Fossil Fuel Divestment
This document addresses fossil fuel divestment from several perspectives. The background for such a proposal includes three important general facts: (1) A net increase of average global temperatures above 2° C will have severe catastrophic environmental, economic and social consequences; (2) Emitting more than 565 Gigatons of CO2 will lead to a net increase above 2° C; and (3) Current fossil fuel reserves held by the 200 largest publicly traded fossil fuel companies amount to more than 2,795 Gigatons of potential CO2 (see diagram to the right).
Arguments in Favor
- Ethical Transitivity Cannot Be Ignored. If it is wrong to wreck the climate, it is wrong to fund and profit from that wreckage. By holding investments that sanction and legitimate the behavior that leads to such catastrophic climate change, we are subsequently endorsing the very business model that makes climate change education necessary in the first place. Universities are the primary sources of data and policy guidance for scientific and social matters, and should therefore align their portfolios with their mission statements and formal declarations.
- Fossil Fuel Companies Attempt to Undermine Research from the UC and other Academic Institutions. It is well known that fossil fuel companies have attempted to conflate scientific uncertainty with colloquial uncertainty. Leaked internal memos point to information distortion and the promotion of minority skeptics, undermining the science, much of which has been led by UC researchers. Other memos point to attempts to undermine policy decisions in addressing climate change. Such companies have displayed no real interest in the large consensus on climate change and the need to manage the problem, even when their own internal scientific assessments have concluded that climate change represents a severe threat. An additional moral corollary is that it is wrong (or at least befuddling) to profit by undermining one’s own conclusions.
- Research Suggests Divestment Has No (or Even a Positive) Long-Term Impact on Endowments. A recent study from a financial consulting agency, the Aperio Group, found there is minimal risk (0.0001 increase) and no appreciable effect on returns by comparing the standard Russell 3000 index fund and the same fund excluding the top 200 fossil fuel companies. Another recent study by S&P Capital IQ using the S&P 500 index shows that, had divestment occurred ten years ago, a $1 billion endowment would have yielded $119 million more than the index than without divestment. Fossil fuel companies are no longer the profitable assets they once were, and are instead increasingly risky bets.
- Policy Impacts from Divestment May Benefit UC Investments. Recent analysis suggests that fossil fuel companies may be overvalued. According to research from HSBC Global, if any policy actions are taken regarding climate change, the returns on fossil fuel investments may decrease and the risks increase, leading up to a 40-60% loss of current market capitalization., Policy implementation may be expedited by large-scale, unified divestment across many campuses. If the UC begins a five-year divestment strategy sooner than climate policy implementation, then it will be well-positioned to handle such market reactions. Not divesting could have the opposite effect.
- The University of California should Display Leadership. The UC system was a leader in divestment from South Africa, helping to end apartheid. Many other universities are facing the same divestment issue, and ours could be the first large public institution to take this important step. UC researchers already are top in the field of climate science, mitigation, and adaptiation, and have created a vision of a sustainable future in which the students can implement the knowledge they have received whilst at UC.
Rebutting Arguments Against Divestment
What follows are arguments we’ve heard about divestment and our responses to them. It is important to bear in mind that none of the arguments below actually engage the ethical arguments for divestment (arguments 1 & 2 above), and we are yet to encountered a rebuttal to the ethical arguments, nor have we found substantive positive ethical arguments to remain invested. What follows are responses to practical objections.
- [Shareholder engagement]This argument would potentially be effective for companies that have less egregious practices, or for companies that were more responsive to shareholder engagement. However, the fossil fuel industry has time and time again ignored shareholder resolutions that call for any large-scale shifts. For instance, the organization As You Sow has helped author numerous fossil fuel resolutions, with minimal success or change on the part of the companies. The organization also notes that divestment can bolster shareholder advocacy that remains, as companies may actually listen once large institutional investors make a bold move.
- The UC system could be more effective by more actively engaging the companies in which it is invested. Divesting means we would no longer have a say in the companies. This would mean we would have no right to, say, sponsor shareholder resolutions.
- [Carbon Tax] Legislation that would push for a carbon tax is frozen due to a number of factors, chief among them is the vast, undue political influence of fossil fuel companies. Although there are fewer registered lobbyists in Washington (it is currently down to 8,823; about 17 per member of the legislative branch), more and more lobbying is done behind the scenes in an unregistered fashion. Divestment strips these corporations of their credibility, and legitimates the claim that these companies can no longer be seen as beneficial to society, despite their best public relations efforts to the contrary. This change in attitude clears the table for an unbiased discussion of a carbon tax and other policy mechanisms, while sending a clear message to politicians as to the position of the nation’s leading academic institutions on the need for bold and swift climate action.
- The UC system should try to offer broader solutions rather than divest. For instance, we could vigorously pursue a policy such as a carbon tax, which many economists agree is the most simple and straightforward way to manage the carbon problem within a market system.
- [Fossil Fuel Companies Invest a lot in Renewables]The fossil fuel industry has generally avoided renewable energy in favor of more extraction of carbon-based energy. For instance, although the American Petroleum Institute points to $71 billion invested in energy improvements in the last decade, only $9 billion of that was actually invested in renewable energy.  By contrast, the petroleum industry has dedicated $341 billion in developing tar sands technology during that same period. Furthermore, global energy investment in renewables for year 2011 alone topped $257 billion. These numbers show that the fossil industry is only concerned with extraction, not viable alternatives to extraction. If a fossil fuel company aligns its business model with the IPCC’s low-carbon standard, they would be removed from the list of negatively screened fossil fuel companies.
- Fossil fuel companies generally see themselves as energy companies, and have invested a great deal in renewable energy. To divest from them is to discourage them from cleaning up their energy sources.
