Wednesday, September 2, 2015

The 17 Foundations Yanking Their Assets From The Fossil Fuel Industry And The Folly Of Divestment

Usually the argument is "Do you have more activist effect being a shareholder or by being seen to not be a shareholder" but that kind of thinking is the equivalent of playing checkers at the kiddie table, see second link below.

Even The Guardian newspaper knows better than to divest (although they call for others to do so). See third link below.

First up, from Inside Philanthropy the headline story:
Can a foundation with a mission to fight climate change do so in good faith when it has millions in assets invested in oil, gas and coal companies? That’s a big question that’s been kicking around the philanthropy world in recent years, and 17 foundations just answered it by committing to divest their trusts from fossil fuel stocks. 
Announced this week, Divest-Invest Philanthropy is an initiative in which foundations with more than $2 billion in combined assets have publicly committed to pulling all investments from fossil fuel companies, and investing at least 5 percent of their funds in clean energy companies. The foundations are joining what’s become known as the Divest Movement, a growing campaign to convince universities, churches, municipalities and now philanthropies that holding investments in fossil fuel companies is immoral and financially unwise. The tactic has been used in the past in opposition to apartheid, genocide and the tobacco industry. College activists and Bill McKibben’s nonprofit have spearheaded the movement, although a limited number of schools have actually agreed to divest. 
Divest-Invest represents a sizable chunk of money, but it also makes a statement, calling out foundations as standing on shaky moral ground. The group doesn’t have any titans such as Ford, Hewlett or MacArthur, but it does have some pretty sizable signatories. The largest is the Park Foundation, the upstate-New York-based funder that supports environmental work, including protecting water supplies from fracking. The foundation boasts a $335 million trust. Social justice funder Wallace Global Fund is also on board with its $155 million endowment. As is the Educational Foundation of America, which leverages its $141 million in assets toward arts, the environment and reproductive health and justice....MORE
And from the Social Science Research Network, August 19, 2015, emphasis mine:

Large divestment campaigns are undertaken in part to depress share prices of firms that investors see as engaged in harmful activities. We show that, if successful, investors who divest earn lower and riskier returns than those that do not, leading them to control a decreasing share of wealth over time. Divestment therefore has only a temporary price impact. Further, we show that, for standard managerial compensation schemes, divestment campaigns actually provide an incentive for executives to increase, not reduce, the harm that they create. Therefore, divestment is both counter-productive in the short run, and self-defeating in the long run. 
Number of Pages in PDF File: 29 
Keywords: Divestment, Exclusionary Investment, Socially Responsible Investment
1 Introduction
On May 6, 2014, Stanford University announced that it would no longer invest funds in coal mining 
firms and would divest its existing holdings. According to university President John Hennessy:
“Stanford has a responsibility as a global citizen to promote sustainability for our
planet...The university’s review has concluded that coal is one of the most carbonintensive
methods of energy generation and that other sources can be readily substituted
for it. Moving away from coal in the investment context is a small, but constructive, step
while work continues, at Stanford and elsewhere, to develop broadly viable sustainable
energy solutions for the future.” 
In part, divestment campaigns like Stanford’s allow groups to credibly signal their displeasure
with a company, industry, or country’s actions, but larger divestment campaigns also aspire to
affect the prices and profitability of offending firms. Most campaigns are too small to have much
effect but, in this paper, we ask what would happen if a divestment campaign were large enough to have a meaningful effect on share prices. Would this yield the benefits that divestment proponents seek? 
We show that large-scale divestment campaigns feature two serious flaws. If divestment is
effective in reducing prices, then the investors willing to purchase the lower-priced shares will earn higher returns. Over time, these amoral investors will see their share of the economy’s assets grow, relative to the share held by moral investors. This means that the price discount due to divestment will shrink over time. Divestment campaigns are inherently self-defeating, in the sense that, even if they are successful at first, this very success will cause them to fail in the long run. 
As noted by Keynes (1923), in the long run, we are all dead. What is the effect of a largescale
divestment campaign in the short run? Some targets of divestment campaigns, like fossil fuel
firms, cannot mitigate the harm that campaigners dislike. For these firms, the short-run effect of
divestment will be just as lousy as the long-run effect. Other targets, like firms employing sweatshop labor, can mitigate the harm, and we ask whether a low share price will cause them to do so.
We show that the answer depends upon how the firm’s manager is compensated. If she is rewarded for high near-term share prices, then a divestment campaign could incent her to satisfy campaigners. 
If she has mostly long-term incentives, however, or if the divestment campaign is small, she will
not adjust her behavior.... 
...MUCH MORE (29 page PDF)

