{"id":5495,"date":"2021-04-05T06:15:46","date_gmt":"2021-04-05T06:15:46","guid":{"rendered":"https:\/\/euromenaenergy.com\/?p=5495"},"modified":"2021-04-05T06:15:46","modified_gmt":"2021-04-05T06:15:46","slug":"the-powerful-new-financial-argument-for-fossil-fuel-divestment","status":"publish","type":"post","link":"https:\/\/emimer.com\/?p=5495","title":{"rendered":"The Powerful New Financial Argument for Fossil-Fuel Divestment"},"content":{"rendered":"

In a few months, a small British financial think tank will mark the tenth anniversary of the publication of a landmark\u00a0research report\u00a0that helped launch the global fossil-fuel-divestment movement. As that celebration takes place, another seminal\u00a0report\u2014this one obtained under the Freedom of Information Act from the world\u2019s largest investment house\u2014closes the loop on one of the key arguments of that decade-long fight. It definitively shows that the firms that joined that divestment effort have profited not only morally but also financially.<\/p>\n

The original report, from the London-based Carbon Tracker Initiative, found something stark: the world\u2019s fossil-fuel companies had five times more carbon in their reserves than scientists thought we could burn and stay within any sane temperature target. The numbers meant that, if those companies carried out their business plans, the planet would overheat. At the time, I discussed the report with Naomi Klein, who, like me, had been a college student when divestment campaigns helped undercut corporate support for apartheid, and to us this seemed a similar fight; indeed, efforts were already under way at a few scattered places like Swarthmore College, in Pennsylvania. In July, 2012, I published an\u00a0article\u00a0in\u00a0Rolling Stone<\/em>\u00a0calling for a broader, large-scale campaign, and, over the next few years, helped organize\u00a0roadshows\u00a0here and abroad. Today, portfolios and endowments have committed to divest nearly fifteen trillion dollars; the most recent converts, the University of Michigan and Amherst College, made the pledge in the last week.<\/p>\n

No one really pushed back against the core idea behind the campaign\u2014the numbers were clear\u2014but two reasonable questions were asked. One was, would divestment achieve tangible results? The idea was that, at the least, it would tarnish the fossil-fuel industry, and would, eventually, help constrain its ability to raise investment money. That\u2019s been borne out over time: as the stock picker Jim Cramer\u00a0put it<\/a>\u00a0on CNBC a year ago, \u201cI\u2019m done with fossil fuels.\u00a0.\u00a0.\u00a0. They\u2019re just done.\u201d He continued, \u201cYou\u2019re seeing divestiture by a lot of different funds. It\u2019s going to be a parade. It\u2019s going to be a parade that says, \u2018Look, these are tobacco, and we\u2019re not going to own them.\u2019\u00a0\u201d<\/p>\n

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The second question was: Would investors lose money? Early proponents such as the investor Tom Steyer argued that, because fossil fuel threatened the planet, it would come under increased regulatory pressure, even as a new generation of engineers would be devising ways to provide cleaner and cheaper energy using wind and sun and batteries. The fossil-fuel industry fought back\u2014the Independent Petroleum Association of America, for instance, set up a\u00a0Web site\u00a0crowded with research papers from a few academics arguing that divestment would be a costly financial mistake. One report claimed that \u201cthe loss from divestment is due to the simple fact that a divested portfolio is suboptimally diversified, as it excludes one of the most important sectors of the economy.\u201d<\/p>\n

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As the decade wore on, and more investors took the divestment plunge, that argument faltered: the philanthropic Rockefeller Brothers Fund said\u00a0that divestment had not adversely affected their returns, and the investment-fund guru Jeremy Grantham published data\u00a0showing\u00a0that excluding any single sector of the economy had no real effect on long-term financial returns. But the Rockefeller Brothers and Grantham were active participants in the fight against global warming, so perhaps, the fossil-fuel industry\u00a0suggested, motivated reasoning was influencing their conclusions.<\/div>\n<\/div>\n

The latest findings are making that charge difficult to sustain. For one thing, they come from the research arm of BlackRock, a company that has been under fire from activists for its longtime refusal to do much about climate. (The company\u2019s stance has slowly begun to shift. Last January, Larry Fink, its C.E.O., released a\u00a0letter\u00a0to clients saying that climate risk would lead them to \u201creassess core assumptions about modern finance.\u201d) BlackRock carried out the research over the past year for two major clients, the New York City teachers\u2019 and public employees\u2019 retirement funds, which were considering divestment and wanted to know the financial risk involved. Bernard Tuchman, a retiree in New York City and a member of Divest NY, a nonprofit advocacy group, used public-records requests to obtain BlackRock\u2019s findings from the city late last month. Tuchman then shared them with the Institute for Energy Economics and Financial Analysis, a nonprofit that studies the energy transition.<\/p>\n

