Students, perhaps without the ‘baggage’ of experience, are among the most activist stakeholders in society.
Now the challenge is climate change, which is serving to educate an entire generation of students and their peers about how the financial system works – beginning with an understanding of the chain of relationships between asset owners, asset managers and the companies they invest in.
The systemic flaws in how long-term high impact risks like climate change are being managed are now being understood by the activist students, some of whom may go on to work for major financial players themselves but who will never again work with the same blinkers as their forebears.
This new generation will better understand that the objective of finance, as David Pitt-Watson says, is to take money from where it is now to where it is needed.
The Go Fossil Fuel Free campaign that focuses on divestment started in the universities and it has been the perfect antidote to political intransigence. Everyone from finance majors to art students can understand the campaign’s simple theory that if we take away their money then fossil fuel companies won’t survive.
But now we are entering a new phase, one that will require those in the arts faculties to call up their friends in the finance faculties to help them with a few intellectual challenges and some extra tuition. The problem all of them face is now threefold.
Firstly, some very sympathetic and massive pension funds are agreeing with them that climate change needs fixing while publicly denouncing their campaign as a naïve solution.
Secondly, there are some elements in civil society who don’t even think that divestment as a strategy will work. Some are vehemently opposed to divestment, some (including AODP) think partial divestment has a role to play as part of a diversified strategy to reduce carbon exposure but all must surely be convinced of the value of the campaign in driving those asset owners to at least disclose that they have some kind of carbon strategy.Thirdly, and perhaps more disturbingly, the Asset Owners Disclosure Project Universities Index released this week shows that the sector as a whole is suffering from a crisis of transparency and that most of the educational establishments so quick to reach for the media release button on fossil fuels have offered no evidence at all that they have made any progress in implementing those commitments.
Without any method of tracking all asset owners, including those colleges who have committed to divestment, the campaign is like a quick-fix diet without a set of scales and this high-carb pudding requires plenty of proof of eating.
The implications of all this have been on the cards for some time – the educational journey experienced by many supporters of the campaign must now ramp up considerably if it is to be sustainable and the focus must be on disclosure of risk strategy and performance against plan: i.e. who is talking and who is walking?
The language of divestment has so far been polarised into a black and white issue – sell, sell, sell….then win! Even if this turned out to be true, the implementation of these commitments will occur at greatly varying paces and some will implement by leaping over the hurdles but others will simply give up as soon as they realise how complex, even costly, it can be to unwind some positions.
When activists start to look at the tracking information as provided by AODP, they will soon realise that the divestment piece is not black and white at all but decidedly grey. Their attention will have to turn to re-campaigning on universities who initially made divestment or other carbon reducing commitments but have been slow to actually implement. The new game will inevitably become a mixture of maintaining the call for divestment whilst urging more rapid implementation. Before too long, many more institutions will be mid-stream in some kind of programme to reduce carbon and this will dictate new levels of detailed understanding that fly in the face of the original simple narrative.
The opportunity for the students is now to use this new weapon of non-disclosure to play the universities at their own game. The investment offices have a multitude of defences to bat away divestment, engagement, hedging and other mitigations of portfolio climate risk. If students can extract what they are actually doing it will most likely show that the investment offices and trustees have simply not done their own homework with the subtlety needed to do their jobs.
Disclosure will likely prove that they have insufficient control over their managers, that they incentivise thesemanagers over a much shorter timeframe than they should, that they have no alternative to the outdated asset allocation models they’ve been dusting off year after year and that that still think that their Wall Street analysts will spot the crisis coming and sell out of the crash milliseconds before everyone else.
Ultimately, students have more to lose than the rest of us, so it is up to them.
Dr John Hewson, the former leader of the Liberal Party of Australia, ex-director of Macquarie Bank and a past chairman of ABN AMRO in Australia, chairs the Asset Owners Disclosure Project.