Piketty smiles.

And finally, a repost from April 2015:

The Guardian Newspaper Is Not A Contrary Indicator On Hydrocarbon Divestment Timing
The Guardian has gone into full "Do as I say" mode. 
On Monday FT Alphaville (very) bravely dipped a toe into the muck that is the 2°/stranded asset/divestment argument in the run up to the Paris climate shindig later this year. One of these days I'll get around to the story of how was 2° chosen. And maybe tell the tale of what happened when the pressure groups went to the SEC. 
From FT Alphaville: 
The Guardian as contrarian indicator 
You’ve got to hand it to Alan Rusbridger: he’s a great contrarian indicator. The editor of The Guardian launched his valedictory campaign to demand divestment from fossil fuels with a wrap-around promotion and the paper’s full moral force. 
This was terribly nice of Mr Rusbridger. Investors, he explained, should sell their shares in oil, coal and others digging up nasty carbon-based fuels, because they weren’t really worth as much as everyone thought; they would never be allowed to use all their reserves, because it would cause the end of the world (or serious global warming, anyway). 
The usually left-wing Guardian was going out of its way to help the plutocrats make money, a job usually reserved for us here at the FT. 
By supporting these companies, investors not only continue to fund unsustainable business models that are bound to make climate change worse, but they also risk their financial assets becoming worthless if international agreements on climate change are met. 
Investors should have listened, thanked Mr Rusbridger, and done the exact opposite. It turned out he was a perfect contrarian indicator. He picked a six-year bottom in the US benchmark oil price, West Texas Intermediate. He lit a carbon-based bonfire under crude prices: WTI’s now up 30 per cent, the biggest rally over such a short period since 2009 (and before that, 2002)....MUCH MORE 

As it turns out, The  Guardian itself has not divested any hydrocarbons from its pension plans and has in all probability been adding to the position (as a function of re-balancing). Here's a Guardian podcast transcript via MyTranscriptBox:... 
...People: Alex Breuer: Creative Director, the Guardian
Aleks Krotoski: Broadcaster, presenter of Guardian podcast Tech Weekly
Bill McKibben: Environmentalist, author and journalist
Amanda Michel: Open editor, the Guardian US
James Randerson: Assistant national news edior, the Guardian
Alan Rusbridger: Editor-in-chief, the Guardian
Adam Vaughan: Editor, the Guardian environment site 
"...Amanda Michel: You know, there are big questions about asking people to do something that we ourselves have not done.  
Aleks Krotoski: What Amanda is talking about is sorting out the Guardian's own pots of money, their investments.  
Amanda Michel: It will seem like hypocrisy.  
Alan Rusbridger: We have about £600 million invested at the moment, and I don't think our fund managers could say exactly how much was invested in fossil fuel. But it is there, we haven't said that it shouldn't be, so we have got money invested. And so, if we're going to be calling on people to divest, people are bound to ask "Well, is that what the Guardian's going to do?"..." 
The above is good for a tee-hee but that's about all. 
Whether or not any of this makes any difference to the earth is the question, and the question that should be asked to separate out actions that will actually make a difference from those that are just posturing is: 
"How much will this policy prescription lower the temperature of the planet?" 
In degrees, please.