Jeremy Grantham, co-founder of Boston-based investment firm GMO and donor to climate change institutes at Imperial College and the London School of Economics, has issued a powerful argument for investors to get out of fossil fuels.
In a new white paper, he sets out to challenge investment committees’ “erroneous” notion that you lose returns by divestment.
Grantham notes the challenges facing oil and chemical firms, saying: “It should be pretty clear from this discussion that if you’re messing around with oil stocks, you’re taking the serious risk of ending up with stranded assets, and if you’re messing with chemical companies of the toxic kind, you are taking some risks also.” He also notes the legal risks facing them.
“Yet investment committees, the most conservative groups on the planet as we know – I have spoken to perhaps 3,000 or so of them – maintain that if they divest from oil it will ruin their performance.
“But this issue – climate change – is the mother and father of all exceptions. It is about our survival.”
He presents an analysis that GMO ran to “test this long-held divestment hypothesis” and found that “it didn’t make any difference”. (It’s exhibit 34 in the paper.)
“When you divest from oil or chemicals, the starting assumption must be that it will cost you a few tiny basis points of deviation, and it’s just as likely to be positive deviation as negative.“These are the facts – not the hearsay of investment committees that have managed to maintain an erroneous, but perhaps convenient, consistency over decades on this issue.”
“We can put a more accurate price on divestment and ethics”
He goes on to say: “Now we can put a more accurate price on divestment and ethics. For example, if you were to consider it unethical to own these oil companies whose scientists wrote, as mentioned, about the serious dangers of climate change in the 1970s only to have management later ignore it all and fund deniers and obfuscators, you can believe the cost of your ethics is about +/- 20 basis points!”
He called for the complete decarbonisation of the world’s economy and was critical of a “form of capitalism that has hardened its focus to short-term profit maximisation with little or no apparent interest in social good”.
“To make matters worse, we have an anti-science administration that overtly takes the side of large corporations against public well-being, even if that means denying climate change and stripping the country of the very regulations designed to protect us. The timing could not be worse.”