In the June issue of Alliance, Ellen Dorsey, Sian Ferguson and Clara Vondrich made the case for divestment of assets from fossil fuel companies on ethical, financial and fiduciary grounds. Mark O’Kelly disagreed, arguing that active engagement as shareholders is the best way to make the transition to a low-carbon economy. Julian Poulter continues the debate here.
The call from a range of foundations in the June issue of Alliance to divest from fossil fuels is excellent campaigning and critical to maintain pressure. It needs to continue. However, foundations should understand that the value of the divestment campaign is largely political and simply doesn’t stack up in the finance or corporate governance world.
‘The value of the divestment campaign is largely political and simply doesn’t stack up in the finance or corporate governance world.’
First, carbon emissions occur in more sectors than just fossil fuels, and it is carbon we are trying to divest from, not companies. Indeed, as more utilities (and now even some fossil fuel companies) diversify their operations into clean investment, the very definition of a dirty high-carbon company blurs, and this will accelerate. In markets such as Australia, Germany and Denmark, the leading utilities are highly diversified companies – should we divest from them because they own coal even though they are the biggest investors in the clean energy transition?
Wholesale divestment also ignores two important realities. First, just about every large asset owner in the world has rejected it in favour of a company engagement approach. Divestment and the engagement movements like VoteYourPension.org have created pressure for engagement to work credibly, and the signs are now encouraging. The best chance for a just and smooth transition is to get the incumbent corporate giants to use their size and skills to transition. Destructive capitalism is an ugly outcome for economies and workers, as we saw in 2008, and shutting down whole sectors to recreate new ones is economically and financially naive.
Yes, we need capital shift, but even if the campaign could persuade large investors to divest tomorrow, those companies would simply end up off market in hedge funds, sovereign wealth funds and private equity, where divestors will not be able to count the assets, let alone influence them. Engagement needs more years to prove itself before we discount it as the fastest way to a clean economy.
CEO, Asset Owners Disclosure Project, UK
On the same topic: ‘Climate change should be central to all philanthropy’ by Catherine Brown and ‘Act fast and fairly on climate’ by Florence Miller.