Tag Archives: divest fossil fuel

ExxonMobil & the New Stoyashchego

A few months ago I read Laura Hillenbrand’s book “Unbroken” about WW II veteran Louis Zamperini. (How is such a life possible?) Then last night we went to see Spielberg’s “Bridge of Spies” about lawyer James Donovan and the swap that brought downed US pilot Gary Powers home in 1962. In one scene, Russian spy Rudolf Abel (played by the amazing Mark Rylance) tells a boyhood story about the “stoyashchego” (apparently loosely translates as “standing man”) – a neighbor who Abel’s father says to keep an eye on.  When a hostile militia overruns the town,  this man gets up every time he’s knocked down, resetting himself with steadfast determination no matter how many times he ends up on the ground. Zamperini is the most incredible real life example of this idea I’ve ever heard of. Stories like his are shining reminders – stories about wisdom and grace embodied in people who are otherworldly resolute.

Then, there’s Tim Conway and the rest of us.

Humans can also dupe themselves into ignoring facts and creating really dumb versions of reality. When it comes to global warming, some of the thinking is so mind-bendingly stupid you can only laugh. Like Senator Jim Inhofe using a snowball as a prop on the floor of the US Senate as he rambled on about the climate being just fine. Hello?

But, it’s impossible to smile when you read things like the recent articles by LA Times reporters and others who have been looking at Exxon’s decades of research on the climate. Like the VW diesel fiasco, the story is about very deliberate corporate behavior designed to obfuscate. The VW thing is incredibly sad – well beyond the very human act of simply making a dumb decision. Exxon’s behavior takes it to yet another level. The fact that Exxon was onto the global warming scenario in the 1970’s, and yet has actively worked to have everyone believe something else is not stupid. Given where we are, its beyond comprehension. “No corporation has ever done anything this big or bad” is how Bill McKibben sums it up in an article in The Guardian. Unfortunately, for the folks at Exxon and all their kids and all the rest of us, even that’s an understatement.

One can only assume that ExxonMobil is not the only energy company that decided that this strategy was a good thing.  So, what the hell do we all do? Simple – stand up and “be the change” you hope to see.

For starters, McKibben and the other stoyashchego (let’s go with “standing people”) at 350.org are asking the rest of us to sign a petition requesting that the US Department of Justice investigate ExxonMobil’s behavior. Seems like an excellent idea.

Then, if you’ve got a few bucks set aside in some mutual funds, take a quick look and see if you’re invested in ExxonMobil and its heavy hitter brethren (….it’s really easy to check). There are many better ways to invest your money. Money talks. Politicians listen.

After that – call your US congressional and state representatives and tell them to stop dragging their feet and start talking about solutions.

There’s no dress rehearsal for where we’re headed – the previews are over and the movie has started. Be the change.

Fossil Fuel Divestment Just Got A Whole Lot Easier

I spend a lot of time talking to people about divesting from fossil fuels – family members, friends, people at meetings and seminars – and the occasional random person who makes the mistake of asking what I do.  Most of these people are really concerned about climate change.  Its inspiring to hear that many have taken steps to reduce their carbon footprints. But, only a few people bring up that they’ve divested their investments from fossil fuels.

One problem is that the idea is only a couple of years old. Whether you have a few bucks tucked away for retirement or you’re a Shark Tank gazillionaire, there’s a 99% chance that your investments didn’t come to mind when you first started wondering about things you might do to help slow down global warming.

If you have heard about divestment, there’s also a 99% chance you heard that divestment flies in the face of conventional “wisdom” when it comes to investing. The pivotal barrier is the idea that there are supposedly only a few reinvestment options that are fossil fuel free.  And, by extension, that means that divesting is a financially risky thing to do. Here again, one problem is that the idea is new and any information hasn’t penetrated very far. The second problem is that, to the degree that there is discussion of divestment, much of the thinking is muddled or just plain wrong. Kind of like listening to Donald Trump talking about – well – just about anything.

A new website from the non-profit As You Sow will be a potent weapon in knocking this barrier down. Why?  Because, in a few seconds, you can check to see if a mutual fund has investments in the fossil fuel industry or not.

The goal of the divestment movement is to pull support away from the major fossil fuel companies and shine a big bright light on the nonexistent (or, depending on the country, woefully ineffective or just stupid) policy response to climate change. The tool’s “Carbon Underground 200” screening option allows you to see if your fund holds stock in the companies at global warming’s ground zero. The website also instantly lets people see that many diversified small-cap funds, many sector funds, and a whole bunch of other funds don’t hold these stocks.  Depending on how far future improvements go, the site will also eventually demonstrate that small and mid-cap exchange traded funds (ETFs) and many other mutual funds are inherently fossil fuel free.

