Taking stock of your investments
Why divesting might be key to a liveable future
Imagine you’re an oncologist — day in and day out, you bear witness to the devastating impacts of cancer and try to help people through it. It’s tough work, but you feel like you’re making a difference. Then one day you meet with your investment advisor and ask about your fund. One of the major holdings? Tobacco. You’re literally taking the money you earn fighting cancer and investing in more cancer. That’s what happened to Australian oncologist Bronwyn King, who gave a TEDx Talk about her experience in 2017.
Why do I bring this up? Because all of us FMFP readers want to fight the cancer of the planet that is climate change, but if you looked into any of our investments or pension plans (including the Canada Pension Plan), you’d fight the equivalent of Big Tobacco. (And quite possibly literal tobacco.) This is especially true in Canada: because ours is a resource-heavy economy, a lot of Canadian funds have major holdings in fossil fuels.
Okay, you say, I don’t love that, but how big of an impact does this have? To put investments in context, two people at CoPower, a green energy bond company, used the MSCI carbon indexes on two common index funds (S&P/TSX Composite Index Fund and the MSCI World Index Fund) and turned the results into this chart:
See more about this calculation here.
I’ll admit I really don’t love that. But before we spiral into complete self-flagellation, let’s remember what would break the chart: the Canadian Pension Plan, worth roughly $400 billion. (For those who don’t want to do the math, that’s over 37 million tons of carbon a year, the equivalent of over 23 million flights.) The Carbon Mapping Project notes that $4 billion of that CPP money is invested in the top 200 publicly traded fossil fuel reserve holders (oil, gas, and coal).
Where we put our money matters. Thus the movement to divest from fossil fuels, which, despite the economic devastation of the coronavirus pandemic, continues to gain momentum. Among major groups that have voted to divest are: the Norwegian Sovereign Wealth fund; the U.K.’s largest pension fund; the Republic of Ireland; the World Council of Churches; the Guardian Media Group; the Rockefeller Brothers Fund (founded on oil money!); cities like Oslo, San Francisco, and Seattle; 77 U.K. universities and in Canada, a handful including Laval, Université du Québec à Montréal, and Concordia. You can check out a list of over 1,000 divestment commitments worth over $14 trillion here.
And while that’s a big number, it’s important to say that the primary objective here isn’t to starve the oil companies of money. You may have heard they have a lot of it!(Thanks, in part, to $5 trillion globally in annual taxpayer subsidies.) The fossil fuel divestment movement is in part inspired by the anti-Apartheid campaign to stop supporting companies doing business in South Africa and thus protest the Apartheid regime. By the mid-’80s, 26 state governments, 22 countries, and 90 cities divested from multinationals doing business in the country. With that pressure, among others, racial segregation started to seem a little less important to that government. In the case of fossil fuels, the main goal is to make profiting from ecological devastation no longer socially and politically viable, and to signal to other companies that fossil fuels are looking kinda dicey. Essentially: psychological warfare.
Or to tell it to you in Empire Records . . .
And the good news is it’s starting to work! Oil is starting to look as tragically dated as Rex Manning. In February 2020, massive investment firm BlackRock announced it was no longer putting money in companies that invest in the Alberta Tar Sands. Peabody, the largest coal company on the planet, recently filed for bankruptcy and listed divestment as a reason. BP announced it will be reducing its oil and gas production by 40% by 2030 and investing more in renewable energy. Coupled with a surge in socially responsible investment options (more on that next week), the market is starting to transition as surely as Greenland’s ice sheet.
Like all things involving money (and in this case, life savings), divestment can feel scary. So let’s look at some of the big questions and try to get the facts.
Will divesting cost me money in the long run?
Though many funds and institutions contend fossil fuels are important to a balanced portfolio, there’s a lot of data that suggests following your morals won’t cost you money. We’ll get into it more next week, but for now know this 2018 study compared portfolios with and without fossil fuels from 1927–2016 and found that divestment from coal, oil, and gas didn’t kneecap portfolio performance. In fact, staying in dirty energy may have come at an economic cost as well as an environmental one: a 2018 Corporate Knights study of the New York State pension plan found they may have collectively lost out on $22 billion in profits by not divesting from fossil fuels a decade earlier.
This influential paper compares 90 pairs of companies, one “high sustainability” and one “low sustainability.” The result? “High Sustainability companies significantly outperform their counterparts over the long-term, both in terms of stock market and accounting performance.” Forget greed is good; green is good.
