Divest-Invest: Modelling the energy transition with our investments

 

Paula Park

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Foundations’ fossil fuel divestments will neither stop the advancement of traditional energy production, nor ensure that groups’ portfolios are ethical.

That’s the view of Haki Abazi, program director for the Western Balkans portion of the Rockefeller Brothers Fund’s Pivotal Place program. The RBF divested its oil assets in September 2014. While foundations are divesting their dirty energy assets, coal mines are being dug and coal-fired power plants are coming on stream all over the world.

“Let’s not focus the whole discussion (on divesting oil and coal) and get all our communities excited and self-satisfied with divestment,” Abazi said during a panel session on investment and divestment at the European Foundation Centre’s 2015 conference.

The economics of fossil fuel divestment make sense now because fossil fuel corporations’ domination over the international energy market has been diminishing for decades, according to Seb Beloe, head of research for the London-based investment firm WHEB Partners.

Because most petroleum-producing countries long ago nationalized their products, multinational oil companies get just 86% of their production from traditional sources and an increasing amount from “fringe” source such as oil shale fields,  Beloe told participants in the divest-invest panel.

By investing in oil stocks, “you’re getting a part of the market that’s on the fringe–9% of global reserves,” Beloe told participants of the CGF conference. “It’s a difficult investment.”

Oil from shale formations costs $50 to $100 a barrel to produce, compared with $10 to $25 a barrel for conventional supplies from the Middle East and North Africa, the Paris-based International Energy Agency estimates.

“Every barrel is more expensive,” Beloe said. “The major energy companies need expensive oil to keep going.”

High prices, in turn, bring the cost per kilowatt of energy generated by alternative fuel sources, such as solar batteries, closer to parity with fossil fuels, which could boost this sustainable fuel source and make investments in companies that produce it more attractive, Beloe said.

Not all analysts agree with Beloe’s projections – with some observing that oil shale costs are decreasing as the technology is getting more sophisticated. Nevertheless, the EFC panelists agreed that for foundations, divesting of these assets makes both economic and environmental sense.

“You don’t have any adverse effect if you divest,” Matthias Fielder, managing director of the German foundation Bewegungsstiftung told panel participants.

“This is not the stable sector of the past, it’s a dangerous sector,” said Ellen Dorsey, executive director of the Wallace Global Fund.

“Not only is it unethical if you’re a mission driven institution, but it’s also not very smart in the long term. In fact it’s not smart in the short term.”

Ashden Trust’s investment portfolio has seen no ill effects of divesting energy assets around seven years ago, trustee Sarah Butler-Sloss told conference participants.

“Our portfolio has out performed by 2% the benchmark of a foundation for our size and for this sort of equity,” Butler-Sloss told participants. It has also out performed the FTSE energy index, which includes both traditional and alternative energy companies.

Still, Abazi warned against complacency.

He pointed out that the World Bank and other global financial institutions continue to fund new petroleum and coal projects to meet the enormous unmet demand for electricity. Around 1.2 billion people lack access to electricity, and 2.8 billion use solid fuel, such as wood, charcoal and coal, for cooking and heating, according to the bank. “The lack of power limits opportunities, keeping communities in poverty,” the bank says in its energy sustainability directive.

Developed countries also continue to invest in fossil fuel technology to meet energy demands. Poland is a case in point. Eighty-five per cent of Poland’s electricity is produced from coal fired electricity generators, including many that were built more than 30 years ago. The country plans to meet globally agreed energy goals, while coal will remain 76% of its energy mix, according to Bankwatch.

One of the latest projects, a coal-fired electricity and heat generator in Bielsko Biala, is financed by the European Investment Bank, according to the non-profit watchdog website Bankwatch.

The world’s biggest energy consumer, the United States, has 600 working coal-generated power plants, and plans to build 10 new ones, according to Sourcewatch.

In such an environment, divestment is one of many actions foundations should be taking to reduce climate-damaging energy use, which Abazi terms “slow death.”

Trusts need to provide advocacy and support for “people in the trenches” who are lobbying and protesting fossil-fuel use, he said.

Dorsey agreed.

“Divestment isn’t a panacea,” she said. “If you don’t have a programme on climate change you will have a programme on climate adaptation.”

Paula Park, Editor Alliance magazine


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