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Fossil fuel divestment has ‘zero’ climate impact, says Bill Gates (ft.com)
348 points by melling 36 days ago | hide | past | web | favorite | 241 comments

Divestment also results in less shareholder oversight of emission heavy companies because environmentally conscious investors are selling their shares to investors with less scruples.

This isn't just theoretical.

According to Fossil Free, asset managers with about 10 trillion under management have committed to divesting.

If you assume 10% of that is tracking something like the S&P 500, then these investors have sold about 80 million shares of Chevron.

In 2018, shareholders introduced a proposal asking Chevron to limit its methane emissions. That proposal failed with 46% of the vote.

80 million shares would have been enough to swing the vote to 54% in favor.

I quit my job a couple of months ago to fix this problem. You can learn more at greengovernance.org or by emailing me at (hn username)@greengovernance.org

(typed this from my phone on a plane but I will add citations later when I get to my computer)

Here are the promised citations:

1. $10 trillion divested: https://gofossilfree.org/divestment/commitments/

2. Chevron's shareholder proposal: https://www.asyousow.org/resolutions/2017/12/31/chevron-corp...

3. Chevron makes up about 1% of the S&P 500. 1% * 10% * $10 trillion = $100 million = 78 million shares of CVX at price during 2018 shareholder meeting

4. If 78 million shares voted YES on proposal instead of NO, vote would have passed with 52% in favor (as opposed to 54% in original post)


Also, for those interested in other arguments against divestment:

1. Economics Nobel Laureate Oliver Hart wrote a paper calling on companies to maximize shareholder "welfare" (including environmental concerns) not just financial value. In this paper he explicitly calls for a fund that uses engagement rather than divestment. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3004794

2. Luigi Zingales (co-author of above paper) calls on UChicago graduates not to divest, but to engage in his 2019 convocation address: https://promarket.org/dear-graduates-heres-what-you-can-do-t...

3. In the New Yorker, philosopher William MacAskill goes into more detail than Bill Gates on why divestment is ineffective: https://www.newyorker.com/business/currency/does-divestment-...

Does this case extend to general advice though - that people should stay invested in fossil fuel companies in order to regulate them a bit? It should follow that if we invest more in fossil fuel extraction we can regulate them more. It seems to confound reasonable expectations of what results from investment.

I think it's important to note that when you buy shares on the secondary market the company doesn't get any capital. You are just trading ownership for cash with the current owners.

There's a somewhat subtle and pervasive assumption that all owners will seek only to maximize returns (or similar) but that notion really needs to go.

Even with that assumption, it doesn't matter if you own shares in fossil fuel companies since all investors are equivalent.

> I think it's important to note that when you buy shares on the secondary market the company doesn't get any capital.

Companies are artificial abstractions. The people who invested in the company before you get money. If you consistently engage in a policy of engagement to deal with bad corporate citizens, you increase the positive financial rewards for earlier investors to use their governance influence to direct firms to bad corporate citizenship. Conversely, divestment does the opposite.

The magnitude of the effect of any one investor doing that is small, but that's the situation with all economic boycotts.

Divestment makes the shares cheaper for less responsible investors, who thank you for the value you let them have for less money.

It might be rather intangible, but I expect there must be a strong tendency for businesses to benefit overall when their shares are bought or kept rather than sold.

It's not as intangible as most people think. Executive compensation very often has bonuses and incentives tied to share price so the incentives don't even have to be business wide, they just have to be set up for the people ultimately in charge.

> There's a somewhat subtle and pervasive assumption that all owners will seek only to maximize returns (or similar) but that notion really needs to go.

I think a slight modification holds, though:

"all owners will seek only to maximize returns across all of their holdings, to themselves"

Chevron causing environmental damage costing me $100 personally outweighs the extra $50 those shortcuts added to my fraction of the company, etc.

And if you include moral/social costs on top of that, then IMO there really isn't anything that the expanded "maximize returns" statement doesn't cover.

Other than actual share rounds and shareholder meetings, the company doesn't actually see any result from investments.

We are also working on this problem.

At yourstake.org, we're trying to help anyone create change by making use of your shareholder rights. We're try to simplify the process to be as easy as an online petition.

You can sync your portfolio just like with other personal finance sites (e.g. Mint.com) and leverage your rights in whatever funds you already have. If you have a 401k, you have rights.

Also happy to talk to you offline about shareholder engagement. There are actually a number of funds that prioritize shareholder engagement -- you can see some rankings at another project I've been involved with: www.realimpacttracker.com.

I'm (patrick) @ yourstake.org

Awesome projects! I'd love to hear your thoughts. I'll shoot you an email tomorrow.

Doesn't this avoid the core point of decarbonising the economy? Rather than getting Chevron to limit emissions, we need them to cease emissions. Which for an oil company means find an entirely new line of business - hopefully something like renewables - or cease to exist. Allow a tiny few to continue for the purposes of creating plastics we can't easily substitute by something else. Yes, that expects and requires far-reaching regulation.

Continuing to exist, and emit, just a bit slower is only delaying climate impact, and by a tiny amount.

Cutting off the supply without shifting demand doesn’t solve the problem though, it aggravates people to vote in populists who will deregulate.

The way I figure if someone buys a gasoline powered car, they've just committed us to 50-100 tons of CO2 emissions. Seems like that is what you want to stop not playing games with fuel taxes.

That seems incredibly low. 1kg of Beef produces ~1ton CO2 equivalent emissions

This is incorrect. Beef takes a ton of food and releases a good bit of greenhouse gases but nowhere near a ton per kg of meat. Here's a study looking at multiple other studies on the CO2 equivalent greenhouse gases per kg of beef. In particular you'll want to look at page 85.


That gives a range from 32.3kg per kg of beef to 15kg per kg of beef.

According to EPA [0]:

> A typical passenger vehicle emits about 4.6 metric tons of carbon dioxide per year.

I guess that's why so many people are urging to buy less beef. [1]

0: https://www.epa.gov/greenvehicles/greenhouse-gas-emissions-t...

1: https://www.theguardian.com/environment/2014/jul/21/giving-u...

Can you provide some sources for this number? Seems high, and first results from a cursory Google search suggest it's between 14 to 60 kg CO2 per 1 kg of beef.

Although beef and other animal ruminants have always been part of the planet's carbon cycle where carbon sources are kept in balance by carbon sinks. What knocks us out of balance is extracting carbon sources (ancient forests) from underground and burning them rapidly within a century-- much faster than any natural carbon sink can absorb.

Yeah our problem isn't just cars, it's basically everything.

Much of the developed world already has deregulating populists - that's half the damn problem. Except populism never lasts, and populist regimes are always incredibly divisive and usually end discredited.

It's what comes next that matters.

It can last over a decade, that’s plenty of time to wreak havoc.

nickserv 35 days ago [flagged]

Agreed. At this point I'm more inclined to follow the "seize their assets and jail their leaders" doctrine rather than a "let them continue to profit" one.

I'd suggest, if you go that route, just revoking their drilling licence. I find it highly unlikely as current governments, with few exceptions, seem hell bent on extracting even more, even if that means using grotesqly environmental destructive practices such as fracking.

Correct, we need to largely regulate these companies out of existence.

What country would ever vote for such a policy? It is immensely impractical. This level of radicalism is how you get right wing populists who will rather happily jail the environmental radicals.

Most of the world continues to rely on fossil fuel for the essentials of life. Change that before throwing execs in jail.

This is moronic. Unless we are going to massively step up building of nuclear plants, you cannot eliminate fossil fuel usage, for transport, for heat, and most of all electricity. Renewables don't cut it.

That would just be suicidal.

It seems like regulating emissions should be the job of a government but not shareholders.

Divestment or investment due to ESG score goals is effective. Internal decisions at F500 oil & gas companies are being made with ESG in mind due to the amount of capital increased scores open up.

Source: work for an oil & gas company

Do you know why Bill Gates would go out and tell it is ineffective?

He simply may not know. If the oil industry shows a willingness to increase these scores, investors could continue to set them higher, causing a death spiral of capital availability. The ESG-centric investor pitch is a private, C-suite affair.

It's basically a sales pitch for his own investments.

He regularly says things that are questionable in this topic and ends with "and the company I'm investing in is the answer".

E.g. his pitch for modular nuclear is basically to talk down renewables.

Username checks out. I'd definitely believe Bill Gates over J Random Ycombinator any day of the week. And he's right, nuclear is the road to go on if you want reduced emissions.

Let's say that it passed. Is Chevron now legally obliged to actually limit their methane emissions, or can they ignore it if they so choose?

Resolutions like this one are non-binding. The real power held by shareholders is to fire directors, so if a company's board doesn't comply with the shareholder resolution the shareholders can vote against the directors at the next annual meeting.

In practice, companies "mostly meet" or "completely met" their commitments in response to shareholder engagement 89% of the time according to a 2015 report by Ceres [0].

[0] https://www.ceres.org/sites/default/files/reports/2017-03/Ce...

Just be honest. It's bullshit. That vote and any vote like it means absolutely nothing. You know it, and anyone with any knowledge of this knows it.

We really really need to stop these fake feel good energy sinks. What you said was at best disingenuous, and at worst just lying.

