Paradoxically, despite claiming responsible business conduct, the world’s top 60 banks have invested 3.8 trillion in fossil fuel firms since the 2015 Paris climate agreement, thus exacerbating the climate crisis. To counteract its negative impact, an increasing number of banks have been making climate-friendly investments. For instance, Ando invests 100% of its customer deposits in decarbonization projects. Its app allows customers to see what percentage of their deposited money supports different environmentally friendly projects such as clean energy, transportation or green buildings.
Over the past decade, $40 trillion has been divested from fossil fuels. This shows that the divestment movement is effective in the fight against climate change. Moreover, it sends a clear signal to financial firms that highly pollutant projects are no longer a worthy investment as more people are expressing their strong disapproval for them. That is especially evident in the academic community. Students across the globe increasingly recognize that divestment – both personal and institutional – is an essential component of the climate protection strategy as it is “immediately actionable”, and can be implemented on a large scale.
“Divestment is a powerful strategy because it’s a lever you can turn that can actually interrupt some of the systemic factors that cause climate change,” argues Emily Williams, a graduate student at the University of California (UC) Santa Barbara who helped launch a successful campaign which eventually forced the university to publicly commit “to divest its $13.4 billion endowment and $70 billion pension from fossil fuel funds”. In Williams’ opinion, the success of the campaign was a result of 6 years of activist pressure and faculty support as well as the university administration’s recognition of the shifting economics.
More specifically, the Institute for Energy Economics and Financial Analysis (IEEFA) claims that fossil fuel assets are too volatile, and have limited opportunities for growth. Some leading financial firms have even disclosed that “fossil fuel stocks are underperforming”. In 2021, BlackRock, one of the leading asset management firms in the world, reported that “no investors found significant negative performance from [fossil fuel] divestment, but rather have reported neutral to positive results”. This means that, contrary to popular belief, divestment can be in fact beneficial to business.
One of the most significant wins of the divestment movement was Harvard University’s recent decision to cease investments in fossil fuel firms and to let its current investments in the industry expire. In practice, this decision means divesting $53 billion from fossil fuel firms. This sum is considered as the largest university endowment in the world. This divestment initiative is part of Harvard University’s bigger green ambition: the university has committed to “achieving net-zero greenhouse gas emissions across the entire investment portfolio by 2050”.
While Harvard’s divestment decision has been welcomed by many, it has also led to an institutional backlash. The American Legislative Exchange Council (ALEC), a non-profit organization that assists state legislators in developing right-wing policy, has been working on bills that protect fossil fuel investments, which in practice would make divestments like Harvard’s illegal. The bills in essence prohibit the ‘discrimination’ of fossil fuel firms by forcing the withdrawal of government funds from organizations which boycott investment in fossil fuel firms. If the bills gain enough support in Congress, they will hinder the fight against climate change.
Such anti-divestment initiatives have caused a lot of controversy. Werner Antweiler, an environmental economist at the University of British Columbia, is critical of the rationale behind questioning the need for divestment: “We are in a climate crisis and what is needed is strong government action – effective carbon pricing. Our countries need to make a transition to net-zero emissions, and this requires investment into clean energy, improving our electricity grids, and transitioning to electric mobility. The problem is not about punishing fossil fuel companies, but about driving investment into everything that helps us make a transition to carbon-free energy.”
Read The Rise of Divestment (Part II).
References: grist.org | Ray Levy Uyeda, yesmagazine.org | Nitish Pahwa, slate.com | theguardian.com | Kristen Pope, yaleclimateconnections.org