On Wednesday in Paris, a California state senator took to the stage at the ongoing international climate talks to tout not just Cali’s strides toward switching toward renewable energy and away from carbon, but also...savvy investment banking. Under Governor Jerry Brown and Senator Kevin De León, two giant state pension funds—for teachers and public employees—have sworn off investing in fossil fuels. De León, according to reporting from Paris, was there to show off a little.
California’s not the only place putting its money where its carbon is—or ain’t. The divestment movement is spreading. Norway is out. Museums are getting out. Universities are getting out. Over 400 institutions have made a public pledge to divest. As it was in the fight against apartheid and tobacco, the purse may turn out to be a powerful weapon against global climate change. It isn’t easy—in fact, it’s tough as hell to convince some organizations to break financial ties with the fossil fuel industry, and to figure out the accounting when they try. Yet groups all over the world are doing it, taking on some of the most powerful companies on Earth.
In 2010, a group of students at Swarthmore College took a trip to a West Virginian coal mine—the kind that slices the top off of a mountain. Horrified by the mine’s impacts on the environment and surrounding community, the students decided they had to find a way to send a message to the coal business. The best medium, they figured, was money.
In the 1970s and 1980s, student protests pushed international institutions to pull investments out of South Africa in protest of apartheid. The same thing happened in the 1990s with tobacco.
The Swarthmore kids could follow the same model. They thought they could force the school’s leadership to divest from fossil fuels. They formed a group, Swarthmore Mountain Justice, to drum up support among the student body and faculty.
The idea spread. “We want people to start to see the fossil fuel sector the way people see Philip Morris,” says May Boeve, executive director of the advocacy group 350.org, a loud voice in divestment. “We're focused on getting big institutions that people know and respect like Harvard, like big cultural institutions such as museums, to take a stance against companies like Exxon and Shell.” At the event where De León was speaking, 350.org announced that 500 instiutitions around the world had taken that pledge—to varying extents. Norway’s has pulled carbon out of its $900 billion sovereign wealth fund. The University of California sold $200 million worth of coal and tar sand investments.
The California Academy of Sciences no longer directly invests in fossil fuel companies, and has started getting rid of land donated to it that have oil, gas, or mineral leases. (A twist the Academy must consider: Does it sell these off to someone else who may exploit them, or squat on the lands to preserve them?) Next up will be cleaning out the Academy’s endowment fund. ”The last part of it is the biggest thing left,” says Jon Foley, the executive director. “We’ve done everything we can to avoid fossil fuels.”
The basic accounting of capitalism, though, makes pulling out of an entire sector a little trickier than pulling out of a country, or a crop.
Endowment funds, for example, are made of lots of packaged investments—the whole point is diversification. That means complexity. It’s hard, even for the California Academy of Sciences, to sort out what exactly it has invested its $165 million in. Even starting fresh might not help. “There aren't many financial firms that offer those kinds of products, believe it or not,” Foley says. “It's not like you can just call up an endowment manager and say, ‘Yeah flip from fund A to fund B,’ and it doesn't cost you anything.”
In fact, those funds exist, but they’re too young to give investors a good idea of how they perform. “Typically institutions will want to see some performance history,” says Texas Hemmaplardh, an adviser who works on divestment at the investment firm Slocum. “There seems to be a lot of watching from the sidelines.”
Worse yet, from an investment perspective, is that decarbonized funds might not be as profitable. “Our endowment is overseen by the board of trustees, and they have a fiduciary responsibility not to take a hit,” says Tokumbo Shobowale, chief operating officer at the New School. “If you basically say, ‘I'm going to sell everything tomorrow,’ you take a hit,” He worked with Hemmaplardh to find a route to divestment. It ended up being a slow one, which does limit the symbolic value of a divestment movement. But the New School whittled its portfolio down to below half a percent invested in fossil fuels with no negative financial impact, Shobowale says.
Ironically, one place that has never figured out how to get out of carbon is Swarthmore, where the movement started. And that’s possibly to the school’s detriment, given the volatility of the fossil fuel industry in the past few years. “If you look at the five years since the Swarthmore kids first approached the Board of Managers,” says Peter Meyer, president of the environmental and economic consultancy E. P. Systems Group, “what you find is that if they had divested, they'd be ahead of the game financially in terms of the value of the endowment.”
That’s where it gets tricky. The international community not only pulled investments from South Africa, but also applied tremendous political pressure. This all worked to stigmatize a reprehensible government, but it’s hard to tell how much of an impact divestment made because activists packaged it with other forms of protest, Meyer says. Indeed, divestment may not have had all that big of a financial impact on the country.
The world economy is also much more dependent on fossil fuels than it ever was on South Africa. Divesting from the country and companies that did business with it was comparatively easy. “Theoretically you could do the same thing here,” Meyer says, “you start out by going out after a fossil fuel companies that extract the stuff. But by the time you're dealing with the industries that use the stuff, you're dealing with a rather substantial portion of the entire economy.”
The fossil fuel industry is well aware of that last problem. “They talk a good line about divesting,” says Jason Hayes, associate director of the American Coal Council. “Yet they publicize their decisions to divest while using fossil fuels.” Even the steel that holds up buildings uses a manufacturing process that relies on coal. (In fairness, the Academy of Sciences’ new building, which it moved into in 2008, gets great marks for greenness.)
Pushback against this campaign is coming not just from the fossil fuel industry, but from a more unexpected arena: academia itself. One of divestment’s more vocal opponents is Frank Wolak, director of Stanford University’s Program on Energy and Sustainable Development. “Divestment does nothing to solve the problem,” he says. “Divestment simply alienates the people that can best help to solve the problem, which are the companies that produce energy.”
Wolak thinks universities would be better off dialing back their own energy usage. Divestment isn’t worth it. “It's one of these things that's all about ‘sticking it to the Man,’ and it may make you feel good,” he says, “but I don't really think it accomplishes anything productive. And I think it's actually extremely counterproductive.”
Of course, if sticking it to the Man is part of your goal, divestment starts to look pretty good. “That really is the core purpose,” says 350.org’s Boeve. “It’s trying to draw this line in the sand about right or wrong, and there's definitely a cost associated with that.”
What the movement does have is momentum. “It's just a matter of whether schools like Swarthmore will be seen as leaders, or if we'll be sort of pulled along by political and economic forces and remembered as a laggard,” says Stephen O’Hanlon, spokesperson for Swarthmore Mountain Justice. “It's clear that the fossil fuel industry has no place in a just and stable future.”