I want to remove fossil fuels as much as anyone, but I will not do it by tricking people. You should try and work on some ethics.

There are two insanely simple things to end global warming if you live in the US. Stop driving to work and stop eating meat. If only a 30% of the population does that, all this is solved immediately. Pretending resolutions matter simply helps people pretend they can't solve the entire problem with two simple actions

I like most of your message but how do I get to work if I don’t drive and don’t have public transit and live 30 minutes away?

Walk, ride a bike/e-bike/electric scooter, or drive an electric vehicle (to not include the last option is unreasonable IMHO). A Nissan Leaf or Chevy Bolt are options, or a Tesla if you want to splurge.

Walk 20 miles twice a day? Is buying a Tesla for $50,000 really better for the environment than driving my old Volvo that gets 30 mpg? After you take into account all the environmental costs associated with constructing a new vehicle?

Do not live 20 miles from work. With that said, you may have extraordinary circumstances that absolutely require you to live 20 miles from your employment. No problem. Statistically, that would place you in the vast minority of people. As long as the massive majority of people that can very realistically replace their commute with public transit and/or other options do so, the problem is solved immediately. There will always be a small minority of people that have to drive a car to work. We are not talking about that tiny minority of people. As I said, we only need 30% and this problem is solved immediately. I repeat, immediately.

Average American one way commute is 16 miles. 17 million new cars a year sold in the US. Most Americans need a car to get to work.

Shareholder resolutions are generally non-binding (precatory) as was the Chevron case, though it's possible to have binding resolutions depending on the state and the company's bylaws.



Shareholder activism rests on shaky legal ground, which is actively being eroded by the current administration.

Generally speaking, shareholders are not considered legal owners of the companies in which they invest and they have little legal right to influence those companies. Shareholder powers, as enshrined in court decisions, basically come down to the decision to buy/sell the security, and voting for directors.

But even directors have little legal authority to direct the operations of a corporation--that's the job of management. The job of directors is to hire the CEO and provide oversight, which is itself a limited role.

Fundamentally, securitization of the public corporation is not constructed to enable democratic control of corporate operations. Corporations are set up to respond to democratic action (i.e. the collective will of the populace) in two ways: purchase decisions from their customers, and the legal duties placed upon them by governments.

Therefore, IMO public activism is best pointed at boycotts and government policy, to affect the decisions of corporations. EDIT to add: divestment is a form of boycott.

If human society is going to reduce its production of greenhouse gases, clean technologies will have to displace greenhouse-gas-producing technologies in the economy. That takes innovation and investment. I slightly disagree with Gates in that every dollar that is divested from fossil fuel companies has to go somewhere else. Even if it is not specifically redirected at cleaner technologies, money is fungible and it will result in the relative growth of the overall pool of investment that is available for cleaner technologies.

Management in this society needs to be brought to heel

This comes down to the question whether you should do change "from within".

There are probably cases where there's a reasonable case to do such a thing, e.g. if you have an electricity company that has a somewhat balanced mixture of fossil and renewable energy.

However I don't think this is a sensible approach if we talk about pure or almost pure fossil companies. There's no way Chevron can be "part of the solution". It's either these companies disappear or the planet will become uninhabitable, there's no middle ground on that. The idea that they can reform themselve has been a lie the oil industry has been peddling for a while. More than a decade ago BP said that now stands for "Beyond Petroleum". We can see how well that went.

This is a really intresting idea and definitely a big, worthwhile problem.

One thing I'm curious about is how do you expect the economics of a green-fund to work? There's a handful of issues I see with this model:

1. ETFs/trackers are commoditized at the moment and, in a lot of cases, the broad, market-tracking funds are subsidised by more niche products offered by the same provider. 2. From a voting perspective, this only really makes sense at a truly massive scale. Even to get something like 0.1% of each company in S&P500, you need 24 billion AUM - and I doubt a 10bps shareholder can hold much sway, even when actively campaining around AUMs.

So, you need to be really big to have impact (assuming you follow S&P weightings), but you're competing in a highly comoditized space.

I'm sorry if I sound negative, I do hope this works out! I'm really curious to see how you plan on working around the issues I see in the space.

Could you talk a bit more about your company?

We're creating an S&P 500 index fund that aggressively uses shareholder engagement to get companies to reduce emissions through their supply chains.

This seems like a great idea in theory- potentially better than the so-called luxury ETFs that only invest in what the fund manager deems as socially-responsible companies. If your expense ratios are low, and you allow me to have a meaningful say in how I or the fund as a whole votes for better climate outcomes, I would be personally interested.

I'd love see how you guys do it, and will be following your progress.

Exactly! Thanks for the kind words.

I've always wondered, could large ETFs providers propose a few voting profile you could pick from and vote accordingly? Or are they forced to vote the same for all the shares they hold?

I'd love to be able to tell eg vanguard how to vote, currently I'm an indirect shareholder with no voice.

"typed this from my phone on a plane"


They may have lost that vote, but how did it affect the stockprice?

How succesful is the track record of shareholder proposals in general?

I've divested from oil companies, not because I think it will change corporate governance at XOM or BP, but because I like to buy things that I can hold for a decade or three, without thinking too hard about them.

I don't want to spend my time thinking about when, precisely, XOM and BP will have peaked. I'd rather just get rid of them and free up that mental space to concentrate on what's next in the world of energy generation, storage, and transmission.

Sure, that makes a lot of sense, but what companies can you invest in that you wouldn't have to worry about for that long?

For most people that's the wrong question. If you have capital that can be applied to long term resolute ideals you likely don't have to worry about capital in general. We all know fossil fuels have have an expiration date. We can easily state that money invested in building next generation power acquisition, delivery and storage will displace them. But again, you need a stack of chips to play.

This is a good idea, unfortunately when it comes to investment it is not enough for a company to be in the right track. It also needs to dominate the market, which is more difficult. For example, lots of companies were created in the Internet bubble, but only a few survived and came to dominate the market.

I'm pretty unclear on how anyone even thinks divestment works, actually.

When a company sells stock in an IPO, buying stock from them allows them to raise capital, so it seems clear to me that you shouldn't buy stock from a fossil fuel company.

But that's non-investment, not divestment. Divestment is about selling existing stock.

It's true that divestment drives down the stock price. This could mean that if a company has retained stock, it would limit their ability to sell that stock to raise capital in the future. However, if you drive down the stock price, it's just as likely that you'd be allowing the company to buy back its own stock at a bargain price, which could help the company by allowing them to retain greater control. It's not guaranteed that you're hurting the company by driving down the price of their stock--in fact, you may be helping them.

It might be possible to look at the needs of individual companies and divest from those companies to drive down the stock price if and only if you think they will be attempting to sell stock in order to raise capital in the future. But this strategy has risks, and I've also never heard anyone talk about this strategy when talking about divestment.

I think it assumes that large investors aren't really passive, but intervene on behalf of their investments. If you convince someone to divest from X, then they have the luxury of remaining neutral when you propose that X be destroyed.

Exactly, carbon regulation will be a lot easier to pass if the direct impact to peoples' finances is lessened.

But some other investor bought the stock, didn't they?

Perhaps, though most people don't buy stock. If you can get institutional investors to divest, that limits most people's direct exposure.

Do I expect it to necessarily make a big difference (especially in the short term, without becoming a broader movement)? No. I do believe, however, that it's not nothing, and that we need to pursue everything.

There's also a personal aspect - I want nothing to do fossil fuel stocks. I try to limit my emissions in my personal life, so why not exercise that preference in whatever small way I can in my financial life?

We need to pursue _everything_? Your time is surely scarce. Wouldn’t you want to pursue only the most effective things?

Every minute you spend arguing for divestment is a minute you don’t spend arguing for nuclear.

Ok, sure - pardon my use of expressive and imprecise language. I meant that we should pursue everything feasible from among the set potentially helpful or promising actions in as sensible a way as we can (infer a few more sensible qualifiers if you wish). Spending a couple minutes to switch my retirement allocations doesn't affect my ability to advocate for other policies.

What I think we definitely want to avoid is the temptation to see an incomplete or minimally effective action (in the current context) and dismiss it, while we wait for a silver bullet. For example:

"Individual actions aren't going to be enough, we need regulation. I might as well fly instead of drive."

"Your divestment isn't going to make a difference, so don't bother."

Both of those statements contain kernels of truth, but miss the fact that individual actions do have consequences in the aggregate, and cultural change is possible (and is one way to motivate policy change!).

I thing you greatly underestimate the cost of these ineffective actions.

Using non-recyclable paper straws, selling my oil shares to someone else, etc. make me feel like I’ve done my part, and I’ll happily kick back for the rest of the day, week, year. After all, I have the dinner party bragging rights covered.

Buying a letter of salvation from the Church is not the way to kick-start a streak of meaningful good-doing; it’s a way to get off the hook for actually pious things I could do.

That's an intersting hypothesis, but that's all it is. Is there actually science about whether the effect of increased consciousness is cancelled out by corresponding complacency?

Let me offer an alternative, also unsubstantiated hypothesis: it's tempting to use cynicism to reject small actions, and letting the perfect be the enemy of the good ends up harming efforts to make big change.

Also, it seems crazy to me to compare straw choice to institutional disinvestment. The former is a rounding error, while the latter is macroeconomic in scope. I fail to see why it's a bad idea to try and stigmatize carbon capital.

