Above Photo: Georgetown Voice/Flickr
Since its launch by students as a moral call to climate action in 2011, the fossil fuel divestment campaign has become a mainstream financial movement mobilizing trillions of dollars in support of the clean energy transition. Commitments to divest continue to grow rapidly: Today, nearly 1,000 institutional investors with $6.24 trillion in assets have committed to divest from fossil fuels, up from $52 billion four years ago—an increase of 11,900 percent.
The primary drivers of this recent growth are insurers, pension funds, and sovereign wealth funds. The insurance sector continues to divest more than any other sector, having committed to divest over $3 trillion in assets. Sovereign wealth funds and pension funds are also divesting: Ireland, which has an €8.9 billion ($10.4 billion) sovereign development fund, became the world’s first country to commit to divest its wealth fund from fossil fuels. In 2018, New York City became the largest city in the world to date to commit to divest.
Mission-driven institutions also continue to divest in large numbers, with significant new commitments from the health, faith, philanthropic, and university sectors. On the health front, doctors have become increasingly concerned about the public health impacts of climate, motivating them to align their investments with their mission. Meanwhile, faith-based organizations are divesting in higher numbers, with an additional 138 institutions committing since 2016.
While divestment was once viewed as an alternative to shareholder engagement with the fossil fuel industry, it is now increasingly used as part of a joint strategy. Despite the efforts of shareholders to work with companies to adopt more sustainable business practices, there is little evidence that the largest oil and gas companies have changed their practices to be consistent with the Paris Agreement goal to keep temperature rise well-below 2°C. This convergence of engage and divest strategies, in which divestment is used as leverage for shareholder demands, is an important new development. The growing success of this movement has accelerated in recent years because of the intersection of ethical, financial, and fiduciary imperatives to divest and invest:
The ethical case to divest continues to be advanced by climate advocates and youth activists who first led the movement and who recognize the urgency of the climate crisis. Their grassroots resistance and mobilizations against fossil fuel projects and pipelines have spread globally and are increasing. New analyses show there is a strong financial case for fossil fuel divestment, and that investors can divest from any sector without jeopardizing their risk/return profiles. In addition, a proliferation of new fossil-free financial products is making it easier for institutions and individuals to divest.
Fiduciary duty is driving large institutional investors to divest in order to manage climate and reputational risk, insulate their assets from growing financial stress in the oil and gas industry, and align with the goals of the UN Paris Climate Agreement. Regulators, including the G20 Financial Stability Board’s Task Force on Climate-Related Financial Disclosures, are now explicit that climate change and the threat of stranded fossil fuel assets pose a significant risk to investor value, and that fiduciaries have a legal duty to manage that risk through divestment and other strategies. In addition, climate litigation is increasing the pressure on fiduciaries to divest, as fossil fuel companies—and fiduciaries themselves—face legal liability and damages in jurisdictions globally.
This growing support for divestment and the broader movement to keep fossil fuels in the ground is now having a negative material impact on the fossil fuel industry. Over the past year, divestment pressure and related “keep it in the ground” campaigns have inspired a number of high-profile decisions by major banks to stop financing new fossil fuel projects, including a commitment from the World Bank Group (WBG) to stop funding oil and gas development. In addition, several major insurers have decided to stop underwriting fossil fuel projects. While not divestment per se, these actions impact the industry by increasing the costs of capital and compliance. These actions also directly reduce fossil fuel emissions by slowing the expansion of the industry.
Along with divesting, investors are increasingly marrying divestment to commitments to invest in climate solutions, reallocating their funds to growth industries in renewable energy, clean tech, energy efficiency, and energy access. Global insurers, faith groups, foundations, and cities are leading this trend.
Taken together, the moral and financial cases for divestment have changed the context in which the fossil fuel industry operates and are advancing the transition to clean energy.