The world’s largest funds, whose attacks on fossil fuel divestment have now reached fever pitch, rolled into London this week for their annual PRI-in-Person conference. While we all count the dollars for each time we hear NGOs repeat the Ghandi maxim “First they ignore you…(etc)…then you win”, it is surely becoming clear that neither side is going to win, at least not in the way they think. Civil society has many celebrated wins under its belt, but getting the large funds atop the global financial system to solve climate change by growing a moral compass and selling the troublesome bits of our economy is not going to be among them. Not only does the selling of every share require a buyer, unlikely to be buying because they want to lose money, but even de-listing the entire fossil fuel sector won’t make a scratch of difference as there are a host of unlisted companies and countries and countries prepared to supply at a profit. The current irony that market forces are doing a cracking job at making divestment look a solid argument is passing most commentators by. But this shouldn’t deter the activists from keeping the pressure on, as their’s is a political stance and the level of support for measures beyond the beautifully simple divestment concept is not strong.
So why are funds getting so fed up of this movement? Well for one thing the pressure is relentless with no sign of abating. Many large funds have aggressively rejected divestment but a few have adopted some quasi ethical stances on things like coal (an industry already in tatters) and these few actions have been hailed and marketed by the activists as if the final victory is close.
Sadly nothing could be further from the truth. The other problem for the funds is that some of them know they aren’t actually doing their job properly and the attention on divestment is starting to invite deeper enquiry on what they are actually doing. This is revealed by the 85% of funds at the bottom of the Asset Owners Disclosure Project Climate Index doing little or nothing except sticking to the old methods in a new world.
The defence of the industry to the campaign has been frankly embarrassing. Firstly, some have pointed to the strategy of engagement as their weapon of choice, but even most industry folk know this isn’t working yet, and is irrelevant without a portfolio level goal anyway. Secondly, the industry has used its associations andother industry figures to help deflect criticism by attacking divestment credibility, creating more own goals. Defences like the recent UK NAPF statements warning that divesting from oil and gas stocks could mean “severe losses of revenue likely over a sustained period of time” sounds ridiculous at a time when their member CIO’s are cringing at their 5-year coal and gas returns. NAPF head of policy Will Pomroy also suggested it was difficult for funds ”given the composition of the FTSE index” revealing the addiction to indexation that is one of the core problems. Many leading funds including the BT Pension Scheme and US giants like CalPERS have abandoned it as being completely incapable of managing climate risk and its complex attributes. Pomroy dug still further with: “Many trustee boards are giving much thought to their level of carbon exposure and risk.” The whole idea that a decade after the PRI and IIGCC was formed that we are still in the ‘thinking’ stage should provide the activists and lawyers with major ammunition for the future, once they have picked themselves off the floor. Finally, the response from those funds keen to placate the activists has created even more issues. Some funds have made bold statements that would have gone at least part of the way towards representing a solid risk strategy, only for the PR function to roll out the language of ethics and morals and the need to solve mankind’s biggest problem. Following some of these statements, such as the ludicrous offering of Stanford University, the activists should have responded with mass laughing. But NGO’s need marketing too and so they continually take the bait of hollow statements and claim major divestment victories when they are nothing of the sort.
For the funds to end the pain they must stop whinging about a naive solution to a complex problem and create appropriate, transparent, professional, risk-oriented responses. If they up their game, first prize is superior long term returns as they reduce further high carbon destruction and create a low carbon hedge position that gives them early entry to an inevitably giant market that Tesla alone cannot fulfil. The second prize is that they will marginalise the divestment movement as they point to their credible responses that goes as far as they can without further policy. This is a long way from where they are now.
Julian Poulter is the founder and Chief Executive Officer of the Asset Owners Disclosure Project.