I’m not aware of any “science” on this, it’s gut level for me. Was TFA unconvincing?

If you usually need hard numbers to disprove the effectiveness of treatment, be sure to stay away from homeopaths.

There's no scientifically justified causal basis for homeopathy, and well powered trials investigating it have repeatedly returned null results - that's pretty conclusive evidence against it in my book. In contrast, we have examples of consumer movements which led to regulatory or policy change, with or without the use of social stigma.

I didn't find the article convincing, because I don't think Gates is looking at the right metrics. I agree with him that I don't expect to see carbon impacts to divestment right now, even a little bit. What I expect is that divestment (especially by institutional investors) will lower the barriers to heavy handed regulation in the future, and is a useful additional dimension to get people engaged in the climate fight now. Simply accepting "we all should just give up and not worry that we're invested in fossil fuels via our retirement accounts" is counter-intuitive to me.

Yes but if everyone is vested in fossil fuels nuclear won't happen, don't you see?

The argument made by most economists and Bill Gates is that divestment does not drive down the stock price, unless it is practiced by a overwhelming majority of all investors. The reasoning is that anyone not participating in the divestment scheme will simply bid the share price back up to near the market value.

If divestment did indeed drive down share price, it would succeed in hurting the company. The company would have to issue more shares when raising capital in future. It would also have to issue its employees more shares to remain competitive in compensation.

Is capital raising relevant? When was the last time a fossil fuel company raised capital? How is that the way to hurt a company?

Also, markets price in these sorts of things. If divestment was a real threat, that would already be factored into the price. It is partly why the P/E ratio of BHP is 13.94, whereas it is 75.56 for Amazon.

Lastly, with a lot of money in index funds (~50%), divestment seems close to impossible. Unless index funds specifically were pegged to non-fossil fuel indexes, they will alway be investing in those companies.

This seems likes the investment version of the plastic straws ban: ineffectual at best.

> Also, markets price in these sorts of things.

Markets price in the expected value of them, but since if divestment works, the impact is driven by the funds-available-for-investment weighted aggregate of public opinion, markets can only price it in if they have advance knowledge of both the content and wealth-distribution of future public opinion. Which they obviously don't.

(Even if they did, all this would be saying is "if divestment works, then it not only works but works retrocausally to reduce the stock price even before the decision to divest occurs." Which, whatever it is, isn't an argument against divestment.) If divestment was a real threat, that would already be factored into the price.

> When was the last time a fossil fuel company raised capital?

cough all the time? Fracking projects, refineries, exploratory initiatives, site/rig expansions... through bonds and equity partnerships.

Capital is their life blood for anything new.

Source: I live in an energy state

If I own shares in a retailer and I decide that, say, soda is bad, I can try to use my shareholder rights to talk to them about how prominently they display soda and possibly reducing their shelf real estate for soda.

But what if I own shares of a soda company? What exactly should I do in that case? Try to convince them to exit their primary market and become an entirely different company? Why would I waste my time and energy that way?

It makes absolutely no sense to invest in one kind of company and then insist they become something else. Find another company that is conceptually similar to what you had in mind and invest your time and money in them instead.

Get energy companies to invest in not-coal and not-natural gas, sure, but investing in a petroleum or coal company so you can vote? What exactly do you think you are going to vote for? Suicide?

> Get energy companies to invest in not-coal and not-natural gas, sure

You mean like Exxon Mobil is doing (see https://seekingalpha.com/article/4126346-exxon-mobils-renewa... )?

Or like Chevron is doing? Or BP? All of these companies are in fact investing in not-oil and not-coal and not-natural gas.

Yes, this -

Also, lobbying for change with a direct financial stake in the outcome is inevitably going to be less effective.

Is your organisation really going to argue that it deserves to lose money for holding a bad investment?

Theoretically if 51% of ownership of an oil company wants to seal all oil wells isn't that what the company should do?

certainly they could elect board members who'll hire CEOs to execute that plan.

Then minority’s shareholders will sue because their share value declined and the board’s legal obligation is to pursue shareholder value, not do what the majority owners of company want them to do.

I’m torn on that, but minority’s shareholders have a legitimate expectation their rights should be protected.

> the board’s legal obligation is to pursue shareholder value

No, its not.

> not do what the majority owners of company want them to do.

Actually, the purpose laid out in most corporate charters is, within the law, to do exactly that.

> I’m torn on that, but minority’s shareholders have a legitimate expectation their rights should be protected.

They have a legitimate expectation that their rights should be protected, but the right you are basing this argument on does not exist.

I agree that it's not quite as simple as what he was suggesting but it's also not just majority rule, even if the majority want to screw over the rest of the shareholders. That's old established case law, at least in the US. See Dodge v. Ford Motor Co.


They can largely do whatever they want, so long as there is some rational argument that it's for the benefit of the company. If 51% of shareholders in some fossil fuel giant publicly stated that their only goals were to drive the company out of business and screw over the other 49% of shareholders, that wouldn't fly. However it's totally fine for them to push a radical new investment strategy of "buy high, sell low" and drive the business into the ground that way.

> However, if you drive down the stock price, it's just as likely that you'd be allowing the company to buy back its own stock at a bargain price, which could help the company by allowing them to retain greater control.

Stock buybacks shrink the size of the company. They lose money they could otherwise use to (say) drill for oil, instead returning it to shareholders' hands to deploy in other ways. That sounds like a win for divestment to me.

"Less likely/more painful to raise money" and "more likely/less painful to buy stock back" are two sides of the same coin, both meaning less money invested in the business.

They use the example of South Africa, but that was a very different process. It wasn't just about not investing in South African companies... it was about not buying their goods, too.

Is part of this 'divestment' also about not investing in the purchasers of fossil fuels? Or reducing consumption in any way? It doesn't sound like it.

>They use the example of South Africa, but that was a very different process. It wasn't just about not investing in South African companies... it was about not buying their goods, too.

So boycotting? Not sure what's the point of bundling something that's actually effective (boycotts) with something with questionable effectiveness (divestment).

>I'm pretty unclear on how anyone even thinks divestment works, actually.

Bank/major fund/major anything announces no more coal investment.

If you a early stage/small player that just took the jam out of your doughnut.

>But that's non-investment, not divestment.

Same thing at sector scale.

If anything, shouldn't the green contingent buy more stock in oil companies to try and effect a hostile takeover?

That seems very unlikely to be the most cost-effective use of capital. Exon Mobile has a market capitalization of $309 billion. So figure $200 billion for a hostile takeover --- that's approaching the yearly cost of a Green New Deal plans, and you've only taken out one fossil fuel company.

It would make a great 80's style underdog movie though. Some scrappy kid scrapes together $200B to take over Exxon Mobile.

And the remaining companies would probably swoop in to fill the void, so you’d end up doing nothing.

To do some really grotesque napkin math, there are about 7 major oil companies. On paper then the vast bulk of the liquid + gas fossil fuel market could be taken over and their combined resources diverted entirely towards green in perpetuity for less than a decade of the GND. Will never happen, but an interesting thought experiment maybe.

Divestment pushed South Africa to abolish apartheid.

Yeah, but countries != companies.

Divesting from SA meant smaller tax base, fewer jobs and a fall from international prominence.

Divesting from a company/industry means that the stock price may fall. Assuming that the actual profitability of the company remains unchanged all divesting did was make the stock a better buy.

Why wouldn't SA companies simply become a better buy?

Because people actually stopped buying the products along with not investing in companies. The equivalent with fossil fuel investment would be that people actually stop using fossil fuels, which isn't what happens with divestment.

Possibly -- you sell stock in fossil fuel companies, and reinvest in some other, hopefully more sustainable, company. It's not the divestment part that helps, it is the reinvestment.

Okay, if that's the case, then say "investing in sustainable companies" rather than "divesting from fossil fuel companies" because doing the latter does not imply that you are also doing the former.

And by the same logic I mentioned, you'd still have to be buying the stock from the company itself, not from someone else, to ensure that you're actually helping them. If a company isn't selling their stock, it's not at all clear that buying their stock from someone else helps the company.

> It's true that divestment drives down the stock price.

I find that hard to believe.

Stock prices are set by the profitability of the company. This doesn't change by investors divesting. Only if you manage to get a 100% boycott could that happen, but then it would be insanely profitable to break the boycott and cash in.

To me divestment just looks like a form of shunning. People think some companies are disgusting, and our tribal instincts are to throw them out of the tribe. In 2019, this urge can be satisfied by selling stock, which shows what a flexible, yet primitive, primate species we are :)

> Stock prices are set by the profitability of the company.

No, stock prices are driven by demand. The most dominant factor in determining demand might be profitability for some investors, but it's one of many (stability, risk, ethics are all other factors). Even saying profitability is the dominant factor for stock prices is dubious, since many unprofitable companies have outrageously high stock prices based on speculation of growth.

If demand dropped enough in spite of profitability, it would reduce the stock price.

> Even saying profitability is the dominant factor for stock prices is dubious

Sure I simplified, and you're right that it's more the expected future profitability than the current one that's important.

> If demand dropped enough in spite of profitability, it would reduce the stock price.

