We should all divest from fossil fuels. If you own stocks or bonds of coal, oil, or gas companies, selling those investments — divesting — is a good idea, for many reasons. That's true whether you hold fossil fuels as an individual investor, a member of a union or pension fund, or a concerned citizen of a municipality or state that owns such investments.
We urge all investors to purge their portfolios of these toxic holdings. Morally, it's the right thing to do. Financially, it's the smart thing to do.
What you can do
Throughout California, there are many active divestment campaigns. You can join us, as we urge pension funds, cities and counties, health organizations, religious groups, universities, and individuals to get rid of fossil fuel investments. 350 Bay Area is active in local and statewide efforts. If you'd like to get involved, a good place to start is Fossil Free California, a statewide organization allied with 350 Bay Area. You can also:
Why divest? For moral reasons
The moral reasons for divestment are clear: the products of fossil fuel companies are harmful to human beings, in fact harmful to our entire ecosphere. Unless we stop injecting carbon dioxide and other heat-trapping gasses into the atmosphere, the global temperature will rise more than 2 degrees Celsius, and much of the Earth will become uninhabitable.
We have known for years that smoking tobacco kills people. Therefore, we do not invest in the companies that produce it. We now know that burning coal, gas, and gas kills people too, and is likely to prove ever more catastrophic in the future. Therefore, we should not invest in the companies that produce them. It is unethical to support those who befoul the commons for their individual benefit. As Bill McKibben sums it up: "If it’s wrong to wreck the climate, then it’s wrong to profit from that wreckage."
Why divest? For financial reasons
In fact, however, current investments in fossil fuels are highly unlikely to produce future profits. If fossil fuel companies are allowed to destroy the climate, they will lose money too. The world of energy production is changing rapidly as clean renewables become cheaper and as the governments of the world rally to save the environment after the historic COP21 agreements last year.
As a result, the financial arguments for divestment are also strong. It is becoming increasingly clear that fossil fuels must remain in the ground, and therefore the value of holdings in oil, gas, and coal companies will continue to plunge. It's a risky business. The logic is this:
- The current valuation of fossil-fuel companies is based, in large part, on the prospective market value of the coal, oil, and gas reserves which they own and plan to sell.
- If catastrophic climate change is to be averted, a large percentage of those reserves (an estimated 70-80%) must remain in the ground, unsold and unburned.
- As the effects of climate change become ever clearer, governments will increasingly implement policies to reduce the burning of fossil fuels, in the form of regulations, carbon taxes, mandatory cap-and-trade regimes, and subsidies for renewable energy. These policies have begun to be implemented worldwide, especially since the COP21 Paris accords.
- As associated costs increase and renewables become less expensive, fossil-fuel supply outstrips demand, and it will become uneconomical to extract the reserves, beginning with the dirtiest and the most expensive. This process is already underway, as coal companies go bankrupt and oil and gas rigs are idled in Alberta, North Dakota, Texas, and elsewhere.
- These unextracted reserves will become stranded assets; valuation of fossil-fuel companies will be reduced; and the carbon bubble will deflate.
- Anyone whose portfolio still includes oil, gas, or coal assets will lose a lot of money.
While the moral reasons for divestment certainly take precedence, many trustees and investment specialists for pension funds have strong financial reservations, an understandable concern that by divesting they may not be fulfilling their fiduciary responsibility to the members of those funds. In fact, the opposite is true: holding on to such toxic investments is an abrogation of their legal fiduciary responsibility. Maintaining fossil fuel holdings is a disservice to the funds and their members, financially as well as morally.