Responsible Investment News

Why divest from fossil fuels?

The ‘boycott and divest’ campaign aimed at the fossil fuel industry has hit the headlines in recent weeks. Prime Minister Scott Morrison has threatened to ban ‘secondary boycotts’ aimed at companies that service the fossil fuel sector. Two influential voices in the investment sector have also spoken out against fossil fuel divestment. Billionaire philanthropist Bill Gates and Hostplus chief investment officer Sam Sicilia have respectively described the international divestment movement as having “zero” impact and being “weak”. Neither of them are climate change deniers – in fact, both are keenly aware of the perilous state of the climate emergency. But their argument about divestment is a trivial one. Small-scale divestment might only result in shares changing hands, but if there are enough sellers there will inevitably be a financial impact in the form of a lower share price and a higher cost of capital.

That said, the debate about the short-term impact of divestment misses the point. It is hugely important to understand why the shares are changing hands. The current fossil fuel divestment campaign, which has to date secured US$11 trillion worth of divestment commitments including €300 million from the entire government of Ireland, echoes a similar campaign against the South African apartheid regime in the 1980s. The anti-apartheid movement called upon US colleges and universities to divest from South African companies as well as any company with South African interests. The campaign reached its peak in August 1988 when 155 institutions had agreed to divest. This movement, along with international sanctions and consumer boycotts, is credited with hastening the end of apartheid in 1991. The widespread television coverage generated by the ‘divest and boycott’ movement played a pivotal role in generating the critical mass needed to abolish the apartheid legislation. The investors who refused to support the apartheid regime with their capital were effectively denying a social licence to companies benefiting from institutionalised racism.

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