Technically true, I guess, but pretty meaningless. To me that's a tautology, boiling down to that if the stock price falls then the stock price falls.

I'm not sure you appreciate the armies of analysts who crunch the numbers for every possible investment, trying to spot under- or overvalued companies and make a profit on their deeper insight.

Even if 95% or 99.9% of investors decline to invest in companies with the right numbers, there will always be a few who will gladly take the free money.

Maybe that's the disconnect here. The "Divest People" think of this as a democracy where you have to sway the majority. But that's not at all how the markets work.

> But that's non-investment, not divestment. Divestment is about selling existing stock.

I'm not sure this distinction makes sense when you're talking about things like sector funds

I think Ha Joon Chang suggested that managers will likely receive reduced bonus, or in extreme cases fear losing their jobs, if their actions lead to drop in share price?

But the managers' actions aren't leading to a drop in share price, it's divestors' actions that are leading to the drop in share price, and this would be obvious with any divestment effort large enough to create an effect.

The managers bear ultimate responsibility for continuing the actions which investors dislike.

But divestors aren't investors any more.

I really find it hard to believe that someone would be fired for doing fossil fuel company things at a fossil fuel company because of divestment.

The threat is that more existing investors might divest.

Some of the fossil fuel companies are putting significant investment into 2nd generation biofuels, I guess because they have the potential to leverage existing infrastructure. But possibly also because they care what divestors think.

But managers can stop doing the thing that leads to divestment (or so the theory goes).

Value of shares is based both on revenues from holding the share and increase in value as growth. If the superannuation and sovereign wealth and trust funds worldwide (Trillion-dollar investment vehicles) stop investing in something it functionally loses 'gold plated' status and cannot be held to be less-speculative (in reality all shares are speculative but there are differences of degree and the holdings in the long term funds indicate "safer" bets in many cases) and so their inherent value becomes more open to question. I believe this would represent a real decline in value, as their risk changed. It would have to be declared on many people's books. It would remove some liquidity from markets, it would represent the kind of alienation of value which happens when a large thing is held for reasons disconnected from its actual profit. Enron.

Has the value of owning tobacco shares not changed, as a result of divestiture? It is possible the dividend payment had to rise, to offset declines in base share value (for instance)

Gates is making a reductionist statement, I think he has possibly forgotten what people do in the face of changes in perception of value. His friend "the sage of Omaha" very much prefers shares which pay dividends and this may be reflected in what he is saying, since he is not by nature a highly speculative investor.

Gates says divestment will not lower carbon emissions. This is very different from saying it will not lower valuation.

Has the reduction in tobacco companies' stock prices materially affected smoking rates? I don't think so.

precursory note: Not an analyst - just read a lot of tobacco industry reports

Over the better part of the last decade, many tobacco stocks are down (BAT, PMI, RT, JT etc,) however most dividends on their common stock are still increasing YoY. Not certain if it's generally above the market average but seems to be more than not.

If you look at long term production rates (sticks shipped) cigarette manufacturing has been dropping YoY for years. But this is because there is a general drop in demand from higher socioeconomic countries generally and as consumers switch to "smokeless" "next-gen" alternatives. My observation is that single sticks are usually sold at a much higher price in those markets (sometimes due to tax and regulation, but mostly due to local market value), whereas they are sold closer to cost of production in lower socioeconomic countries where they target larger volumes per consumer.

It's difficult to paint a picture from the data released in annual reports and market updates around what the transition (sticks -> e-cig consumable units) looks like and is perhaps purposefully obfuscated and will probably remain that way until forced otherwise. As such, relative points of comparison make their day to day activities harder to judge over the last few years but what everyone IS doing is huge amounts of M&A, Research and Capital Expenditure to meet this strategy whilst not raising capital from equity as their share price drops yet maintaining higher dividends. Why? Because they are cash rich.

Much more generally, from a business perspective, what's happening in the tobacco industry is fascinating (and equal parts horrifying depending on your point of view) as these paragons of global supply chain pivot to become consumer electronics companies.

Note, that as a general rule of thumb - large dividends by companies is essentially the company saying "we can not make use of this cash better than you, here - take it". This can be common in "mature" markets where it is hard to justify returns on additional investments in growth. Better to just return the cash generated to shareholders.

I'm less sure. Juul would say that redirecting nicotine addicts to vaping over smoking has probably altered rates of uptake of smoking, and the market backs Juul and vaping which has led big tobacco to diversify and invest.

Oil and Coal ventures who own the underground asset have the choice of converting from gasoline production to feedstock for plastics and pharma and fertilizer, or just leaving it in the ground for future valuation. If they don't get capital raising its more expensive for them to develop new fields. I guess in some sense the de-carbonisation probably doesn't sheet home solely to investment decisions in coal and oil but I doubt its un-connected.

...but that's exactly Gates' point: Invest into alternatives, and if those alternatives turn out to be competitive, affected stocks may fall in price, but more importantly consumption will fall.

Cheaper stock prices just due to divestment will have pretty much zero impact on oil demand. Why should it be any other way?

By divesting, the cost of capital for these firms increases which makes the marginal projects no longer economically feasible. By then putting money into cleantech, like Gates suggests, we reduce the cost of capital for these firms which is obviously a good thing.

His actual quote is that it has probably had zero impact to date which may be true but is largely irrelevant to the proposition that we should divest and increase the cost of capital for these firms.

If prices are based roughly on economic value, then how would divestment by a portion of the market affect capital access? You'd need virtually all capital to have an impact.

Otherwise amoral investors could swoop in and capture the profits.

I could see divestment in early stage funding being more impactful when things are less liquid.

Prices are set by supply and demand. Divestment reduces demand. Probably, the falling prices also increase demand, but fundamentally, if fewer people want something the price should drop.

Does this work in liquid markets though? Demand could obviously drive up price beyond fundamental value in a bubble, or below fundamental value in a panic.

But in the ordinary course of things, we would expect the price of a security to match its value in the long run.

If you are a rational, amoral investor, and you see a security worth $100, you would be prepared to pay up to $100 for it, and to buy it in as large a quantity as you could if it was selling for less. Assuming there is more than one such investor in the market, we would expect them to bid roughly to the expected value of the stock.

I suspect this was the reasoning underlying Mr. Gates' comments. As long as customers buy the oil then the security has value for investors.

There is no 'Fundamental value'. The price is only determined by supply and demand.

Companies are traded with wildly different valuation to profit ratios, perception of stability, speculation of future profit, and even ethics. For example look at TSLA valuation compared to revenue, and compare it to any other car company. Stock prices also go up after governments print money, because banks have spare cash to invest but the economics of an individual company have not changed.

At the end of the day an investor can't calculate fundamental value, there is no agreed formula for it.

>There is no 'Fundamental value'. The price is only determined by supply and demand.

That's a "first order" thinking.

The parent posits that there are forces working (eg. use value or prestige value or fad value) before and beyond "demand" (which is obvious - else what drives demand itself? It's not some magic entity that emerges out of nowhere).

And hence, demand could be driven up beyond a sustainable level (e.g. in the case of the "gold rush", or the "tulip bubble" -accurate or not-), and be corrected when that reaches its breaking point. Or a state or business could also drive up demand artificially in some cases (e.g. buying its own stock covertly).

>At the end of the day an investor can't calculate fundamental value, there is no agreed formula for it.

No, but if they're good, they can and should approximately calculate how different this "fundamental value" is from the traded value, and how sustained is the demand, to calculate the trajectory of a stock, and its rick...

> Does this work in liquid markets though?

Well, I think the idea is to try to the make the market for these stocks less liquid.

And it might work, because the long run you're talking about isn't actually looking too bright due to the technological developments with renewables and electric vehicles. These stocks are not retirement stocks, unless you're retiring in a couple of years.

The point is that it takes near universal coordination to actually hurt liquidity. Otherwise, you're just funneling money to amoral investors.

Further to this: a key point of South African divestment was people didn't buy products from South Africa, or form partnerships with their institutions.

Depending on how liquid a product was, this type of action can have real consequences. Eg:

* boycotting a specific type of industrial product mainly bought in Europe = big impact * Boycotting wheat = small impact, this is easily sold elsewhere * Boycotting sports term = big impact. Often only one league matters

Shared are quite liquid. Likewise, a boycott of a specific oil company would do little to thwart oil use.

Not buying oil itself actually has some impact, by shifting the demand curve.

Or it reduces the stock price of those firms giving better returns to those who are not so morally-driven in their investing decisions.

Not sure I understand. If large-scale divestment of fossil fuel investments lowers their stock prices, how will that give the non-morally-driven investors higher returns?

(Assuming we both agree that "morally-driven" investors will tend to invest in renewables.)

Consider the case of an investor, Alice, willing to invest in fossil fuel stocks, who is currently sitting on $100 cash and looking for a profitable investment.

Last year the fossil fuel company X was trading at $10 / share, largely based on a valuation from discounted cash flows that would be returned to the investor (forecast dividends), giving a net present value of buying and holding the stock of $10 / share assuming that investors require a 10% discount rate when calculating NPV.

Suppose this year there is no change in the fundamentals of the company -- the business is exactly the same -- but nearly all investors are not willing to hold shares in X for moral/ethical reasons, so many former investors have sold, and there is reduced demand to buy.

