy producers into ‘sin stocks’ akin to tobacco companies. “We don’t hope to bankrupt Exxon, but we are politically bankrupting them,” he says.
Targeting Big Oil in this way is both too narrow and too broad. It is too narrow because there is no logic to blaming the producers of energy raw materials, rather than the companies and people that consume energy. Why should Exxon be a divestment target while others such as Apple, which runs energy-sucking server farms and produces millions of electronic devices, escape?
The movement is filled with inconsistencies. The Guardian is supported by a £650m oil-related endowment from its former stake in Auto Trader magazine. The US Rockefeller Brothers Fund, which backs divestment, was endowed by oil wealth. Dividends from oil and gas companies boost Harvard’s $36bn endowment, which has helped to educate the protesters.
Everyone is allowed a little hypocrisy but the difficulty runs deeper than that. Harvard as noted by Drew Faust, its president, has ‘a pervasive dependence’ on fossil energy to heat and light buildings, fuel transport and run computers. Yet the campaigners would be content if it sold shares in energy companies while continuing to use their products. This makes little sense.
The second problem is breadth. The campaign is against a sector with a 2013 market value of about $4tn, according to Oxford university’s Stranded Assets programme. Its cash flow supports many pension funds and endowments: Shell’s planned acquisition of BG Group means the combined group would pay 9pc of FTSE 100 dividends.
Even if some endowments divest, this would be a drop in the bucket, easily filled by less active and less socially conscious investors. Endowments could achieve more by selling shares in companies responsible for the heaviest emissions, such as coal producers. This is a smaller sector, already made vulnerable by the rise of shale gas.
In practice, the campaigners are more interested in achieving a broad political impact than a deep financial one. They want to stigmatise the whole sector to force governments into passing laws. But why should any endowment listen to a protest that is not taken seriously by the protesters themselves?
Rockefeller Brothers sold most of its coal investments last year, pledging to find ‘an appropriate strategy for further divestment over the next few years’. Mr McKibben needs a better argument if he wants to speed things up.
Published in Dawn, Economic & Business, April 20th , 2015
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