Divestment vs Engagement: One Just Doesn’t Work

In the fight to keep oil in the ground, pension funds, banks, and other organizations managing large sums are coming under pressure to keep their money away from fossil fuel corporations. But while activists call for divestment from fossil fuel companies, the pension funds and banks seem to favor “engagement” with problematic companies while remaining invested.

The debate between divestment and engagement is raging in California right now. A broad coalition including Fossil Free CA has urged both CalSTRS and CalPERS to divest. But the CalSTRS board voted last week to oppose a state legislature bill that would force the fund to divest from companies that build or finance DAPL. And CalPERS is expected to oppose a slate of bills aimed at divesting the fund from various causes, including DAPL funders and companies that will work on Trump’s proposed border wall.

Representatives from CalPERS told the Sacramento Bee on Tuesday that they worry divestment will hurt pension holders. Claiming that a powerful shareholder has a powerful voice, they say that by remaining invested they can use their heft to influence fossil fuel corporations. CalPERS Chief Operating Investment Officer Wylie Tollette said, “when you divest, you basically take our voice out of the debate.”

But others disagree, claiming that if money talks, taking that money away sends the loudest and clearest message. Furthermore, engagement just isn’t effective every time a company or industry behaves badly. As RL Miller of Climate Hawks Vote put it, engagement “does not work against companies whose business model is planetary destruction.”

This debate isn’t limited to CalPERS and CalSTRS. In Ontario, a teacher’s pension fund worth $175 billion has been under pressure from a group of pension holders for five years. Echoing CalPERS representatives almost exactly, a spokesperson for that fund said “If we sell, we’ve given up our voice.” But as a teacher and pension fund holder, Kim Fry, points out, engagement can only work in sectors where there are better and worse practices. As she puts it, fossil fuels “need to be in the ground, so there’s no better or worse way of burning fossil fuels.”

The same type of argument took place at Harvard University several years ago, when activists and concerned stakeholders called for the university to divest its endowments. University President Drew Faust resisted, claiming that shareholder engagement would be more effective.

During that debate, Bevis Longstreth, former Commissioner of the Securities and Exchange Commission weighed in to say that not only is engagement ineffective, it is actually detrimental to the cause of moving away from fossil fuels:

Engagement with institutional investors like Harvard gives the fossil fuel giants the protective cover they need to stretch out the transition process to renewables for as long as they can. It legitimizes talk over action. In truth, if the engagement crowd didn’t exist, the fossil fuel giants would by now have invented them. (And, in light of the parallels to tobacco and lead, who knows the extent to which they did.)

The bottom line is that engagement can’t force fossil fuel companies out of their destructive practices, but divestment can hit them where it hurts—by affecting their reputation, as well as by removing some of the cash they need to operate.