The divestment campaign lacks realism on three counts, argues James Bevan, Chief Investment Officer at CCLA Investment Management, which advises charities and other philanthropic investors:
- Overstated carbon bubble risk: While agreeing that fossil fuel assets are overpriced and thermal coal and tar sands will be “economically non-viable”, Bevan suggests carbon capture and storage (CCS) technology may allow burning of some reserves, thereby reducing stranding risk. CCS would capture CO2 emissions from power plants, liquefy them and store them deep underground.
- Limited scope: Divestment targets listed companies but their fossil fuel reserves are dwarfed by those of state-owned oil and gas companies. The overall impact is severely restricted.
- Artificial discounting: Divestment depresses prices, gifting returns to less scrupulous investors. “People who sold out of tobacco for ethical reasons lost performance while investors made strong returns,” Bevan observes. Otherwise, divestment had no impact.
Rather than wash their hands of fossil fuel companies, investors should help clean them up, says Bevan, pressuring companies to report their carbon impact and support clean technologies like CCS. This is the approach taken by Harvard University and the Wellcome Trust among others.
“If we invest in company A with low carbon intensity, it is already the environmental equivalent of a triple-A bond. If we invest instead in a triple-B bond and through activism and engagement change it to a triple-A bond we will have more secure earnings plus an environmental payoff,” he argues.
CCLA has engaged with BP on their deepwater drilling plans, for example, stressing that the likelihood of carbon taxes coupled with high environmental risks and low margins make these investments questionable.
“Our clear line is that renewable opportunities have a much longer shelf life and higher valuation,” Bevan explains. “My preference would be to persuade BP of the wisdom of committing more fully to that agenda.” A key part of that process is shareholder resolutions committing companies to disclose how they will adapt to carbon pricing, recently adopted by BP and Shell.
“As soon as companies recognize the risk they will plan for it and we will see cultural change,” says Bevan. Like Divest-Invest Philanthropy, he also wants results within five years: “We need companies publishing robust plans on coping with a carbon price consistent with 2 degrees of warming.”
If this doesn’t happen, divestment is the “logical endgame”, but Bevan sees change on the horizon. “We have been able to move oil majors from a position of finding this debate irritating to one where they are cooperating.