So now the quoted market price of one share of X is $1 / share, but the fundamental valuation of X based on forecast future dividends is still $10 / share, still using the same discount rate.

Alice can now spend $100 to buy and hold 100 shares in X, which she values as being worth $1000 in net present value due to forecast returns from dividends by holding the stock and never selling it.

Suppose Bob is another investor who is willing to invest in fossil fuel stocks, but had invested his $100 into 10 shares of company X at last year's price of $10 / share. This year the quoted market price of Bob's 10 shares is $10 . Bob will incur a 90% loss in capital if he sells at the current market price. But if he refuses to sell and holds, he will still achieve a fair return from dividends of holding the stock. If Bob has spare cash he can, like Alice, buy additional shares of X at the new low price.

Further tangents:



You should definitely read the take linked by a sibling comment, it's a very good explanation. There's another angle from which to look at it, however, that I tend to prefer. It amounts to the same thing, just a different perspective.

There are basically three ways to make money in the stock market: gambling (attempting to predict what other market participants will do, or other events that affect the market), exploiting liquidity issues (market making / arbitrage / other HFT activity), and value investing (finding investments that should to directly give money back on some time horizon, usually through dividend or stock buyback).

When an external force (like principled noninvestment) forces the stock price down, not much changes for most of these. HFTs will generally find ways to make money either direction that the stock moves. Gamblers can also either make or lose money either way the stock moves, depending on whether they are long or short.

Value investors, however, are the ones who will ultimately end up owning that asset you've just sold. They want this asset because it will give them money down the line; they don't care about the short-term stock price. The share of future dividend or buyback that the asset represents hasn't changed, but the price of that asset has. The asset costs less, but returns the same -- exactly the sort of thing that a value investor wants.

Because investors will be able to own a piece of that company for less. The company hasn't changed, its ability to offer dividends hasn't changed, its longer term prospects haven't changed (due to divestment.)

Really, the only impact this might have is a slight reduction in the ability to those companies to raise capital by selling stock (and I don't think that is incredibly common in the oil industry).

If the lack of investment from certain segments of the population was sustained then the stock will be of lower demand in the long term hurting it's price for investment, if this is really well sustained and consistently done then IPOs for such industries will raise less capital because there is less demand available when initial investors want to cash out.

However, that's really conditional, I think in actuality we're observing a short term fluctuation and eventually investment will resume - in that case you're essentially handing your money to the people you disagree with by taking a loss (or less or a gain) when selling your stock, allowing them to purchase it under value, and then letting them resell the stock once the market has recovered from it's temporary depression.

So divestment would work in theory with good coordination, but I don't think it'll work in practice because humans are terrible.

> if this is really well sustained and consistently done then IPOs for such industries will raise less capital because there is less demand available when initial investors want to cash out.

Would this really have an impact on fossil fuel usage? The companies that drive fossil fuel consumption are established players and it seems like limiting seed funding in their industry would only help these players.

I'm pretty sure that you would have a bigger impact teleconferencing rather than flying around for meetings and investing the money saved on airfare in oil companies.

The solution is not divestment, but investment. Taking your money out of oil companies seems far less effective that putting your money into green companies.

Oh, I agree that other routes are more efficient, but divestment with dedication and co-operation could have an impact.

Also, the amount of coaching and conditions in the post above were an effort to express how utterly futile it is for you to actually effect change through this approach - there are far more effective things to do as an individual or group... And if you've got enough clout to lobby then the best tactic is probably getting the US government to stop subsidizing oil because, honestly, what... why is that something that deserves subsidies.

At some point the price drops low enough for the company to just go private and continue with the same level of CO2 emissions. Unless the income flow from fossil fuel products stops the company will never be forced to shut down.

It's a bit wordy, but the relevant argument is here:

> everything still gets owned by someone. So, clearly the group without such qualms, call them the sinners, have to own more than they otherwise would of the sin stocks. How does a market get anyone, perhaps particularly a sinner, to own more of something? Well it pays them! In this case through a higher expected return on the segment in question.

The article's loose language is confusing. The full analysis has 3 parties: virtuous boycottor investors, vicious (as in vice) investors, which the article incorrectly calls "sinner", and the evil corporation. The conclusion is that the virtuous boycottor investors' weapon is forcing the evil company to pay the vicious investors a premium return, until the corporation is bankrupt, and the vicious investors laugh all the way to the bank while the virtuous investors take pride that their financial sacrifice improved the world.

The specific question being answered was:

> how will that give the non-morally-driven investors higher returns?

Which is why I only quoted the section that applied directly.

The argument doesn't say that "sinful" companies will be forced into bankruptcy, it goes more like this:

1) virtuous boycotting of a company means the stock has to offer higher returns to "sinful" investors so they buy more shares.

2) Higher returns mean that the bar for the expected return of "sinful" capital expenditures by companies will be higher and thus there were be fewer choices by companies to expend capital in "sinful" ways.

I think the second stage of this argument is... weak and conditional. For a company like BP that offers significant dividends, a lower stock price directly correlates to a higher return without costing the company anything. There is only a downside if that company is selling stock to raise capital. Since BP has been buying back stock for years, it seems like this is actually a benefit to BP as well.

It’s a bit more complicated though as oil prices will rise if firms don’t take on projects. This in turn would cause those marginal projects to look a lot better down the road and oil prices for consumers will be a lot higher (which might be a good thing if it lowers fuel usage).

I think this might be happening right now. There isn’t a lot of reserve replacement going on as everyone is focused on cash flow and the capital markets for energy remain closed due to ESG concerns from investors. If so, the prices will rise eventually and new projects will start.

Divesting only (marginally) increases the cost of capital for firms which seek additional financing through secondary stock offerings. That doesn't apply to most oil companies.

I agree with Bill that divestment is probably less impactful than many people think, and certainly not worth all of the effort people go through protesting trying to get Fund X to divest from Objectionable Investment Y.

However I think there are two obvious ways it has > zero impact. Let's take an oil company as an example:

1) If fewer influential investors/funds are invested in oil, there will be fewer people angry if a third party proposes a law or regulation that will hurt oil profits. As said in the article, it makes change easier. 2) The money divested will not go under a mattress. It will be invested in something slightly better (or less worse). Over time this moves money in the right direction.

I don't get your second point- money "divested" is replaced by different money invested - there's no overall change.

Maybe I'm weird. I always thought the purpose of divestment was to stop profiting off of unethical companies, and to eliminate conflicts of interest for value-driven entities such as nonprofits. I'm surprised anyone would treat it as a tool to fight climate change.

Whose voice carries more weight when campaigning to reduce fossil fuel usage: the person who profits off fossil fuels and will suffer as a direct result, or the person who has divested themselves completely?

If you have a moral objection to receiving those funds, then just give them to a charity that might actually help.

The way economics works, if you choose to divest yourself in this way, you are betting against the profitable use of fossil fuels, but you are not influencing it (it will either continue or cease on its own depending on whether it stays profitable). You are simply encouraging someone else (who maybe doesn't care so much about the environment) to "take that bet" and profit off your poor decision.

Choosing not to profit off of fossil fuels may be a 'poor decision' from a financial perspective, but it's a good moral decision. The fact that our financial systems incentivize poor moral behavior makes them poor systems.

Honest question: why is it inherently bad morals to profit from fossil fuels? If you act the same as you would if you weren’t profiting I don’t seem how it changes anything at all.

It seems strange to me to cast everyone with an index fund as morally corrupt.

Fossil fuels are a large contributor to climate change, which is forecast to, and in fact is already causing, great harm.

In order to profit from them you have to have some form of investment in them, which means in a small way you have contributed to the cause of promoting fossil fuel usage.

Exactly how morally corrupt people with an index fund are is a question I'll leave for philosophers.

The problem is if you’re an activist investor you’re not going to buy a bunch of shares and then tell them to stop trashing the environment or else. You might not get support from other investors and your shares would drop.

I’d say Gates is making the more utilitarian or effective altruism argument that besides just “warm and fuzzies” you can look for investment approaches that also have a real world impact.

> However, Mr Gates questioned the divestment movement’s “theory of change”, arguing that investors who want to use their money to promote progress will have better results by funding innovative businesses such as Beyond Meat and Impossible Foods, two alternative protein companies he has backed.

I must be missing something, but isn't that exactly what "divestment" is? You sell off shares in fossil fuels and reinvest the money in other industries which are more climate conscious? It sounds like he's saying people are getting their money back from fossil fuels and hiding it under the mattress.

The article does seem to operate on the premise that they aren't doing this. Until now, I assumed the point was to divest from fossil fuels and reinvest in growth industries: renewables and sustainable production. But maybe they aren't. The article might have a flawed premise, or maybe it's a call to action for organizations that are divesting to invest in the future.

I only skimmed the article, so I don't know if they explored this. At a glance, I see no mention of where the money went after they pulled it out of fossil fuels.

You can both keep existing investments in fossil fuels and invest new funds innovative companies. It isn't any either or proposition.

Moreso, if the fossil fuel investments are profitable, you can use the returns to fund more progressive companies than you would have been able to otherwise.

This has always been my interpretation. I was unaware the idea was to sell C02 heavy companies.

