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Can Investors Move the Needle On Climate Change?

28 March 2013 in Trading Ideas

Thirty years ago, university campuses across the US represented some of the earliest tangible protest against apartheid in South Africa, calling for their respective schools to divest themselves of any investments of companies that traded or had operations in that country.

While the direct effectiveness of the campaign has been a matter of some historical debate, the movement was at least coincidental to growing global opposition to the practice of apartheid, which was effectively abolished by the mid-1990s.

Now, a branch of activists hope to leverage the same principles against the fossil-fuel industry.

As the UK’s Guardian recently reported1, climate advocacy group 350.org held a series of rallies last fall pushing the idea that a large-scale divestment by universities and municipalities in fossil-fuel companies could help persuade those companies to start extracting less of their reserves, and thereby combat the environmental impact that activists argue lies at the feet of traditional oil companies.

While the immediate impact of the rallies appeared to be limited, it was noteworthy that it gained the support of Seattle’s mayor, who embraced the idea and made his city the first major US metropolis to tout fossil-fuel divestitures. As one activist told the Guardian, “Cities in particular can help pinpoint the absurdity of, on the one hand, spending huge sums to build seawalls while at the same time investing in the companies that make it necessary.”

Detractors of potential divestitures by universities and pension funds cite both the limited financial impact on energy companies, as well as the possible hit to investors themselves. The Guardian reported that concerned university administrators worry about such departing investments affecting their ability to offer scholarships and financial aid while fund managers say they can have more influence by remaining shareholders.

Activists say immediate financial impact isn’t necessarily the point, and building public opinion for the idea is, in effect, pushing over the first domino.

Ironically, perhaps, divestiture proponents could be helped even more by the inherent climate change risks to fossil-fuel companies that have nothing to do with public opinion. The Guardian cited a study by Standard and Poor’s and Carbon Tracker Initiative that warned that oil companies are likelier to become much riskier investments in the future in the new era of climate change.

Meanwhile, another choice is to invest in fossil-free energy companies, which could potentially see growth as newer, “clean” forms of energy become more tangible and available. For one investing alternative on that theme, check out the stocks in our new Fossil Free motif.

1 Brooke Jarvis, “Can a divestment campaign move the fossil fuel industry?”, guardian.co.uk, March 18, 2013, http://www.guardian.co.uk/environment/2013/mar/18/divestment-campaign-fossil-fuel-industry, (accessed March 26, 2013).

Image courtesy of dailyorange.com