Echler Solomon Feng

esfpm.com
Jun 13, 2019

Divestment from Fossil Fuels Will Not Solve Global Warming

Over recent years, as ordinary humans are feeling the heat of a warming planet – fingers are increasingly pointing at energy companies as the bette noir of the problem and therefore to blame. To top that, the heat has reached big-name funds and institutions that – in a sort of noble act to avert the further ‘destruction’ of the planet, are starting to boycott and divest from major corporations that use fossil fuels as a gesture of doing their share for the environment.

But does it? Does cashing out of oil stocks solve climate change at all? [It's much like avoiding tobacco stocks to avoid addiction and cancer] Thanks to climate change activist and celebrity power from the likes of Al Gore (An Inconvenient Truth) and Matt Damon, major funds and institutions are running away from anything that has to do with fossil fuels.

Every month, we see one big name walking out of that door. This May 2019, Cambridge University has agreed to divest its multi-billion endowment funds away from oil, gas and coal companies. In April 2019, the pension fund for MPs succumbed to a new investment parameter that includes taking into account the environment and climate change. These are just a few names, and we see that every pension and endowment fund will follow suit as the clamor against a warming planet heats up.

Targeting energy companies because of their use of fossil fuel was a movement that started on American campuses in 2010, and has grown and expanded its influence since then. After eight years, Go Fossil Free – the group responsible for this campaign estimated that it was able to influence more than 1,000 investment institutions and 58,000 individuals to take their money out from the traditional energy industry, representing about US$8Trillion in assets, that gets you noticed on Wall Street as a significant mover and shaker.

But the truth of the matter is, taking your money away from fossil fuel companies will not give you the results that climate change campaigners expect. It’s just not going to work that way.

First, moving away from fossil fuel into cleaner alternatives takes massive investment in research and development. Governments will not pay for this. Nor do people want to be taxed heavily to pay for this. Who then has the expertise and the money to pay but the energy companies themselves? Make no mistake; they are now listening too. They too feel the heat of a warming planet. Shell, for one, has a budget of US$2Bn every year to research and improve on clean energies with a plan to double that every five years. Likewise, most other major energy companies from BP to Texaco are ramping their investments in alternatives.

Another case in point is the auto industry in its race into developing the most efficient electric car and saying goodbye to diesel power and combustion engines. Big name car manufacturers are continually seeking to achieve the most fuel-efficient car to the point of zero fuel needed at all – hence the electric vehicle. And it’s the car giants who have the money and competence that are continuously throwing their cash at developing these alternatives.

Secondly; one should also ask if this divestment away from energy companies will actually make you any richer? About 30 years ago, the same situation happened to sin stocks where investors were asked to pull out of tobacco companies – because it kills people, thanks to the links between tobacco smoking and cancer. It was then recently calculated, three decades on, of the returns made by the 30 companies that survived the FTSE index, tobacco giant BAT was the best performer ever in 35 years. A £100 investment in BAT 35 years ago would have been £33,000 today. Talk about missed opportunities. Is it all for the common good, - all these efforts for clean energy and moving away from fossil fuel - or more likely a cynical ploy for political amplification and correctness?

Before you try to fix the problem, don’t bail out on them just yet. In due time, you might just miss the opportunity.