There's an efficient markets reason to believe this. Say you have some estimate of the value of all future earnings of some business, and then a group of people divests and pushes down the share price. The future earnings haven't changed, so this pushes down the P/E ratio and makes the stock that much more attractive to buyers who aren't divesting. It's just not possible for it to have that much price impact.

I can't help but remember: past results do not indicate nor guarantee future returns.

Unless someone can un-convince me of general macro-economics, not investing in fossil fuel companies will lead to depression of the fossil fuel market and incentivize more relatively lucrative opportunities. The companies of the past only had the means of production of the past, the companies of the future have access to non-fossil fuel dependent energy.

I imagine there's enough capital to take over the divested amounts. Warren Buffett has no trouble investing in oil (e.g. the recent Occidental/Andarko merger, he got some juicy preferred shares out of that). And I'm sure he's not alone.

Taxes/limits, we need that on carbon. The economic status quo on the subject is also the most obvious response: pay for the externality you're causing when burning carbon. EU's limits system (cap-n-trade) is already there and has been for many years, can be plugged into a global CO2 emissions market. This should eventually extend to cars, airplanes, ships, steel, concrete, home heating, whatever - even the farting cows.

Either that or solar geoengineering.

Wow, that's absolutely insane that I have to go through half an hour of 'opting out' from different ad networks in order to visit the actual website I was going to in the first place without being tracked.

Thank developers for ad-block technology.

BTW, these opt-out options work by adding unique cookie identifiers to your browser (opt-out tracking is implemented by tracking you?). If you block 3rd-party cookies or ads, it won't work, and you'll need to redo everything if you clear cookies or change browser.

I'd say these "opt-out" options are not gonna work in practice.

Really divestment is something which seems intuitively to be threshold based for its impact. If there is a robust investment pool any leaving will just be auto-filled by those seeking opportunities. However if it gets below a critical mass from enough divestitures they will find new investments hampered and those who are "late to the exit" will find it hard to get value out of it.

>However if it gets below a critical mass from enough divestitures they will find new investments hampered and those who are "late to the exit" will find it hard to get value out of it.

...only if the company actually needs more capital and can't raise it any other way (eg. bonds). If there's any sort of leak, then you're giving the holdouts outsized returns.

What do you mean by the leak? What mechanism would drive outside returns?

>What do you mean by the leak?

non-divesters who are willing to invest or extend credit to the company.

>What mechanism would drive outside returns?

It's been explained by other comments in this thread. Basically divesting worked, it would suppress demand, allowing non-divestors to purchase the company (and thus the future earnings) at a cheaper price.

The company still earns the same amount of income from selling fossil fuel products.

Divestment of fossil fuels will probably end up being good financial advice. German utilities lost value fast when renewables were implemented.

I would put my retirement money in an S&P 500 index fund that excluded fossil fuels.

Well, although this is not financial advice - there does exist an index fund that does just that (SPYX). It holds the S&P 500 less any company which "holds fossil fuel reserves". Still some "fossil fuel" companies in there, but for retail investors with the context of an index fund its probably as close as you're gonna get at least today.

>Divestment of fossil fuels will probably end up being good financial advice. German utilities lost value fast when renewables were implemented.

How do you know whether that's already priced in?

> Those who want to change the world would do better to put their money and energy behind the disruptive technologies that slow carbon emissions and help people adapt to a warming world, Mr Gates told the Financial Times.

You cannot put your money behind the disruptive technologies if your money is tied in fossil assets. You'll have to divest first before you can relocate it elsewhere. You can spend a dollar only once.

The point was that these are separate actions. You can sell the oil shares and do whatever you want with the money - that doesn't change anything. You can use that money to invest in green alternatives - that's what matters.

Investors divesting from fossil fuels sounds a lot like sanctions in that they “don’t work until they work.”[1] It would take an overwhelming number of investors to make divestment really hurt, which is unlikely. And I definitely agree that focusing on supporting climate change impact is better than starving the polluters. But it seems intellectually dishonest to say that divestors are “wasting their time.” And there’s no reason you can’t do both.

1. https://qz.com/1072581/sanctions-dont-work-until-they-do-the...

Wouldn’t it be better to reduce demand? Even just now where supply was literally taken out with missles (or were they drones?) that doesn’t affect how much fossil fuel is used. Why would divestment work any better?

To reduce demand you should either create cheaper ways to store alternative energy or make carbon based fuels more expensive with a carbon tax.

Can’t it be both? Those aren’t mutually exclusive, and in fact are hardly even related in terms of implementation.

And taking out supply to drive up cost of fossil fuel will absolutely have an impact. At least a few people will opt for the fuel economy version of their new car in the next few days after seeing the new sticker price of a gallon of gas.

>Investors divesting from fossil fuels sounds a lot like sanctions in that they “don’t work until they work.”[1]

Sure, but you can say that about any cause. Sounding like something is vague, and thats the larger point from the article. People need to quantify the actual impact of their actions w.r.t. divestment. Whereas, its easier to quantify the impact of other more positive/creative actions (e.g. transitioning from petroleum to clean energy).

>And there’s no reason you can’t do both.

Oh, there are more than two ideas that activists have. There is "no reason" you can't do a third, fourth, fifth, sixth, seventh and more and more. You only have limited resources to expend here - your free time, energy and motivation.

Even if this is true, there’s a moral dimension to what you invest in - do you really feel okay about making money off of fossil fuels?

Indeed I thought this was the entire point of divestment. Not to profit off of unethical activities. I'm surprised anyone would think this would impact climate change.

You divest from something you consider morally problematic so that your other actions are not influenced by a desire to see your morally-questionable investment be more profitable.

I own about as much XOM as I pay for heating oil each year. Is that small enough that I’m not ever so slightly tempted to ask my representative to go easier on oil drilling restrictions? So far, it’s not tempted me. But if 10% of my net worth were in fossil fuel stocks? I might be hesitant to ask for tighter regulation of that industry.

My owning or not owning XOM makes no difference in Exxon’s behavior, but it might in mine.

> The idea is not to starve companies of capital but to remove their “social licence to operate”

Per this description, the basic idea behind divesting seems similar to the concept of creating social stigmas and perhaps even “cancel” culture. I’d argue that this isn’t even very effective as a vehicle for positive change amongst individuals, and seems extremely unlikely to be effective amongst corporations. Honestly, it doesn’t seem like the idea of corporate social responsibility has held up well in the modern era, period.

Basically, think of divesting as an advertisement. Every time a major player does it, the public hears a pro environment message, and leaves thinking climate change is something to act on now, and that green energy is the future. And public perception does have an impact on the future.

Let me emphasize the cynicism of this point. As you said, no individual corporation is going to change here (other than running more advertisements to boost their image), because it’s not like they can stop being a fossil fuel company. There’s no carrot to match the stick.

Isn't this article presenting a false dichotomy? How is divesting from fossil fuels mutually exclusive to putting your money behind "tech that helps cut emissions instead"? In the short term at least, you'll have more money to do exactly that after divesting.

The only rationale I can see for having this mindset is that 1) it is imperative to make money in order to reinvest in better causes, and 2) investing in fossils fuels is the best way to maximize profit.

So where does the dollar to invest in climate innovation come from if you don't take the dollar out of the fossil fuel stock?

What he said was nonsensical and innumerate. Perhaps its because he has effectively infinite money?

His comment don't really hold up even under basic charity. The dollar in fossil fuels is a dollar not in another industry with a better story for the environment.

The rest of us have a limited pile of dollars to decide with.

While the statement is nonsensical and innumerate, I think that Bill Gates was making a different point.

There are trillions of dollars invested somewhere other than in oil and gas extraction, because the investors believe they are getting a better return, or they simply don't have a signal that somewhere else has better potential. When a dollar leaves fossil fuels and the sticker price of ownership decreases, those investors receive a signal about higher potential yields.

The issue is that even Bill and Melinda and the Gates Foundation have a limited pile of cash compared to the effectively infinite money already in oil and gas exploration and extraction and the effectively infinite money haphazardly seeking returns elsewhere regardless of impacts on the planet. That is, the supply of money for those industries is too elastic at the scale of only $100B.

I think that Bill Gates is saying that given their limited pile of cash, they have the most impact creating competitors to current energy intensive industries that demand energy and competitors to fossil fuels as alternative suppliers of energy.

I don't know why the title and the leade repudiate divestiture. Maybe it is an attempt to sound clever, or maybe it is a bias toward hopelessness. I imagine some readers will simply ape the statement in cocktail party situations, which will miss the opportunity of advocating the proactive solutions Gates was talking about, and counterproductively reinforce the fatalistic idea that no one can do anything.

So where does the dollar to invest in climate innovation come from if you don't take the dollar out of the fossil fuel stock?

"Climate innovation" is also going have limited impact on global warming, if by "climate innovation" you mean lower cost power sources like solar or wind.

The problem is that lower-cost clean fuel is not drive hydrocarbons away since pumping already-found oil out of the ground pretty much can't be beaten in price.

The only that can stop CO2 pollution is states using their regulatory power to stop it.

One factor to consider is that pension funds and other funds with social impact would do well to divest if such a regulatory crack-down is to take place.

-- "CO2 pollution" is good way to phrase it too, since other pollution problems aren't handled with the kind of worthless half-measures that CO2/greenhouse-gas problem has been mishandled with.

