There is no debate that we are facing a climate catastrophe. It is underway and causing increasing suffering and destruction around the world.
Further, despite two decades of activism by environmental groups and investors, we have not yet succeeded in implementing the necessary conditions for bending the curve on carbon dioxide concentration in the atmosphere - placing a price on greenhouse gas emissions.
Recently the author and activist Bill McKibben has called on investors to divest their portfolios of securities in companies in the fossil fuel industry. The campaign has had a number of effects, some positive, some a distraction, and some counter-productive.
I applaud McKibben and the 350.org campaign for heightening the attention on the climate crisis, engaging many people to take action, particularly students and people of faith, and putting pressure on investors to think about how their assets can be used to advance climate solutions.
At the same time, those engaged in socially responsible investing (SRI) are now expending time and focus on debating one another about divestment instead of taking action to address the problem. We are treating our good allies as enemies. This is not productive.
What McKibben does not acknowledge is that shareholders can influence companies. As owners, shareholders can play a unique role in influencing corporate policies. There are many ways that investors make their voices heard: shareholder resolutions, letters to the board and top management, dialogue with companies, and bringing the investor voice to the policy-making process. Divestment is only one tactic and it is the least effective in driving change.
In fact, if those investors who are pressuring companies on climate change would divest right now, corporate chieftains would be popping the bubbly at the next meeting of the American Petroleum Institute. That's because they would love to stop activist investors from raising thorny questions in shareholder resolutions and speaking out at their annual meetings. Divesting would let them off the hook.
350.org evinces little recognition that a growing number of investors have been taking action on climate change for over a decade. In the 1990s, it was only the faith-based and SRI investors that took climate change seriously as an investment issue. But starting in 2003, the nonprofit advocacy group Ceres organized the Investor Network on Climate Risk. That group now represents $11 trillion in assets under management, and has issued several powerful statements on the relevance and importance of climate change to investors.
In addition, there are many victories to which investors have contributed. Here are a few examples:
· The most significant increase in fuel economy standards for vehicles in a generation.
· Dozens of companies pulling their support from the climate science denying American Legislative Exchange Council and Heartland Institute.
· Disclosure of greenhouse gas emissions and strategies to reduce them by numerous companies.
· Mandated climate risk disclosure by the U.S. Securities and Exchange Commission.
But of course none of this is enough. Greenhouse gas concentration in the atmosphere is climbing inexorably while our elected officials are incapable, not just of acting, but even of speaking about the problem.
McKibben argues that divestment is the only moral response to climate change. Admittedly, it is satisfying to target the fossil fuel companies as the embodiment of evil. But those companies are only responding to demand from their customers--us.
The truth is, there is a simple way to really hurt the fossil fuel companies and it's not divesting--it's boycotting their products. And that is the real heart of the problem. Fossil fuels infuse our entire economy, the financial markets, and our lives. If you think your portfolio should be fossil fuel free, shouldn't your life be too?
Fossil fuel companies will produce oil, gas, and coal as long as we demand it. To shift demand to less carbon-intensive fuels, we will need to make emitting carbon pollution, which is now free, bear a cost. This requires strong public policy. When the full cost, including planetary damage, is reflected in the prices we pay for these fuels, alternatives will become relatively more attractive and consumption will shift in that direction.
To the extent that fossil fuel companies are the enemy it is because of their corrosive effect on the political process that has blocked policy solutions commensurate with the scale of the problem. Engaged investors can address this. For example, with much pressure from investors, Exxon has quietly changed its position from that of a climate science denier to an advocate for a carbon tax. We also need the oil and gas companies to shift their massive capital investments towards low carbon fuels and technologies. This is already happening, but can be accelerated with increased investor pressure.
I think we do need to listen closely to the voices of those whose passions McKibben has fired up. We have been effective, but the climate catastrophe is filling the windshield, and emergency maneuvers are needed right now. Their message to activist investors is that we need to "up our game."
Here's what I think investors should do:
· Tighten investment screens to eliminate companies that have the most corrosive effect on the environment and public policy.
· Allocate capital to climate solutions such as clean technology.
· Pressure policymakers in Washington, D.C. to pass climate change policies.
· Strengthen the demands on companies through shareholder resolutions.
· Focus shareholder work on the largest consumers of fossil fuel energy like coal-fired electric power plants.
For some, divestment could be an option. But please, not quiet divestment. That would be truly the sound of one hand clapping. Investors who choose to divest must speak loudly about why they are taking this action.
It is essential for investors to speak intelligently, loudly, and boldly. And we should do it together, mutually supporting all who engage in the struggle through the means they judge most fitting.