What do Prince Charles, Investors and the City of Oslo all have in common? They are all recent advocates of divestment from fossil fuels. What started as a grass roots movement has blossomed into a global effort to call for a future with integrity and common sense. Fueled by the divestment movement, the transition to a more sustainable economy is underway.
Fossil fuel divestment is the fastest growing movement in the world with a 50 fold increase in 2014. If we are to reign in emissions we must radically reduce our use of fossil fuels. This is particularly important as we head down the final stretch towards COP21.
The growth of the divestment movement is increasingly mainstream with a total of more than $2.6 trillion having been divested so far. While this will not bankrupt the fossil fuel industry it does send stigmatize the industry and it sends an important message that is resonating around the world.
There are those who say that fossil fuel divestment is little more than a symbolic act. However, a University of Oxford report, authored by the Smith School of Enterprise and the Environment, disagrees saying, “The outcome of the stigmatisation process, which the fossil fuel divestment campaign has now triggered…poses the most far-reaching threat to fossil fuel companies and the vast energy value chain. Any direct impacts pale in comparison.”
After Paris began restricting cars in the city, Oslo has proposed a ban on private combustion engine vehicles in the city center after 2019. Commuters will have access to more bike lanes and subsidies for the purchase of electric bikes. Even more significantly the newly elected city government has proposed plans to remove fossil fuels from its $9 billion pension fund.
Cities like Seattle pledged to divest a couple of years ago, this move was followed by similar resolutions along the west coast including Portland, Oregon, San Francisco, Santa Monica. Other cities in the US, Europe and Australia have also followed suit. In March London passed a vote calling on the mayor to divest. If it proceeds as planned, Olso would be the first capital city to pledge to divest. These moves are part of the city’s effort to adopt a comprehensive plan to slash GHG emissions in half compared to 1990 levels by 2020, and reduce automobile traffic by 20 percent by 2019 and 30 percent by 2030.
There is a powerful logic driving the divestment movement. Buoyed by a powerful moral argument, faith groups are also divesting in droves.
A wide range of groups are also divesting from fossil fuels for both moral and practical reasons. These groups range from educational institutions (including Stanford University’s $19 billion divestment) to pension funds (including $850 billion Norwegian sovereign wealth fund).
Investors are increasingly concerned about fossil fuels. They are aware of the volatility and risks associated with such investments. To stay within our carbon budget and to keep the world from warming more than 2 degrees Celsius we will need to keep the vast majority of known fossil fuel reserves in the ground ultimately stranding these assets and rendering them worthless. This puts huge amounts of oil, gas and coal investments in jeopardy.
A wide range of organizations have expressed concern about the long term value of fossil fuels including the Bank of England, HSBC, the International Energy Agency and the World Bank. Businesses, utilities and investors are already being impacted by the divestment movement.
Among those who explore the risks associated with fossil fuels is Hyewon Kong, M.Sc., CFA. She is an Associate Portfolio Manager at AGF Investments Inc., she believes that investors have a role to play in fighting climate change and building a low-carbon, clean economy.
Kong recently moderated a panel discussion in Toronto called The Business of Climate Change, a conversation about the threats posed by climate change and the economic opportunities offered by the global transformation to a low-carbon economy. At this discussion investment bankers, portfolio managers, financial advisors and insurance brokers focused on the issue of climate change.
Investors are often criticized for failing to integrate morality into their buying decisions, however, they are quick to recognize threats to the value of their investments. The economic impacts of unchecked climate change would have economy wide repercussions from basics like food and water, to global infrastructure and the health of humans and ecosystems.
“In our view, the growth of the fossil fuel divestment campaign has been encouraging because it has helped focus the investment community’s attention on the risks, and opportunities, of climate change,” Kong explains.
Kong goes on to suggest alternatives to investing in fossil fuels:
“By focusing on the long term, tracking multiple environmental objectives and aligning with key sustainability themes, investors can focus on allocating capital to companies that are offering sustainability solutions…At AGF, our solutions-based approach involves giving investors the opportunity to participate in innovations that are disrupting carbon-intensive industries, such as low-carbon energy and power technologies, waste management and pollution control, waste and waste water solutions, and environmental health and safety.”
Prince Charles, recently told some of the world’s leading investors that it is vital that finance markets let politicians know that we are serious about acting on climate change. Siting the risks to the financial community, the heir to the British throne said it is important to invest in low carbon projects that will help to keep the world from warming more than 2 degrees Celsius above pre-industrial levels. He further stated that such investments need not hurt returns. “All investors must decide whether they are future-takers or future-makers,” he said.
Fossil fuels have immense financial power and influence and they are still the driving force behind the global economy and investment. However, the divestment movement is helping to power a global shift away from fossil fuels and towards low carbon energy sources. Increasingly the fossil fuel industry is seen as the pariah that it is and divestment has played a salient role in helping to bring this awareness into the popular consciousness.
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