Protests, oil prices add fuel to the divestment fire
It was a move straight from the student activism playbook: On Thursday, Feb. 12, at 10 a.m., 34 students showed up and held a sit-in at Harvard’s Massachusetts Hall in honor of the upcoming Global Divestment Day. There were the usual sit-in discussions. Was the offer that the school’s president, Drew Gilpin Faust, made to meet with the occupiers, but in a different building, a sincere olive branch extended towards community dialogue? Or just a ruse to get them out of the building that houses her office? How to handle the campus police, who were trying to encourage the Mass Hall occupiers to leave by keeping them from using the building’s bathrooms?
And was a kaffee klatsch with the president even what they wanted? Faust had laid out her thoughts on divestment pretty clearly a year ago. (“The funds in the endowment have been given to us by generous benefactors over many years to advance academic aims, not to serve other purposes, however worthy.”) She showed no signs of reconsidering. “We’re not against dialogue,” said Jasmine Opie, the junior who is a spokesperson for the sit-in. “But we’re asking for divestment. After all, we aren’t the ones who are most impacted by climate change.”
The climate divestment movement, which found an early stronghold on college campuses, has embraced two different strategies — a moral one, and one based on financial self-interest. The moral case, which is in the forefront at events like the Mass Hall sit-in, is straightforward. By investing in coal and gas, the industrialized world wrongs the rest of the world, and the older generation wrongs the younger generation. (Harvard students are also suing the University to compel it to divest from fossil fuel companies on the grounds that its “funding of global warming harms its students and future generations.”) The financial argument is more hard-nosed: It maintains that investments in oil, gas, and coal are grossly overvalued, since if we actually used the reserves their valuations are based on, driving up the planetary thermostat, the rest of the economy would tank.
Until now, the moral argument for divestment has been the most visible one. It was definitely the most appealing to Jasmine Opie, who belongs to a generation that has embraced the climate fight as the most profound means of rectifying the injustice of a planet of haves and have-nots. “I’m someone who was raised with a lot of privilege. I had access to education and natural resources and food and things like that,” she says. “Who better to compel Harvard to do the right thing? Not everyone can go sit in at the university like we can.”
The moral argument was at the forefront of the divestment struggle because it sort of had to be — the price of oil was going gangbusters. Business-as-usual meant fiscal stability and responsibility, university presidents like Faust maintained as a counterpoint to the moral arguments. Aside from a few rumblings in financial circles, this connection between fossil-fuel investments and sound money management looked like it would hold forever. But then something strange happened.
In the last months of 2014, the market for fossil fuels collapsed. Oil fell from a high of $110 per barrel that summer to $46 in January. It’s risen back to the $50s since then, but mass layoffs are already happening across the oil and gas industry, and no one is quite sure what to make of the future. “The outlook on oil prices is clear,” wrote Bloomberg. “Oil will crash. Unless prices surge. Definitely one or the other.” For the first time, divesting in fossil fuels is starting to look good in practice, rather than just in theory.
Now, institutions that already divested look extra prescient — particularly the Rockefeller Brothers Fund (RBF), which timed its divestiture to coincide with the Peoples’ Climate March in late September. “I wish I could say that I was a brilliant market timer,” said Stephen Heintz, president of the RBF, in a phone interview. Yes, RBF got out of its tar sands investments right before the price of oil began to fall, and “certainly, having fewer oil stocks at a time when the price of oil is collapsing is a good thing.”
But Heintz had no clue that a tumble was imminent. Instead, RBF had more in common with student activists than might be immediately apparent: “We became more and more uncomfortable that we were supporting a whole range of efforts to combat climate change, while at the same time holding investments that were causing the planet to warm. We felt that we were being hypocritical.”
But RBF was also thinking about the long-term economics described in the Carbon Tracker report – which was published way back in the summer of 2011 in the UK, and planted the seed for the financial argument for divestment. In the short term, oil prices will rise and fall, said Heintz. In the long term, though — say, 25 years — a slow decline is inevitable, though it will take years before it’s completely apparent.
The rules and climate agreements that were hammered out in 2014 will shift where investments go. One person looks at Obama shaking hands with Xi Jinping and thinks, “Yay! Less air pollution!” while another person looks at the same photo and thinks, “Shit! Who am I going to sell my coal to?” (Or, alternately, “Wow! That is a country that might potentially buy a lot of windmills.”)
While the renewable energy sector isn’t quite stable enough for long-term investors to park their money, as the industry develops, that, too, could change. The company that gets battery development right could become the next Standard Oil — the ancient energy monopoly that was the basis of the RBF, and that still exists, in the form of Chevron and Exxon, as the kind of blue-chip stock that foundations love.
As more institutions divest, the world of finance is beginning to shift to accommodate them. Divesting from fossil fuels is complicated: they take up so much of the market that it’s hard to lose them and still have a diversified portfolio. But things like fossil-free hedge funds (and index funds, too) are beginning to emerge, drawn by the market opportunities presented by institutions that have made a pledge to divest.
When they weren’t waving banners on campus and occupying buildings, the Harvard students were at work on their own complex financial workaround – a “Fossil-Free Alumni Fund” developed with former SEC Commissioner Bevis Longstreth. Divestment-supporting alumni could give the fund the money they’d otherwise have donated to Harvard, and if the school hasn’t divested by 2025, the money will be disbursed to an as-yet-undetermined list of organizations working to limit greenhouse gas emissions.
I remember reading the Carbon Tracker report back in 2011 and thinking that, despite all of its lovely graphics and pleasing layout, no one with any amount of money would ever pay attention to it. The global economy that I was familiar with seemed more than happy to destroy itself long-term in the pursuit of short-term gains, and I wasn’t sure what would ever change that.
Divestment in South Africa took decades, if you date the beginning of the movement back to when Martin Luther King called for “a massive economic boycott of South Africa by all other nations.” By comparison, the climate divestment movement, at least in these early stages, has moved fast.
Bob Massie, who wrote a history of the anti-apartheid divestment campaign and is now involved in climate divestment, credits the internet. High-profile and well-funded supporters from within the world of finance haven’t hurt, either.
Whatever the cause, four years after that first report, climate divestment — and the financial culture that has sprung up around it — has gone from radical to sensible. At least for now, it’s good for business, too.