Imagine a climate innovator that is selling stock worth $1 billion based on expected returns. That stock can be expected to sell for $1 billion, and no more, even if $0.5 billion of that comes from altruistic investors. The altruistic investors can't drive up the price - as long as money from amoral investors is needed, the amoral investors are the price setters, because they won't pay more than what they think the expected returns are worth. They will step aside as the altruistic investors move in. The altruistic investors would do better to just invest for maximum returns and donate money.

Note, I don't act according to this advice: I'm invested in sustainable funds despite my own arguments. But I don't expect this to go very far, so I'm also donating to appropriate causes.

Your argument works well if we are talking about easily quantifiable assets like a wind farm where you can estimate annual returns for the next 20 years.

It falls flat when we are talking about genuine inventions and new technologies, where the greater the investment, the faster it can scaled and the more it can be developed/refined. It is not possible, in such case, to say that a specific opportunity is worth $1 billion, just like, as the point of raising the seed round you can't know what will be the valuation at IPO

Markets are flush with cash and there is a huge amount of spending and growth in "green" energy sources like solar and windmills. Not sure anyone is really without sufficient capital to create green technologies, except perhaps lack of funding for nuclear.

For a start, I can't even understand what is exactly the point of advocating any action against fossil fuel companies. After all, those companies only exist because we, directly or indirectly, buy their products. And we buy their products because they're cheaper than the alternatives, or even irreplaceable.

It's as if everybody were asking the government to take action against the supermarket where we all do our grocery shopping. We could ask the government to impose a heavy tax on our shopping (which we'd have to pay dearly, of course) but no, we want some action to be taken against the company that owns it. What is the purpose?

Another commenter links an article on the Guardian that claims that only 100 companies are responsible for 70% of the global greenhouse gasses emissions. It's as if those companies were producing and consuming the fuel themselves. No, those companies sell fossil fuels to us, we are buying and consuming it.

Am I being extraordinarily naive? Or this thing just doesn't make sense?

The problem is dominated by structural issues and non-market forces. You can live the exact same lifestyle in France and US, and your carbon footprint will be almost 3 times higher in the US.

Your personal buying habits cannot address the fact that energy grid is more carbon intensive from US, I cannot but electricity directly from a nuclear powerplant, UK government gives subsidies to fossil fuel companies, energy policy is politically decided, most of energy market is B2B, meaning you are not even a buyer there, the list goes on and on.

> Your personal buying habits cannot address...

No, of course not. But the end result of any policy to curb fossil fuels consumption will be an increase in their price to the consumers and a shift of the demand to other sources. So why don't activist simply demand more taxes on those fuels, instead of blaming the companies that produce them?

> most of energy market is B2B, meaning you are not even a buyer there

You're a buyer of the products made by companies that use fossil fuels; so yes, in the end you're a buyer too.

Many products could be produced without fossil fuels, but aren't. Like delivery company could get an electric truck. A consumer is powerless

> Many products could be produced without fossil fuels

Sure. But at the same price, at least initially? A delivery company will change its fleet to electric trucks if it costs less. Otherwise, it means that the consumer has to pay the price difference.

For the most part ui ou are right, and that's fine. Boneheaded examples exist, like energy inefficient building in Uk

It’s largely driven by people that don’t want to work within the market, they want to break the market, by starving supply / making it illegal.

This tends to just lead to higher prices, black markets, riots, and right wing populist governments, but what do I know.

The end result of any successful action to curb fossil fuel consumption will be (at least at the beginning) an increase in the price of products depending on them. So why don't people ask directly for more taxes on those products, to drive the demand towards better alternatives?

It seems to me that the people don't want to take their share of responsibility and accept that the they'll have to bear the costs of the solution; and instead crave for some sort of empty vengeance on the companies whose products they keep buying.


In fairness the carbon tax approach might not work so well in practice as people can just vote in populists to repeal it.

A regulatory framework of rising emissions standards ala California has the nanny state downside but is harder to undo (though Trump is giving it a college try).

No where in the above does “let’s just put everyone we don’t like in jail” actually work unless you’re fond of terrorism and civil war..

Divestment also means asking banks and institutions to commit to not investing in new fossil fuel infrastructure, not just selling stock in existing oil and gas companies. Making it more difficult for new fossil fuel infrastructure projects to access capital absolutely has an impact.

He's probably right that there are much more effective ways to focus resources & energy, but you'd have to believe that markets and elasticity don't exist to believe the impact is zero.

If you reduce the pool of investors, the cost of access capital goes up. This means companies that would start a new fossil fuel project will have to give up more money to get investment or loans. Most projects will be unaffected, but this will be the difference between some marginal projects happening and not happening.

This is pretty basic economics, though perhaps Gates has a reason in mind not to believe this will apply.

"put their money and energy behind the disruptive technologies that slow carbon emissions and help people adapt to a warming world?"

Example here is Beyond Meat.

I hear the recommendation a lot to put a high price on CO2, i.e., what creates a lot of CO2 during production gets more expensive. The idea is demanded by the Friday for future movement, or better said by the experts they asked how to solve our climate change problem. I think it would be the right direction.

Fossil fuel divestment is basically subsidy for those who don't care. Divestment causes stock price drop and it increases ROI for those who invest into the company.

It's really "threat that more people will want to divest or remain divested when they would have otherwise invested" that can cause change.

The board answers to the shareholders, and shareholders generally want to be able to sell their shares at a profit. If shareholders start to believe that the market for the shares is going to continuously decline because of some activity the company engages in, that creates an incentive to pressure the company to change behavior.

Rising stock prices is not the only way or even the primary way that companies generate returns for their investors. Many oil companies pay dividends to their stockholders and these can outweigh the gain from increasing stock prices. BP, for example, uses a significant amount of their cashflow to pay dividends and buy back stock. Their current dividend return is ~6% and has varied between ~2% and ~8% over the last 10 years meanwhile their stock price has fluctuated (by a significant amount) in the 30s and hasn't produced any meaningful gains in value for the average "Buy and hold" investor.

Long term holders of BP stock make their money from dividends, not from increases in value in the BP stock. Making that stock cheaper just means that the dividend rate of return goes UP.

It is true that stocks are assigned some value based on expected future dividends, but this only one component of the value of a share, and for any company undergoing a divestment campaign, this will shift.

A publicly traded Ponzi scheme can maintain a 10% yield for 10 years with only an IPO.

I don't think I understand your point. Did I ever claim that expected dividend returns are the only factor in stock price?

> for any company undergoing a divestment campaign, this will shift.

Since you don't specify, I will presume that you are implying that the "shift" would be an decrease in the portion of the value of the stock that is derived from expectations of future resale value. High dividend companies will thus be less susceptible to divestment campaigns as their stock's value is less dependent on that future resale value.

If divestment happens gradually enough, it is potentially feasible for stock buybacks to somewhat compensate. With companies (such as BP) that do both buybacks and dividends (and aren't thus aren't raising capital by selling stocks), the lower stock price directly helps the company buy back more stocks which then reduces the costs of dividends and makes the company financially stronger. As long as enough of their remaining shareholders don't make waves (because they like the idea of a stronger company that will be more likely to continue paying dividends) divestment is actually beneficial to that company.

As I mentioned elsewhere, I think coordinated, contingent and relatively quick divestment has the greatest potential for motivating share holders to demand changes from the company to protect stock price. This sort of control is ONLY possible if you haven't already gradually divested your stock. This sort of shareholder activism does have great potential, but it is rarely done out of concern for morality or society rather than profit.

So it seems to me that if environmental activists want to influence the behavior of oil companies, they would be better served by buying and holding oil company stock and becoming activist investors. (I agree with Bill Gates the best result for the planet is served by taking that money and investing it into green tech companies.)

Note that companies (such as BP) are only as invulnerable to divestment as they are because of they don't need to raise money by selling stocks. In a situation such as South Africa in the 1980s, their need to raise money by selling stocks made the country much more vulnerable to a divestment campaign. (It also helped that South Africa in the 1980 had a GDP of ~250MM after inflation and that is ~1/1000th of BP's current gross revenue)

That's good attempt at reasoning, but it's incorrect.

Oil and gas industry is stable and established industry where the earnings and dividend yield makes the return for the investment. The stock prices are in long term decline. They are not growth stocks. If P/E drops because divestment and earnings stay the same, it will generate extra ROI for investors.

To get you into the same page, consider BP and Royal Dutch Shell

    Company: BP
    dividend yield: 6% (2018),  
    P/E : 14.67, 
    10y stock price : -46%

    Company: Royal Dutch Shell (RDS)
    dividend yield: 6% (2018),  
    P/E : 11.70, 
    10y stock price : -30%
SP500 price index is up 114% during the same period.

So, how about the concern that if we cut fossil fuel to 0% tomorrow (or even in a year or decade), we would have absolutely no way (for decades) to replace it.

We don't have enough alternative (renewable or nuclear or whatever) energy power, we need to build billions of electric cars (if we are to replace the current fleet), thousands of wind/solar/etc installations, ways to regulate fluctuations and store the energy that don't involve fossil fuel grid, as well as tons of factories, machinery, etc currently operating on fossil fuel, including our entire airplane fleets, plus all the armies in the world... Oh, and find the money to do all that...

