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)
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-...
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.
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.
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.
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
Continuing to exist, and emit, just a bit slower is only delaying climate impact, and by a tiny amount.
That gives a range from 32.3kg per kg of beef to 15kg per kg of beef.
> 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. 
It's what comes next that matters.
Most of the world continues to rely on fossil fuel for the essentials of life. Change that before throwing execs in jail.
That would just be suicidal.
Source: work for an oil & gas company
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.
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 .
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
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.
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.
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.
I'd love see how you guys do it, and will be following your progress.
I'd love to be able to tell eg vanguard how to vote, currently I'm an indirect shareholder with no voice.
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.
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.
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?
Every minute you spend arguing for divestment is a minute you don’t spend arguing for nuclear.
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!).
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.
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.
If you usually need hard numbers to disprove the effectiveness of treatment, be sure to stay away from homeopaths.
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.
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.
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.
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.
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
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?
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.
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?
I’m torn on that, but minority’s shareholders have a legitimate expectation their rights should be protected.
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.
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.
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.
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.
So boycotting? Not sure what's the point of bundling something that's actually effective (boycotts) with something with questionable effectiveness (divestment).
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.
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.
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.
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 :)
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.
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.
I'm not sure this distinction makes sense when you're talking about things like sector funds
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.
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.
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.
Has the reduction in tobacco companies' stock prices materially affected smoking rates? I don't think so.
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.
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.
Cheaper stock prices just due to divestment will have pretty much zero impact on oil demand. Why should it be any other way?
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.
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.
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.
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.
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...
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.
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.
(Assuming we both agree that "morally-driven" investors will tend to invest in renewables.)
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.
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.
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).
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.
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.
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.
> 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.
> 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.
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.
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.
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.
It seems strange to me to cast everyone with an index fund as morally corrupt.
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.
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.
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.
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.
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.
Thank developers for ad-block technology.
I'd say these "opt-out" options are not gonna work in practice.
...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.
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.
I would put my retirement money in an S&P 500 index fund that excluded fossil fuels.
How do you know whether that's already priced in?
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.
To reduce demand you should either create cheaper ways to store alternative energy or make carbon based fuels more expensive with a carbon tax.
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.
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.
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.
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.
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.
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.
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.
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.
"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.
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.
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
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?
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.
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.
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.
This tends to just lead to higher prices, black markets, riots, and right wing populist governments, but what do I know.
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..
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.
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.
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.
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.
A publicly traded Ponzi scheme can maintain a 10% yield for 10 years with only an IPO.
> 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)
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
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%
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...
"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."
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).
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:
They offer shares of Shell in an attempt to transition the company to green energy.
I think a better strategy would be conditional investment tied to reduction in emissions. Have a mechanism to buy $X stock at a higher price in exchange for a power company to replace a coal plant with a gas one, or replace a gas plant with a solar farm.
Today it is large corporations which have the greatest power over daily life, and they are far more susceptible to pressure and change then the insulated bureaucracies of governments.
Thankfully Bill and many others knew this years ago, and started a divestment campaign of breathtaking magnitude...
>Those who want to change the world would do better to put their money and energy behind the disruptive technologies that slow carbon emissions and help people adapt to a warming world, Mr Gates told the Financial Times.
Divesting from the fossil fuel industry doesn't prevent people from investing in alternative, disruptive technologies.
In fact, it frees up more money to be invested in those technologies!
~400 tweets containing "bill gates" and "epstein" in the past day
It seems the allegations are not very credible, but PR team may still want to spin story away from it.
The correct solution to ecocide is a criminal charge and seizure of assets.
Even if divestment has “zero impact” as Gates suggests (which I doubt, but ok), it would have a symbolic importance and possibly spur others on to change their approach.
Do the symbolic with your money, I have respect for that.
But a bunch of about to be retired people, who may need every penny of their return, will get reduced return because some fund manager wanted to feel good and have better PR all the while collecting the same big check for his services... No Bueno!
For example the "Penn & Teller Bull$#!@: 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.
> 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.
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
The underlying value is what drives the asset in the long run.
Oil companies play the long game.
Except in the long run these companies are dead unless they pivot.
If you take action (or decide not to), I'd love to hear your feedback : (patrick) @ yourstake.org.