Better Than Disinvestment: A More Effective Move Against Climate Change

Students and alumni who want action against climate change are pressing universities to rid their endowment funds of the stocks of companies that produce fossil fuels. They look back to the successful campaign against apartheid in South Africa. People were urged to sell the stocks of companies carrying on business there. But the disinvestment movement probably played at most a minor part in the apartheid campaign; people within South Africa were the major actors. It is worth asking whether some other tactic by owners of energy stocks might be more effective in the campaign against climate change. I'm going to argue that there is.

What, exactly, happens as a result of disinvestment? First, and perhaps most importantly, a statement is made that the companies' behavior is deemed reprehensible and decent people should have nothing to do with them. Unfortunately, people are not going to be able to stop buying gasoline. Selling the stocks, even in large numbers, is unlikely to affect the fuel companies' behavior in any important way. These companies are denying the evidence on global warming. They are unlikely to act to fight it because some universities no longer hold their stocks. The stocks will be sold to other investors, who are less concerned than the present owners with the threat of global warming, and are unlikely to press the companies to change. If anything, the pressure on the companies to act better will be reduced.

The sale, if done abruptly, might cause a drop in the stocks' price. But research on the effects of the South African disinvestment suggests the price effect would be small. The main effect of that would be to give the purchasers of the disinvested stock a bargain.

A better move than disinvestment would be for owners of large blocks of energy stocks to join in setting up an organization whose purpose would be to influence the companies to act differently. The organization would nominate people with global warming concerns to run for seats on the companies' boards, and would campaign for votes for them from other owners of the stocks. Publicity for the view that the energy companies are bad actors in the fight against global warming would be served by this strategy as well.

What would the new trustees ask of the companies? There are two obvious things the companies could do. The companies should cease opposing a carbon tax. And they should reduce investment in fossil fuels and increase investment in the production of renewable energy.