An Introduction to Fossil Fuel Divestment

The basic definition of divestment is simply the opposite of investment — it is where investors reduce their holding in an asset. But divestment is usually associated with something more than just selling an asset for financial gain — a divestment is carried out due to:

• a change in corporate direction — a firm might sell a subsidiary so they can focus on a core business aim, or
• changing social goals — company investors have political reasons for reducing investment holdings in a particular company or sector.

So fossil fuel divestment is where companies and investors remove their funds from the fossil fuel sector. Take a look behind the headlines of fossil fuel divestment to see why companies divest and if it is worth it.

Divestment campaign — the starting point

The origins of the current divestment campaign for fossil fuels can be traced back to 2010 — when a college in the US asked its endowment fund trustees to sell fossil fuel shares. The campaign raised its profile in 2012 when an article was published in Rolling Stone magazine. The article highlights how only a small amount of CO₂ can be released into the atmosphere to keep global temperature increases below 2?C; and how much CO₂ potentially could be released if we used all known fossil fuel reserves. The effect of CO₂ releases into the atmosphere are discussed in the article, Atmospheric Carbon Dioxide Monitoring Close to a Coal-Fired Power Plant and a Cement Factory.

The article called for fossil fuel divestment to pressure companies and governments to reduce CO₂ emissions. Bob Massie of the Investor Network on Climate Risk, observes in the article that, ‘We must sever the ties with those who profit from climate change—now.’

In the 1980s, the call was to divest in companies carrying out business in South Africa — with the aim to bring to an end apartheid in South Africa. It began on college campuses as students and lecturers demanded their universities withdraw all investments from companies doing business in South Africa, and spread to local, then state and national government bodies.

Archbishop Desmond Tutu applauded the role the divestment campaign against businesses played in ending apartheid in 1994. Will the fossil fuel divestment campaign work?

Potential impact of fossil fuel divestments

Fossil fuel divestments are unlikely to have a financial impact; the amount that universities and other social organizations have invested in fossil fuel companies is relatively low, so any share price change due to divestment will be small.

But reputational damage is real — and we are already seeing ‘green’ adverts from fossil fuel companies. Is this a result of the divestment campaign? Only time will tell if social pressure can help fossil fuel companies change their ways

Image: From Stock Images