Reactions to Appeals for Divestment

My father worked for John Deere and we lived in South Africa during the height of apartheid. I supported divestment then because it primarily took the form of shareholder resolutions that sought to put pressure on companies doing business in and with South Africa. The goal was to get these companies to lobby the South African government to abandon apartheid. The campaign helped produce political change because South Africa found itself increasingly isolated economically.

The goal of the fossil fuel divestment campaign, as I understand it, is to reduce the market capitalization of the companies in order to drive them out of the fossil fuel business rather than to get them to pressure the U.S. government for clean energy policy. It is not clear to me how fossil fuel divestment will produce changes in U.S. energy or climate policy. The form of divestment proposed by 350.org and GreenFaith.org, as near as I can tell, does not engage in shareholder activism and instead seeks simply to wash one's hands of fossil fuel stocks. I don't see how selling one's stock to another party (in China, perhaps) leads to any change in U.S. dependency on fossil fuels or any decline in greenhouse gases.

I co-teach an interdisciplinary course on Ethics, Energy, and Climate Policy on a regular basis. It seems odd to treat natural gas in the same way as coal and oil because it is half as carbon-intensive as coal and works well with intermittent wind and solar generation. California's electrical grid is close to instability because they have insufficient natural gas power plants to pick up the load when solar and wind generators go offline or experience a marked drop in production. I am fully aware of the issues surrounding hydraulic fracturing, and I am a fervent champion of energy efficiency, but base load power has to come from somewhere while research and development makes progress on energy storage and transmission is built to keep up with decentralized generation. A “one size fits all” approach to fossil fuel divestment does not acknowledge these realities and possibilities.

In addition, a few of the big fossil fuel companies are some of the biggest investors in alternative and renewable fuels. For example, Exxon Mobil is the largest investor in algae-based biofuel production research. I have absolutely no desire to defend the largest company on Earth (on the basis of market valuation) but I think this point is worth noting. When one divests one has lost any voice as a shareholder to urge the corporation to make different business decisions.

In my view, each person supporting a plea for college or church endowment divestment must also be willing to divest from fossil fuel companies in their own investment and retirement accounts, otherwise they would be hypocritical. Similarly, each person supporting these calls for divestment must be prepared to make significant sacrifices in terms of energy conservation and major personal investments in energy efficiency and renewable energy.

I find it hard to divest from companies that are delivering the energy I use on a daily basis to visit my family, travel to conferences, or heat the office at Luther College where I am typing these reactions. I am more complicit in fossil fuel dependency than I feel I was complicit in propping up apartheid in South Africa.

A better reason for endowment managers to divest from fossil fuel companies may be on the grounds of fiduciary responsibility. That is, as new EPA greenhouse gas regulations kick in, they will drive up the cost of fossil fuels and thus reduce their consumption. In addition, proposed regulations on hydraulic fracturing will have a similar effect. As a result, fossil fuel companies will likely see a reduction in sales and thus diminished stock prices and market valuations. Thus, it would be better to sell them now at their higher valuations and invest in something else that we think will result in a cleaner and more sustainable energy future.

At the end of the day the most important factor driving greenhouse gas emissions is the price of fossil fuels. Until they more accurately reflect true social and ecological costs the consumption of fossil fuels will grow. In my view it would be better to redirect the passion and energy currently devoted to fossil fuel divestment and refocus it on developing political support for the regulation of greenhouse gases and some form of carbon pricing via cap and trade, cap and dividend, carbon taxes, etc. Pinning the tail on the evil fossil fuel companies is too easy.