Should we campaign for reinvestment?

Wind Farm
Oxford divestment rally

The worldwide divestment movement is focused on removing fossil fuels from institutional portfolios and spurring governmental action. This march was in Oxford, England, last May.

Divestment from fossil fuels sends a clear message: if we support coal, oil, and gas companies in any way, we are contributing to the destruction of the habitable environment. When our money — or the money of our institutions, like CalPERS or the University of California — is invested in those companies, our contribution to climate chaos is immediate and direct.

If we envision the sustainable energy future we would like to see, it does not run on fossil fuels, injecting carbon dioxide into the Earth’s already heavy atmospheric blanket. It runs instead on clean, renewable energy. Therefore, it seems obvious that any divestment campaign should be accompanied by a reinvestment campaign: take the money from oil companies and invest it in solar- and wind-energy companies, for example.

Reinvestment is ineffective

But Carlos Davidson and Cynthia Kaufman disagree. In an incisive article at Truthout, they argue that reinvestment is not a good strategy:

The goal of divestment is to change government policy. By divesting, we are stigmatizing the fossil fuel industry, and thereby weakening its ability to influence our political system and block needed climate legislation. The aims of the fossil fuel divestment movement, like the anti-apartheid, tobacco and other divestment movements before it, are to raise awareness, stigmatize a powerful political opponent and win changes in government policy…. For the fossil fuel divestment movement to focus on reinvestment is a mistake.

Davidson and Kaufman agree that renewable energy is desirable, even essential. But since governmental leverage is so much greater than economic leverage, we should keep our efforts focused on politics. Emphasizing economics, they write, is less likely to achieve real change: “Reinvestment is an ineffective way to get money to important projects that will move us towards a socially just and green economy.” But changing government policy “offers the possibility of change at the scale that is needed to address climate change and build a more just economy.”

Government action is essential

Davidson, professor of environmental studies at San Francisco State University, and Kaufman, director of the Institute for Civic and Community Engagement at De Anza College, are climate activists. They helped lead successful divestment campaigns at their campuses. But they avoid calling for green reinvestment, since it is often used as an excuse to short-circuit divestment:

Recently, the University of California and the California State Teachers Retirement Systems, both under pressure to divest from fossil fuels, decided that instead of divesting, they would invest in clean energy. Calls for reinvestment by divestment activists give legitimacy to these decisions, and by focusing on money rather than politics undermine the rationale for divestment.

There is certainly an economic rationale for divestment, as there is for reinvestment. But action by government affects much larger sums of money, both as direct funding and as “regulation that can direct private capital investment.” Davidson and Kaufman run the numbers:

Even if half of all universities divested, that would result in a one-time pot of less than 12 billion dollars potentially available for reinvestment. The city of San Francisco alone needs 10 billion dollars over the next five years for transportation infrastructure. The federal stimulus package in 2008 had 39 billion dollars for clean energy.

Opponents see only economics

Opponents of divestment who see the issue through a purely economic lens doubt that the fossil free movement’s activities will make any difference. UCLA finance professor Ivo Welch, for example, concludes that South Africa sanctions hardly affected the financial markets. And Jonathan Naimon of Light Green Advisors minimizes the financial effect of divestment, saying, “The idea that shaming an industry will somehow reduce greenhouse gas emissions is not correct.” Both fail to understand that the goal is not to bankrupt Chevron, but to generate social disapproval that leads to consequential governmental action. That is, in fact, what happened as a result of South Africa divestment, and Welch does admit it “may have been effective in raising the public moral standards or public awareness.”

Of course, we would all be happy to see Chevron and ExxonMobil change their business model, shed their fossil fuel operations, and transform themselves into renewable energy companies — what might be called reinvestment through reinvention. That seems to be the vain hope of investors who rely on shareholder engagement. But it is highly unlikely — Bill McKibben calls it “nuts” — to think they will abandon their current business model. ExxonMobil CEO Rex Tillerson denies that his company needs to do anything more about climate change than adapt at the margins. He claims: “It’s an engineering problem and there will be an engineering solution.”

Some companies are slightly less inflexible. Yesterday Shell Oil management expressed support for a shareholder intiative that calls for the company to test whether its business model is compatible with limiting global warming to 2°C. Executive vice president J. J. Traynor said, “We look forward to implementing the resolution should it be passed.” But the resolution appears to have few teeth, and the company also announced that same day that it planned to resume drilling in the Arctic. In other words, thus far Shell has not changed its business model at all.

Faced with the political power of fossil fuel companies and the relative ineffectiveness of reinvestment, Davidson and Kaufman point to the power of divestment as a tool to mobilize political action. Read their whole essay. It’s inspiring.

Photo: Flickr/Hugh Warwick, 350.org, some rights reserved

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