Selling your stock will not save climate
Harvard University will make no new investments in fossil fuel companies and soon cash out of existing stock funds with oil and gas holdings, handing a victory to climate activists who have long campaigned for divestment.
Whether the move will mitigate climate change, though, is a different question.
Harvard President Lawrence Bacow said the university had not held direct investments in fossil fuels since June. Only 2 percent of the $41.9 billion endowment is indirectly invested in coal, oil or natural gas through stock funds. He called climate change “the most consequential threat facing humanity.”
“Given the need to decarbonize the economy
and our responsibility as fiduciaries to make long-term investment decisions that support our teaching and research mission, we do not believe such investments are prudent,” Bacow wrote in a message on
Sept. 9.
Bacow’s statement is curious for its citation of fiduciary responsibility, which requires the investment committee to grow the endowment as quickly as possible.
For generations, universities and other institutions have invoked their responsibility to make money to reject activists’ demands for divestment, whether from mining firms in apartheid-era South Africa or tobacco companies. Corporations engaged in morally ambiguous activities frequently offer higher-than-average returns to soothe investors’ consciences.
Until recently, oil and gas companies offered some of the most consistent and generous returns. Financial advisers frequently counseled that energy stocks were an essential part of a balanced portfolio.
The climate crisis, though, has put fossil fuel stocks on par with tobacco in the minds of many. A growing number of investors want more than a return; they want to know their money is with executive teams who care about ESG, or environmental, social and governance issues.
Investing to promote a better world is often called sustainable investing, and one of the biggest proponents is also one of the biggest investment firms in the world, BlackRock. So, I was surprised to hear on one of my favorite podcasts, the University of Chicago’s Capitalisn’t, that BlackRock’s former chief investment officer has profound questions about ESG investing.
Tariq Fancy, does not deny the social and financial dangers of climate change, wealth inequality, systemic racism or corrupt corporate leadership. Instead, he argues we need more direct action. Divesting from fossil fuel stocks is not the panacea activists believe, he insists.
When enough people sell a company’s stock, the price falls. A lower stock price makes the ratio to earnings more attractive, and investors focused only on return will buy more of it. Since the investors left behind have no social agenda, the management team feels no pressure to change their behavior.
“There’s a difference between excusing yourself of something you do not wish to partake in and actively fighting against something you think needs to stop for everyone’s sake,” Fancy wrote on the website Medium. “Divestment, which often seems to get confused with boycotts, has no clear real-world impact since 10 percent of the market not buying your stock is not the same as 10 percent of your customers not buying your product.”
In other words, if you want the world to consume less fossil fuel and emit less carbon dioxide, then buy an electric vehicle and use renewable energy. Hold on to your stocks and vote.
The private equity group Engine One scored an enormous victory against Exxon Mobil’s management team by rallying other shareholders to put three directors on the board who want the Irving-based company to take climate change more seriously.
Engine One’s founder, Chris James, convinced large institutional investors such as California and New York pension funds and some of the world’s largest investment funds — including BlackRock — that changing the company’s direction was smarter than abandoning it. CEO Darren Woods has promised to focus more on transitioning away from oil and gas.
Chevron’s management team, terrified of meeting a similar fate, recently promised to spend $10 billion on low-carbon technologies over the next seven years. The company met with James and signed eight clean energy deals in two weeks.
CEO Mike Wirth fleshed out his “higher returns, lower carbon” strategy at Chevron’s first ESG-focused investor day.
Folks in the fossil fuel business get righteously indignant when people compare their industry to costly vices such as tobacco, alcohol and gambling. None of us can quit oil and gas cold turkey and still participate in society. Some of us may hate fossil fuels, but we all use them.
Ramping down our personal consumption of coal, oil and natural gas is the most effective way of helping the climate. Divestment may make you feel good, but that’s about it.