The Responsible Investor’s Guide to Climate Change
Around the world, institutional investors – including pension funds, insurance companies, philanthropic endowments, and universities – are grappling with the question of whether to divest from oil, gas, and coal companies. Divestment is indeed one answer, but so is active shareholder engagement.
NEW YORK – Around the world, institutional investors – including pension funds, insurance companies, philanthropic endowments, and universities – are grappling with the question of whether to divest from oil, gas, and coal companies. The reason, of course, is climate change: unless fossil-fuel consumption is cut sharply – and phased out entirely by around 2070, in favor of zero-carbon energy such as solar power – the world will suffer unacceptable risks from human-induced global warming. How should responsible investors behave in the face of these unprecedented risks?
Divestment is indeed one answer, for several reasons. One is simple self-interest: the fossil-fuel industry will be a bad investment in a world that is shifting decisively to renewables. (Though there will be exceptions; for example, fossil-fuel development in the poorest countries will continue even after cutbacks are demanded in the rich countries, in order to advance poverty reduction.)
Moreover, divestment would help accelerate that shift, by starving the industry of investment capital – or at least raising the cost of capital to firms that are carrying out irresponsible oil, gas, and coal exploration and development, despite the urgent need to cut back. Though no single institutional investor can make a significant difference, hundreds of large investors holding trillions of dollars of assets certainly can.