June 16th 2015
Organisations such as 350.org have sprung up because of failures by governments to take sufficiently strong or urgent action on climate change. A key strategy of 350.org has been to advocate fossil fuel divestment. We are encouraging governments, superannuation funds, companies, foundations, religious groups, non-profit organisations and individuals to eliminate their investments in fossil fuels. Our goal is to stigmatise fossil fuels as an unethical investment – unethical especially in the intergenerational sense, as the continued burning of such fuels will have dire consequences for the 4 million Australians that are currently under the age of 15.
Some people ask whether divestment will actually be effective, or whether it is merely symbolic. It should be remembered that psychology plays an important role in economic outcomes – witness the importance attached to consumer and investor confidence. A report by Oxford University has said that a divestment campaign can cause other investors to question the future cash flows and share values of the target companies, and that it is this indirect impact which is of most significance.
Recent divestment developments
The global divestment movement has gained significant traction in the past two years. More than 180 institutions holding over $50 billion in assets have so far made a public commitment to divest (source: The Carbon Underground 2015 edition).
Many major universities have announced divestment actions in the past 18 months. They include Stanford University, Glasgow University and (with partial divestment) Oxford University.
Other divestment actions have been taken by faith groups such as the Uniting Church and the Church of England, foundations such as the Rockefeller Brothers Fund, and local governments such as Marrickville (NSW), Fremantle (WA) and Moreland (Vic) city councils.
In June 2015 the Norwegian Parliament voted to order the country’s Pension Fund, the world’s largest sovereign wealth fund with assets of over A$1000 billion, to divest from all companies that generate more than 30% of their revenues from coal-related activities.
In March 2015 the Guardian Media Group announced that it will divest from fossil fuels, and wrote an opinion piece entitled The argument for divesting from fossil fuels is becoming overwhelming. It called on two major foundations, the Bill & Melinda Gates Foundation, and the Wellcome Trust, to do likewise.
In June 2015 the Royal Australasian College of Physicians announced that it will divest all companies “directly and materially involved in fossil fuel activities” from its $90 million investment portfolio. The College took this action in recognition of the threat to future health outcomes posed by climate change.
In June 2015 the multinational insurance and financial services company AXA, headquartered in France, announced that it would remove about A$400 million of coal investments from its portfolio, and would treble its investments in green technologies and services.
In June 2015 Sir Mark Moody-Stuart, former chairman of both Royal Dutch Shell and Anglo American PLC, said that divestment from fossil fuel companies is “a rational response to the distressing lack of progress on climate change”.
The financial risks of not divesting
Far from being risky, divestment is now increasingly seen as a sound business strategy because of the increasing risk of “stranded assets”. For example, in April 2014 the leading European broking house, Kepler Chevreux, issued a report which concluded that the global fossil fuel industry faces potential write-downs of over A$30 trillion over the next two decades if the world takes action to address climate change and moves to decarbonise the global energy system.
At a conference held in March 2015, the Bank of England expressed concern about significant risks of stranded assets in fossil fuel investments. A similar warning came from HSBC, the multinational banking company, in April 2015.
And in May 2015 the Bank of America announced that it would be reducing its exposure to the coal sector and stated that coal mining companies pose an increasingly risky investment, and that the Bank would increase its investment in the renewable energy sector.
The situation in the ACT
What about the situation in Canberra? 350.org strongly supports the enlightened climate policies of the ACT Government, including its strong emissions reduction target, its strong renewable energy target, and its awareness of the need to reduce emissions in the transport sector. But we are concerned about its fossil fuel investments.
We have been analysing the reports which the ACT Government releases every quarter on its equity investments. The majority of these investments (representing more than $3 billion) are in the Superannuation Provision Account which meets the ACT Government’s future obligations for employees that were in the former CSS and PSS schemes.
We routinely compare that list of shareholdings with the Carbon Underground 200 list of the world’s largest fossil fuel companies. What have we found?
Currently the ACT Government invests in 18 of the world’s top 100 coal companies, the largest being Anglo American (rank = 5), BHP Billiton (6) and Glencore (11). The ACT Government also invests in 50 of the world’s top 100 oil and gas companies, including Exxon Mobil (rank = 4), Total (11), ConocoPhillips (12), Statoil (16) and Occidental Petroleum (19). It also holds shares in Whitehaven Coal (owner and builder of the Maules Creek Coal Mine) and Santos (notable for its coal seam gas developments).
An analysis has also shown that the ACT Government invests in 33 companies which are targeted for divestment by the Norway Government Pension Fund.
Last year 350.org Canberra made a submission to the ACT Budget Estimates process. We called on the ACT Government to go further in its disclosure, by revealing the magnitude of its fossil fuel investments, and to undertake research into the risks of those investments. We also called for a review of the Government’s Responsible Investment Policy, in the light of its policy position on climate change.
We cited research (such as the Australia Institute report entitled Climate proofing your investments) showing that divestment from fossil fuels would not harm investment outcomes, and we suggested that there may be significant risks in the opposite direction.
The Estimates Committee recommended that the ACT Government research and publish the financial risks of its fossil fuel investments including modelling of what the ACT’s potential investments output could be post-divestment. In its response the Government only “noted” the recommendation.
350.org Canberra also developed an Open Letter to Treasurer Andrew Barr. The Letter called on him to freeze these investments and then develop a responsible plan to divest over the medium term. The Open Letter was presented in September 2014. Over 20 local organisations endorsed the Letter, including unions (CPSU, United Voice, AEU, NTEU, United Firefighters Union), the Public Health Association, the Conservation Council, the Australian Solar Council, the Quakers and others.
We think it makes sense for the ACT Government to make its investment policy congruent with its climate change policy. And we believe that there are no significant risks in terms of reduced financial outcomes. Surely if the Rockefeller Brothers Fund can divest from fossil fuels and describe it as “astute business”, the ACT Government can do likewise.
By Warwick Cathro