Institutions love to talk about “fiduciary duty” — their responsibility to make the most money for investors — and fossil fuels are seen to be a part of that. But remember when oil prices fell so low they couldn’t give it away? And Chevron and Exxon posted major losses in July. Maybe that’s the pandemic, but here’s what isn’t: if we force fossil fuel companies to base their financial statements not on the underground reserves they have, but on the mere 20% they can plausibly extract without turning our world into a Mad Max hellscape, their bottom lines are going to be more underwater than Miami Beach real estate. These “stranded assets” make investing in fossil fuels long term may be more risky, not less.
Can’t I make more change as a shareholder?
Shares are just little pieces of a company, and so some argue that holding on to your shares gives you a chance to advocate for the environment from the inside. (The massive Ontario Teachers’ Pension Plan, for example, takes this stance.) And maybe this is true if you a) hold a lot of shares, and b) are the kind of person/organization who wants to make a stink on the regular. In the case of fossil fuel extraction, it also isn’t minor changes that are necessary — it’s overhauling the entire business model. Effecting change as a smaller shareholder seems a little bit like trying to domesticate a grizzly bear: theoretically possible, but you’re at a high risk of being made into a meal.
Won’t someone else just buy the shares?
It’s true, selling shares doesn’t make them cease to exist, and someone can buy them up. But remember we’re aiming for moral bankruptcy, not economic bankruptcy. And eventually those shares will take on the reek of a hot summer garbage day.
Won’t I just be investing in things that are also bad?
We’re going to get into the complications of socially responsible investing next week, but the short answer is no. Continuing to burn coal, oil, and gas is the biggest threat to a liveable climate at the end of this century. So unless you’re investing in nuclear warheads, fossil fuels are the biggest weapons of mass destruction in your portfolio.
Okay, how do I divest?
If you have an investment advisor, ask them what’s in your account. Even asking is an important step, because the more people who ask, the more action a firm is likely to take.
If you’re part of a pension or workplace retirement plan, again write and ask what’s in its holdings and express your desire for more socially responsible investment. Sometimes a better option exists, you just have to ask. To do an incredible amount of good, lobby to make that option the default, since most humans will avoid choosing.
If you’re a direct investor, look under the hood of those funds and see what they’re holding. (You might find a lot of companies you don’t agree with, so you’ll have to create your own list of dealbreakers.) Stay tuned for next week’s greener investment strategies.
University alumni, write your university and ask if they have plans to divest their endowment. There may already be a group advocating for divestment at your school.
And don’t forget . . .
Keep doing everything you can to reduce direct demand for fossil fuels, including driving less and flying less. Investment portfolios are only one way we support the fossil fuel industry. The average Canadian spends over $1,500 a year on gas, which has a direct impact on Big Oil’s bottom line.
Most of us are saving for a more secure future, but that’s no longer just a financial equation, it’s an ecological one. Or as satirical site The Beaverton put it in a spoof piece on retirement planning for millennials: “‘When I went in for retirement planning I thought they were going to advise me to buy a house and put my money into mutual funds,’ said millennial Jane Henry. ‘But instead they really hammered home that I need stop the permafrost from melting.’”
Stay tuned for part two next week, when we’ll look at socially responsible investing. Until then, damn the Man, save the Empire.
If you have any investments in the stock market, you’re probably holding coal, oil, and gas in your portfolio. Institutions like universities or massive pension plans are holding a lot of it.
The divestment movement isn’t about bankrupting a company or an industry, but turning public opinion against the fossil fuel companies.
Studies show that divesting from fossil fuels can make a portfolio more profitable, not less.
Wins of the Week
“Your money has the power to destroy or to build, and it is no longer acceptable to remain oblivious to the fact.” — Christiana Figueres and Tom Rivett-Carnac, The Future We Choose
Emily decided to donate some clothes in good condition to Toronto’s New Circles, which provides clothing, employment skills training, and settlement support services to people living in poverty. It functions like a store, where everything is clean and organized by size, but completely free. Emily says, “Made us feel so good to bring it there rather than just dumping it at Value Village!” She’s going to collect clothes from friends and drop them off there too, which scales up the impact of her action even more. (Always look for an easy scale up!)
As you can see my wins reserves are depleted, so hit me up with all the things large and small you’re doing to ensure all of our futures look a little brighter.