A decade and a change ago, as the world woke up to the catastrophe of climate change, campus activists were looking for ways to reform the environment on a large scale. They have come up with something extraordinary: the free market. Climate change is the world’s largest unpriced externality, with neither fossil fuel producers nor consumers bearing the cost of the damage they cause to the environment. Gas is very cheap; Ultimately, every living thing on the planet bears the cost. Perhaps activists can persuade the market to price in these externalities by urging investors to divest.
Students at dozens of universities, motivated by the non-profit organization 350.org, began protesting to academic leaders and investment offices, demanding that endowments stop owning shares in fossil fuel companies. Students staged a sit-in. They walked. They staged sit-ins. They held the votes. “You don’t want your institution to be on the wrong side of this issue,” said Stephen Mulkey, president of Unity College of Maine, the first to divest using 350.org guidelines. Inside climate news In 2012. “We realized that investing in fossil fuels was an unethical position.”
However, the demands seemed symbolic at best, and the movement was full of idealism and energy, but to what end? Companies like Chevron and Exxon Mobil are making profits due to the continuing global demand for gas; People getting rid of their stocks won’t change that. Such companies would “find other willing buyers” for the shares, argued Drew Faust, then-president of Harvard University, in response to a student divestment campaign in 2013. She noted that Harvard University used a large amount of light crude oil itself.
But divestment has worked in other contexts: helping to end apartheid in South Africa, for example. The financial argument was sound in theory. Divestment can reduce the value of a company: some people sell their shares, others refuse to buy, and the stock price falls if there are not enough other interested investors to step in. More importantly, it makes it more expensive for companies to grow. Exploration, mining, extraction and shipping are all very expensive for energy companies. If these companies have less money on hand and have difficulty raising it, projects may not finish, energy prices may rise, and their profit margins may decline.
By 2018, less than a decade since the climate divestment movement emerged in the United States, more than 1,000 institutional investors with $6.2 trillion in assets under management had committed to divestment, according to estimates from Arabella Advisors; Some numbers today are several times higher. The list of entities that have stopped investing in fossil fuels now includes several large pension funds, Ireland, the Ford and Rockefeller Foundations, and dozens of private colleges and universities. In 2021, Harvard University (under new management) was divested of its investments. In July, Seattle University did so as well. And last month, New York University, despite its deep ties to Wall Street, agreed to do so as well.
Did you succeed? On the sidelines perhaps. Some analyzes find that the movement is still too small to have any effect. But a large-scale analysis of lending to oil and gas companies in 33 countries from 2000 to 2015 found that divestment was “associated with reduced capital flows,” an effect that was “strengthened in stricter environmental policy regimes and diminished in countries that heavily subsidize fossil fuels.” . Fuel.”
But the single most important impact of divestment is not about money at all, but about something stranger and more pervasive: it deprives the fossil fuel industry of its “social licence,” in the words of movement leader Bill McKibben. It makes extractive companies It seems Socially irresponsible and not worthy of public investment. It makes people think twice before working in such companies. It pushes all companies to acknowledge the environment and understand that being a major source of emissions is a bad business practice. It helps put pressure on corporate financiers to take climate seriously, something that will keep the planet habitable.
To be clear: one person selling his Exxon stock will not change the course of the climate crisis. A few households allocating their 401(k) funds to green funds will not accelerate the world’s transition to renewable energy.
But McKibben is right. Symbolism is important. And if you’re concerned enough about the climate that you want to take personal action, moving your money into green funds is one of the easiest ways to do so — it probably takes five minutes, all at once, plus a little email once a year. Compare that to giving up meat, giving up your car, or stopping air travel.
If you want to pick your own stocks, the choice is simple: either sell or invest with intent. Don’t buy stocks from big emitters, including coal, oil and gas companies. Or buy shares of brown companies that are actually trying to go green, rather than their less green competitors. Tell these companies at shareholder meetings that you want them to adhere to environmental standards. Economists Alex Edmans, from London Business School; Doron Levitt, from the University of Washington; Jan Schnemeyer of Indiana University calls this strategy “tilting.” The economists found that “divestment is most effective in depriving a company of capital and hindering expansion, but the tendency is more powerful” in convincing a company to reduce its emissions.
Jacqueline Place, of MIT, has studied the types of corrective actions that make sense in a corporate context — so you can know that the companies you invest in are truly committed to saving the planet, or at least not destroying it. It found that companies that set long-term emissions targets, have a neutral party overseeing their emissions data, link executive compensation to environmental performance, support government climate change bills, and set an internal price on carbon achieve the best results on emissions reductions.
If you want to invest in actively or passively managed funds instead of picking your own stocks, things get easier. All major asset managers offer green mutual funds and index funds, that is, funds that do not invest money in extractive industries and that hold the companies in their portfolios to certain environmental standards. You can place or transfer your money with nothing more than a few clicks. Say goodbye to your fund manager or investment advisor Known You claim green money: These companies manage huge pools of money and large voting blocs of shareholders that have a strong influence over the companies whose shares you own.
There’s not much downside to doing this. Green funds tend to perform about the same as their traditional counterparts, at least for now. Perhaps the biggest problem is that there is some evidence that companies in ESG funds don’t actually have better environmental practices: there’s a lot of greenwashing going on. The answer for the individual is to do some due diligence, perhaps interview your fund manager and make sure you are comfortable with where your money is going.
But don’t worry about it too much. The symbolism of green investing is more important than the impact of dollars and cents. As many people as possible need to act as if we are in a world worth saving. Becoming part of the divestment movement and greening your 401(k) is a quick and underappreciated way to do so.
(tags for translation) Fossil fuel companies
