A lesson in practical divestment
Against carbon, for… what?
16th Jan 2015 by Chris Hopkins GEC
Towards the end of 2014, carbon divestment enjoyed substantial global attention on the back of several high profile campaigns, the September UN climate summit, and IPCC confirmation of the imminent need to cut carbon to stay below 2°C warming.
The Rockefeller Brothers Fund grabbed headlines when it positioned itself as the capstone of a $50 billion fossil fuel divestment pledge by 800 global investors just before the UN climate conference. But the question remains: how exactly does an investor go about purging carbon from their portfolio?
The Oregon Environmental Council (OEC) faced exactly that challenge when they realised that the group’s investment portfolio included mutual funds backing big oil firms.
As a firm at the forefront of pushing strong climate action in their home state, hypocrisy in their global financial portfolio was not a price they were willing to pay for an easy investment life.
OEC’s executive director, Andrea Durbin, embarked on a quest to divest the firm’s $700,000 endowment fund from fossil fuels and other industries in conflict with OEC’s mission.
Pursuing divestment was initially tough for a, relatively, small organisation like OEC as the financial community still feels that divesting from fossil fuel companies involves compromising either an investor’s risk profile, or their likely returns.
“It took us a little while to find someone to work with who understood what we were trying to do and could take the outcome we wanted to achieve and still make sure we have a financially sound organisational portfolio,” says Durbin.
In the end they appointed Segue Point, a consultancy focusing on socially and environmentally responsible investing, and UBS Financial Services to help identify the ‘core values’ the organisation would be willing to support via investments.
From here they used “negative screening” to exclude companies and industries incompatible with OEC’s values, and supplemented this via a “best-in-class” approach, which scores the remaining companies’ policies and performance against OEC’s investment priorities, including transparency, climate action, respect for human rights, and many others.
By using a tool called ‘ENSOGO Analytics’, OEC were able to even score the large mutual funds against their sustainability criteria, finally cracking one of the most difficult parts of complete fossil-fuel divestment.
“[ENSOGO] allows you to look under the hood of things in a way that’s never been possible before,” says UBS’ John Wrenn. “So you can tell whether there’s nuclear, guns, drugs, or anything in there that you object to or don’t want in the portfolio.”
Interestingly, in the end OEC’s portfolio wasn’t completely devoid of fossil fuels; but this was by choice. 20% of the endowment was left as a shareholder activist fund managed by Trillium Investments.
Trillium intentionally buys up shares of corporations it wants to influence, such as fossil fuel companies, and then use this as leverage to bring about positive change.
This highlights one of the potentially negative side-effects of a full fossil-fuel divestment campaign: losing internal influence with the very same industries that need to be influenced to change. Many versions of this argument are often deployed by those seeking to resist any pressures to divest.
OEC’s hybrid approach, divesting in the most part and retaining a small ‘dirty’ portion with the explicit aim of influencing management, offers a model which can use both approaches. Hit polluters in the pocket, and in the boardroom.
As carbon divestment moves into the mainstream, its advocates will have to be clear on how firms should to balance these two approaches. An attitude of ‘only full divestment will do’ may end up being less effective than OEC’s broader approach.
Chris Hopkins, Green Economy Coalition
This article is based in part on this post from the grist.org website.