In places, BlackRock\u2019s findings are redacted, so as not to show the size of particular holdings, but the conclusions are clear: after examining \u201cdivestment actions by hundreds of funds worldwide,\u201d the BlackRock analysts concluded that the portfolios \u201cexperienced no negative financial impacts from divesting from fossil fuels. In fact, they found evidence of modest improvement in fund return.\u201d The report\u2019s executive summary states that \u201cno investors found negative performance from divestment; rather, neutral to positive results.\u201d In the conclusion to the report, the BlackRock team used a phrase beloved by investors: divested portfolios \u201coutperformed their benchmarks.\u201d<\/p>\n

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In a statement, the investment firm downplayed that language, saying, \u201cBlackRock did not make a recommendation for TRS to divest from fossil fuel reserves. The research was meant to help TRS determine a path forward to meet their stated divestment goals.\u201d But Tom Sanzillo\u2014I.E.E.F.A.\u2019s director of financial analysis, and a former New York State first deputy comptroller who oversaw a hundred-and-fifty-billion-dollar pension fund\u2014said in an interview that BlackRock\u2019s findings were clear. \u201cAny investment fund looking to protect itself against losses from coal, oil, and gas companies now has the largest investment house in the world showing them why, how, and when to protect themselves, the economy, and the planet.\u201d In short, the financial debate about divestment is as settled as the ethical one\u2014you shouldn\u2019t try to profit off the end of the world and, in any event, you won\u2019t.<\/p>\n

These findings will gradually filter out into the world\u2019s markets, doubtless pushing more investors to divest. But its impact will be more immediate if its author\u2014BlackRock\u2014takes its own findings seriously and acts on them. BlackRock handles more money than any firm in the world, mostly in the form of passive investments\u2014it basically buys some of everything on the index. But, given the climate emergency, it would be awfully useful if, over a few years, BlackRock eliminated the big fossil-fuel companies from those indexes, something they could certainly do. And, given its own research findings, doing so would make more money for their clients\u2014the pensioners whose money they invest.<\/p>\n

BlackRock could accomplish even more than that. It is the biggest asset manager on earth, with about eight trillion dollars in its digital vaults. It also leases its Aladdin software system to other big financial organizations; last year, the\u00a0Financial Times<\/em>\u00a0called\u00a0Aladdin the \u201ctechnology hub of modern finance.\u201d BlackRock stopped revealing how much money sat on its system in 2017, when the figure topped twenty trillion dollars. Now, with stock prices soaring, the\u00a0Financial Times<\/em>\u00a0reported that public documents from just a third of Aladdin\u2019s clients show assets topping twenty-one trillion. Casey Harrell, who works with Australia\u2019s Sunrise Project, an N.G.O. that urges asset managers to divest, believes that the BlackRock system likely directs at least twenty-five trillion in assets. \u201cBlackRock\u2019s own research explains the financial rationale for divestment,\u201d Harrell told me. \u201cBlackRock should be bold and proactively offer this as a core piece of its financial advice.\u201d<\/p>\n

What would happen if the world\u2019s largest investment firm issued that advice and its clients followed it? Fifteen trillion dollars plus twenty-five trillion is a lot of money. It\u2019s roughly twice the size of the current U.S. economy. It\u2019s almost half the size of the total world economy. It would show that a report issued by a small London think tank a decade ago had turned the financial world\u2019s view of climate upside down.<\/p>\n

A previous version of this post incorrectly described some aspects of Tuchman\u2019s public-records request.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

In a few months, a small British financial think tank will mark the tenth anniversary of the publication of a landmark\u00a0research report\u00a0that helped launch the global fossil-fuel-divestment movement. As that celebration takes…<\/p>\n","protected":false},"author":1,"featured_media":5499,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[22],"tags":[46,48,57,68,76,77,82,86,87,90,96,99,103,107,109,111,113,137,139,146,148,160,174,183,184,201,202,209,222,230,232,233,244,246,249,256,262,263,267,277,279,280,285,288],"class_list":["post-5495","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-oil-gas","tag-aramco","tag-athens","tag-baroudi","tag-carbon","tag-climate","tag-climate-change","tag-co2","tag-cyprus","tag-decarbonising","tag-democracy","tag-doha","tag-eastmed","tag-egypt","tag-embargo","tag-emissions","tag-energy","tag-energy-peace","tag-gas","tag-gazprom","tag-greece","tag-greenenergy","tag-international-maritime-disputes","tag-lebanon","tag-maritime-boundaries-east-mediterranean","tag-maritime-disputes","tag-offshore","tag-oil","tag-opec","tag-pollution","tag-poverty-alleviation","tag-putin","tag-qatar","tag-rosneft","tag-roudi","tag-russia","tag-saudi","tag-solar","tag-solar-power","tag-straddling-hydrocarbons-reserves","tag-total","tag-trump","tag-turkey","tag-unclos","tag-usa"],"_links":{"self":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts\/5495","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=5495"}],"version-history":[{"count":0,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts\/5495\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/media\/5499"}],"wp:attachment":[{"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=5495"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=5495"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=5495"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}