Monthly Archives: January 2015

The Debate About Shareholder Engagement & Fossil Fuel Divestment

One argument against fossil fuel divestment is that walking away from a company means that investors lose any leverage to change things.  That’s a rational argument when there’s a chance that the company might shift its behavior on some relatively narrow issue.  But,  the demand to leave fossil fuels in the ground goes to the heart of the business models of these companies.  The idea that these organizations will shift to renewable energy or some other business is wishful thinking.

First of all, competition is hard. Successful companies are good at what they do because of their entrenched corporate cultures, and because their people have the expertise needed to compete. But, even that is often not enough to be viable in an industry over the long run. Look at the history of once globally dominant companies like Bethlehem Steel or  Kodak. The industries are still there, but the companies are not.

The idea of changing a business model takes the business competition challenge much farther. The shift is especially hard when the company’s assets are tied up in physical infrastructure like oil wells, refineries and pipes – and in-the-ground resources they have spent billions to find. For both compensation reasons and corporate governance reasons, the management teams of these companies have no incentive to seriously follow this path.

People who believe shareholder advocacy can change the fossil fuel companies ignore the most obvious evidence – the failed attempt of British Petroleum to move toward “Beyond Petroleum” fifteen years ago. These companies are simply not going to stop pulling fossil fuels from the ground.  And, even if some do try to shift, they can not and will not do it at the speed needed.

Shelley Alpern at Clean Yield Asset Management has just written a great article on all this.  Take a look.