So there's that... Some people seem to believe that if we turned a switch, we could turn to 100% renewables tomorrow...

This, I would believe is a false hit piece that is trying to protect coal, oil, and gas.


"It has become the largest such campaign in history: funds worth more than eleven trillion dollars have divested some or all of their fossil-fuel holdings. And it has been effective: when Peabody Energy, the largest American coal company, filed for bankruptcy, in 2016, it cited divestment as one of the pressures weighing on its business, and, this year, Shell called divestment a “material adverse effect” on its performance."

For a while I've wondered if the math might work out such that the most cost effective way to fight greenhouse gas emissions is simply to buy up and horde oil on the open market.

The oil has carbon already trapped in an efficiently storable form, it's absurdly dense, it's quite inexpensive... and buying it up would have a secondary effect of driving up the price, which would incentivize efficiencies and alternatives.

Bonus, as a government program it would be more appealing to climate change deniers than alternatives because at the end of the day you'd have oil, which could later be used if we figure out some better solution (or that the problem didn't exist in the first place).

Artificially propping up the price of oil won't have the intended effect:

It would incentivize the extraction of oil, which at present requires infrastructure that damages the surrounding environment. A lot of the oil is in the ground now because it doesn't make financial sense to extract it; the cost of extraction is less than the revenue generated from its sale on the market.

There's plenty of oil hoarded in the ground now in private wells. People sitting on land rights waiting for the right time to sell that oil on the open market. A massive government program that artificially props the price of oil up is the perfect setup for a massive wealth transfer to people that do nothing but hold title. That extracted oil would need to be transported or piped away from the extraction site and stored in perpetuity, all of which the land was already doing for free!

Techniques for extraction like fracking destroy the quality of adjacent groundwater and externalizes that cost onto the surrounding community. We don't want a government program that incentivizes poisoning groundwater on a hotter planet with diminishing glacial melt surface water.

Planet Money did an excellent series on the crude economy: https://www.npr.org/sections/money/2016/08/26/491342091/plan...

It's an interesting perspective and one pursued by the initiative:


They offer shares of Shell in an attempt to transition the company to green energy.

Sure, unless everyone divests, a few people selling will drive down the share price only until those not selling realize the asset is undervalued and buy the price back up. All that, without actually changing the production and consumption model.

It artificially deflates the demand for equity in fossil fuel companies. Which theoretically would result in lower willingness to invest in fossil fuel ventures. But these companies already exist, and artificial deflation of their stock price won't keep people from fueling up their cars.

I think a better strategy would be conditional investment tied to reduction in emissions. Have a mechanism to buy $X stock at a higher price in exchange for a power company to replace a coal plant with a gas one, or replace a gas plant with a solar farm.


Today it is large corporations which have the greatest power over daily life, and they are far more susceptible to pressure and change then the insulated bureaucracies of governments.

Thankfully Bill and many others knew this years ago, and started a divestment campaign of breathtaking magnitude...

Neccesary but not sufficient. Divestment in dinofuel should be closely followed by investment in clean energy tech, sequestration or other carbon-saving or net-negative industry.

Fossil fuel divestment has zero climate impact, says a billionaire with capital invested in the fossil fuel economy.

>Those who want to change the world would do better to put their money and energy behind the disruptive technologies that slow carbon emissions and help people adapt to a warming world, Mr Gates told the Financial Times.

Divesting from the fossil fuel industry doesn't prevent people from investing in alternative, disruptive technologies.

In fact, it frees up more money to be invested in those technologies!

Bill Gates rarely makes controversial statements like this. I wonder if his PR team specifically contrived this statement to distract from allegations re: Jeffrey Epstein.

I have not gotten the impression anything Jeffrey Epstein related was "sticking" to Bill Gates.


~400 tweets containing "bill gates" and "epstein" in the past day

It seems the allegations are not very credible, but PR team may still want to spin story away from it.

This analysis ignores the social significance of divestment (i.e., which might somehow contribute to other actions which are more impactful), though it might still be that even after accounting for this divestment isn't what environmentally-conscious people and organizations should prioritize.

Really the problem here is taking the rules of a free market economy as immutable and not seeking a political solution that could outright ban misbehaviour, rather than trying to defund it piecemeal.

The correct solution to ecocide is a criminal charge and seizure of assets.

This is the report mentioned in the article: https://www.gatesfoundation.org/goalkeepers/report/2019-repo...

Eliminating or reducing government subsidies for oil and coal companies probably would have a climate impact.

Even if divestment has “zero impact” as Gates suggests (which I doubt, but ok), it would have a symbolic importance and possibly spur others on to change their approach.

And to that point, it reduces the number of influential rich people with an incentive to lobby against climate action.

>> symbolic importance

Do the symbolic with your money, I have respect for that.

But a bunch of about to be retired people, who may need every penny of their return, will get reduced return because some fund manager wanted to feel good and have better PR all the while collecting the same big check for his services... No Bueno!

So divest from fossil fuels and reinvest in disruptive technologies that slow carbon emissions.

Got it.

Divest from fossil fuels and invest the funds in clean energy. What am I missing?

The other investors will sell the now marginally overpriced clean energy funds and buy the now marginally underpriced fossil fuel funds. Stock prices and capital available remain the same.

I love this sorts of moralistic windmill tiltings; they make for wonderful buys.

You can't fix a tragedy of the commons with individual action.

Also I would argue that the smug truisms that people spout such as "divestment won't solve climate change" have a very damaging effect on causes that require concerted action by the public.

For example the "Penn & Teller Bull$#!@: Recycling" episode left many viewers under the impression that recycling is a waste of time because it's not mature yet and is sometimes mismanaged. That probably lowered global recycling by some small percentage over several years. A tremendous negative impact in the scheme of things, for a couple guys trying to be funny.

It's generally bad form to undermine causes via pedantry, for example:

* Nobody should listen to Al Gore about global warming because he flies a private jet!

* We can't raise taxes on cigarettes because people will just buy them anyway no matter how much they cost!

* Why bother preventing deforestation when nature does what it wants with forest fires anyway!

Yet we hear these sorts of arguments right here on HN on practically every submission.

Better to at least try to be part of the solution than use criticism as an excuse to do nothing, IMHO.

I'm not saying "do nothing". I think legislation is a better tool to fix this problem and everyone's time would be best spent on working on that.

> Nobody should listen to Al Gore about global warming because he flies a private jet!

Well, I think we should still listen to him. He could also fly first-class and set a better example. But average Joe passenger won't fly less just because "it's good for the planet". He will fly less if it starts to cost more because of a carbon tax.

> We can't raise taxes on cigarettes because people will just buy them anyway no matter how much they cost!

That's not true in the slightest; cigarette consumption is inversely correlated to taxes. A cigarette tax is the opposite of individual action. I'm strongly in support of a carbon tax.

> Why bother preventing deforestation when nature does what it wants with forest fires anyway!

That's...a super-weird statement to make in the context of what I said. Preventing deforestation can't be accomplished with individual action e.g. by boycotting Amazon-grown soy or something. You need laws and tariffs.

FWIW I also recycle and try to keep up with the latest and greatest on plastic sorting. But I also know it doesn't do anything in the big picture. Add a $10 fine for badly sorted recycling and the problem will fix itself.

Ya I'm right there with you. Good points!

Divestment is a practical prerequisite for effective regulation of fossil fuel companies.

Right now tough regulations will directly hurt pensioners with pensions invested in fossil fuel companies. After divestment will not hurt those people in the same direct way.


Step 1) - Divest

Step 2) - Regulate to fully compensate for externalities caused by fossil fuel companies without worry of collateral damage

Right and here's the problem. Pension funds are notoriously underfunded and filled with people that don't give one iota of a rip about where it's invested. Pension managers will not leave those yields on the table or they'll fave a revolt.

I think he underestimates the wrath of a market that has judged a market sector unpopular

One markets unpopularity is anothers arbitrage.

The underlying value is what drives the asset in the long run.

Oil companies play the long game.

> Oil companies play the long game.

Except in the long run these companies are dead unless they pivot.

If you agree that the real solution is for investors to engage with your portfolio -- to own what you own -- we've built www.yourstake.org to help you do so.

If you take action (or decide not to), I'd love to hear your feedback : (patrick) @ yourstake.org.

Why is nobody concerned about the next 100.000 years lasting ice age which is already overdue by roughly 4000 years?

Maybe because we see 0 evidence of an ice age happening any time soon, while we see the opposite catastrophe happening in a timespan from yesterday to within a few decades, depending on where you live?

Because we can biohack that hypothetical problem by burning fossil fuels.

Bill Gates also doesn't support the Green New Deal or government involvement (god forbid his taxes go up) in mitigating climate change. His public prayers for a technocratic solution to climate change are ridiculous and embarrassing for him considering he knows it will never happen.

Bill Gates generally supports higher taxes on the very wealthy, like himself. Not sure why you decided otherwise.

Climate change is solved with neither divestment nor technology, but with hard-stop policy reforms. Considering just 100 corporations are responsible for 71% of global emissions [0], we know who's doing the damage and how they're doing it.

[0] https://www.theguardian.com/sustainable-business/2017/jul/10...

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