- [No Politics] Investing is in itself a political statement, especially once it is made well-known that an institution is actively and highly invested in an industry associated with large-scale environmental and social injustices. Although it is not the direct intention of the investments committee to exacerbate climate change, the declarations of our own institution of the dramatic consequences of policy inaction and complicity are taught to students time and time again in almost every department of our University. We do not want to be a “do as I say, not as I do” institution on such an important issue. Additionally, climate change is not a partisan issue, as both sides have not engaged the issue enough (hence the problem), and solutions have been offered by minority figures in both, so divestment is much less political than one might think. What’s more, the UC has been involved in political matters, including lobbying. The UC has also politically engaged on Sudan, South Africa, and tobacco, regarding genocide, apartheid, and public health, respectively. Although each were important matters, climate change is clearly much more dangerous in terms of severity of its global impact and effect on human populations.
- It is not the UC’s role to get involved in political matters. This proposal steps over the bounds of being a research and educational institution.
- [Divestment is too risky] Divesting from one industry is not in itself fundamentally risky. While it is possible that long term profits could be affected, the arguments presented in favor of divestment (see arguments 3 & 4 above) show that the negative perspective is at best contentious, and that reallocating assets away from fossil fuels could just as well yield higher returns. Moreover, as argument 4 points out, the risk of remaining invested in the fossil fuel industry could prove greater than that of divesting, given that the industry’s share valuation is based on assets that cannot be realized if the internationally agreed upon 2 degree global warming limit is to be honored.
- There is a high amount of risk associated with pulling out from a single industry. This could affect long term profits.
- [Green our Campuses First]
- There are better, more relevant things to do on our campuses that show our commitment to mitigating climate change. For instance, we would have stronger green building standards, source our energy from clean sources, and encourage faculty, staff and students to drive less.
The UC system has a very strong policy on sustainable practices that includes things such as local organic food, green purchasing, and green building standards. However, at this point, improving such standards will yield diminishing returns. We certainly should look to additional opportunities in these areas, but we cannot ignore the broader implications of investment in industries actively and consciously engaged in exacerbating climate change. Small-scale actions do not preclude actions targeting large-scale, systemic shifts.
 Although subject to debate and tweaking under various scenarios, these numbers generally hold true. See McKibben, Bill, “Global Warming’s Terrifying New Math”, Rolling Stone, 19 Jul 2012. Available at: http://www.rollingstone.com/politics/news/global-warmings-terrifying-new-math-20120719?print=true
 Union of Concerned Scientists. “Smoke, Mirrors and Hot Air”, January 2007. Available at: http://climate.envsci.rutgers.edu/pdf/UCSexxon_report.pdf
 Cook, John, et al. “Quantifying the Consensus on Anthropogenic Global Warming in the Scientific Literature”, Environmental Research Letters 8, 15 May 2013. Available at: http://iopscience.iop.org/1748-9326/8/2/024024/article
 Revkin, Andrew. “Industry Ignored Its Scientists on Climate”, The New York Times, 23 Apr 2009. Available at: http://www.nytimes.com/2009/04/24/science/earth/24deny.html?pagewanted=all&_r=0
 Gardner, Ken. “Divesting From Fossil-Fuel Companies Is Unlikely to Harm Endowments, Report Says”, The Chronicle of Higher Education, 29 Jan 2013. Available at: http://chronicle.com/blogs/bottomline/divesting-in-fossil-fuels-shouldnt-harm-endowments-report-finds/
 Begos, Kevin, and Joan Loviglo. “College fossil-fuel divestment movement builds”, Associated Press, 22 May 2013. Available at: http://news.yahoo.com/college-fossil-fuel-divestment-movement-builds-173849305.html
 “Unburnable Fuel”, The Economist, 4 May 2013. Available at: http://www.economist.com/news/business/21577097-either-governments-are-not-serious-about-climate-change-or-fossil-fuel-firms-are
 HSBC Global Research, “Oil and Carbon Revisited”, 25 January 2013. Available online at: http://gofossilfree.org/files/2013/02/HSBCOilJan13.pdf
 Former Security and Exchange Commissioner Bevis Longstreth has helped to clarify the HSBC Report. See his “The Case for Cool: Student Engagement to Save the Planet”, The Huffington Post, 3 May 2013. Available at: http://www.huffingtonpost.com/bevis-longstreth/the-case-for-cool-student_b_3211186.html
 UC Berkeley, UC San Diego, and UC Santa Barbara are in the top 20 research institutions, including government laboratories and agencies. See “Climate Change: Top 20 Overall Institutions by Citations”, Thomson Reuters Science Watch, Nov 2009. Available at: http://archive.sciencewatch.com/ana/st/climate/institution/
 “Carbon Divestment”, As You Sow. Available at: http://www.asyousow.org/health_safety/carbon-divestment.shtml
 Overby, Peter. “Why Lobbying is Now Increasingly in the Shadows”, NPR Morning Edition, 3 May 2013. Available at: http://www.npr.org/blogs/itsallpolitics/2013/05/03/180582381/why-lobbying-is-now-increasingly-in-the-shadows
 Wells, Ken. “Big Oil’s Big in Biofuels”, Businessweek, 10 May 2012. Available at: http://www.businessweek.com/articles/2012-05-10/big-oils-big-in-biofuels
 Wells, Ken. “Big Oil’s Big in Biofuels”.
 “Global Trends in Renewable Energy Investment 2012”, Frankfurt School UNEP Collaborating Centre. Available at: http://fs-unep-centre.org/publications/global-trends-renewable-energy-investment-2012
 “University of California Lobbying”, Opensecrets.org. http://www.opensecrets.org/lobby/clientsum.php?id=D000000406