$1trn investment needed a year in clean energy
$2bn divested from fossil fuels by 17 trusts in Jan
If you are a keen investor or follow financial or environmental news you may well have heard the phrase “divestment”. But what does it really mean and more importantly, how does it affect you?
What does it mean?
Divestment in its broadest sense just means the opposite of investing – ie. pulling your money out of something rather than putting it in. But in recent months, and depending on who you speak to, it has come to mean divesting from fossil fuels.
It is a term you can’t afford to ignore. Norway’s sovereign wealth fund, the biggest of its kind in the world, is considering pulling all of its $820 billion (£490 billion) out of fossil fuels as we speak – a pretty colossal decision for a country that was made rich through its proximity to oil.
There are precedents. Back in January this year, 17 of the world’s largest foundation funds pulled $2 billion out of fossil fuels shares and pledged to reinvest their money into clean energy.
The foundations, including huge funds such as the Park Foundation and the Joseph Rowntree Charitable Trust, were taking heed of the warning of the impact on investors of a potential “carbon bubble“. Some market watchers believe that a carbon bubble is forming because too much value has been placed on fossil fuels still underground. Much of the reserves that are being factored into current supply estimates – between 60 and 80 per cent – will be “unburnable” as a result of global policies to restrict carbon dioxide emissions. Consequently these assets will become worthless and billions will potentially be wiped off the share prices of oil and gas companies over night.
The funds decision to pull their capital out of fossil fuel shares was the latest win for the divestment movement.
The fossil-fuel divestment movement has been gathering traction for around 18 months – started by Bill McKibben through his campaign organisation 350.org and gaining momentum following the publication of the Carbon Tracker “Unburnable carbon” report. The latest move by the Divest-Invest Philanthropy coalition has made positive steps towards recognising the threat fossil fuel investments pose to both the environment and their investors. It is also an attempt to rectify the damage by re-investing in clean energy.
Now the question is, how does this affect commercial investors and pensions holders?
Why should I care?
Question 1: Do you have a pension fund? Yes, probably. Question 2: Do you know what your pension fund manager has invested your money in? No, probably not.
It is commonplace for pensions fund managers not to openly publicise exactly what your money is invested in and where it is making its returns. For as long as your money is doing its job and earning interest what does it matter, right? Wrong. Studies show that the UK public is increasingly becoming concerned about how ethical their investments are. This combined with heightening public concern over climate change means that it is looking more and more likely that, given the choice, the British public would rather have their pensions and long-term investments placed in clean energy shares than gas and oil.
But the “choice” is the sticking point here. Because really, there isn’t very much.
Powerful multimillion pound funds have funnelled massive amounts of public investment into fossil-fuel companies’ shares, which could now potentially cost them – and you – dearly.
Last month Christina Figueres the UN Climate Chief said that a global investment in clean technology of $1 trillion each year was needed in order to avoid irreversible global warming.
Much of that can be raised through divestment and re-investment from large funds. But it may take more than grave warnings about the climate to push fund managers into action and there is something you can do.
How do I do it?
What many people don’t know is that divestment is not just something that can be done by multimillion pound funds, trusts, foundations and venture capitalists. You can change the world through the power of investing no matter what the size of your piggy bank.
Taking control of where your money is invested all begins with research. Knowing what your money is being invested in is half the battle when it comes to taking conscious steps towards divesting from fossil fuels. The most effective way of doing this is by speaking to your bank or IFA directly to find out which shares are benefiting from your pension savings. Regardless of whether you currently have a pension or an investment portfolio, finding ethical funds and investments can be easily done with environmentally and ethically transparent funds such as being listed online.
However, the most effective way to fight climate change though investment is to make pension providers increase the amount of money that they invest in renewables by raising awareness of the need to divest from fossil fuels. There are a number of high-profile divestment campaigns globally such as 350.org and Go Fossil Free which track divestment campaigns and even allow members to start their own and create their own petitions.
In the last week American students have been given a platform to raise the profile of divestment in the global media as they protested their tuition fees being ploughed into fossil fuels. From all observations it seems that the divestment campaign could be forcing funds managers to rethink their position on fossil fuels and although there is still a long way to go, it’s not too late to take control of your investments, no matter how big or small and work towards a cleaner, more economically stable future.