Fund holdings information has always been publicly available, but few people are geeky enough to hunt for it. (Guilty as charged.) In the long run, the game changer here is that this tool completely blows up the notion that if you want to divest, you only have a few options. That includes many funds already available in company 401k plans.

Its important to point out that a leading group of forward-thinking investment companies were way ahead of the curve and created funds that are fully fossil fuel free by design, As divestment grows in popularity, the website will help get the word out about these funds, too.

What’s new here is that this tool makes it clear that the set of fossil free investment options is big.  Very big. And, that will draw a lot more people to the idea. The power of personal divestment is in the number of people who take the leap. For this side of the divestment movement to make a difference, we need people to divest and we need them ASAP.

Andy Behar and the smart, inspired people of As You Sow (and their partners) have just fired off the 21st century “click heard ’round the world.”  Thank you folks – nicely done.  (Wouldn’t it be great to see Steven Colbert, Bill McKibben and Andy checking out the site….Steven – you there?)

On Notice Again: The Latest From James Hansen

James Hansen is one of central figures in the scientific community when it comes to global warming. He’s been raising the red flag for more than 30 years. This week he and a group of highly respected scientists are releasing a new paper that puts all of us on notice – again. While the new projections are far from certain, the story line is consistent with a lot of other information that shows that changes are occurring even faster than people expected.

A quote from the article by Michael Oppenheimer (Princeton’s Woodrow Wilson School):  “If we cook the planet long enough at about two degrees warming, there is likely to be a staggering amount of sea level rise. Given the state of uncertainty and the high risk, humanity better get its collective foot off the accelerator.”

And, who’s got the lead foot here?

For those of us in the US, besides bringing down our personal carbon footprints, it’s time for the silent majority to stand up and demand that the Congress toss aside the moronic arguments about climate change that keep anything from happening — and to call for our government to demonstrate intelligent leadership.

The call-to-action will have to come from many quarters. Divesting from fossil fuels is one of the most powerful ways for people to make their voices be heard because it ties to something that politicians pay attention to – Wall Street.

Climate Change, Divestment & Human Health

A few years ago, a rising tide of people argued that news organizations had rolled over and, without necessarily intending to, were helping skew the climate change debate in favor of the “merchants of doubt.”  Over the past few years, the pendulum has swung back and there is more media coverage of the facts on the ground. The latest observations and studies from the world’s scientists are being widely reported again.

So, at least in the United States, more people are again generally aware of what is happening and what is projected to happen – rising ocean levels, increased frequency and intensity of storms and the like. We’ve come back on track to where things were headed about a decade ago in terms of popular awareness. (Many of our fellow citizens on planet earth never took the side trip.) A clear majority of Americans believe that global warming is real, and are at least generally aware of the major environmental impacts.

But, whether you are American or from some other county, try this experiment. Ask people you know about the connections between global warming and human health. At best, some people have a sense of anticipated direct effects from extreme weather events – people in parts of India and Europe getting slammed by unusually long heat waves, or powerful tornadoes in the mid-western United States. Some will mention the problems with extended droughts in Africa and Australia. That’s probably about it. A recent study by the Yale Project on Climate Change indicated that only 18-32% of Americans understood some of the main human health implications of global warming. The gap in global warming human health literacy is incredible – but not surprising given the lack of media attention and the efforts of those who want to erase all concern.

Describing the projected impacts concisely is not straightforward. That’s because the number of angles is gigantic, and there are lots of interconnected loops and complex feedback paths. But, here’s a short-list of some major drivers and effects that public health and medical professionals note:

Water:

  • falling fishery  yields
  • regional water scarcity
  • access to potable water

Land:

  • falling crop yields
  • massive migration away from coastal areas
  • more frequent and severe wildfires
  • migration and shifts in insect populations

Air:

  • extreme heat events
  • more frequent and severe storms
  • rising ground level ozone

With a little bit of imagination (or spending some time looking at reputable work on the web), it’s not hard to guess how these things are really bad from a human health perspective. Some of the drivers amplify existing human health problems that people and communities already struggle with. Others create health crises where there weren’t any – with major challenges around food production and access to water leading the pack.

All this is additive to the more immediate direct health problems caused by burning fossil fuels in the first place. The experiences of the western countries with smog in the 20th century and the current pictures of what coal is doing to China make that pretty clear.

All these problems will first hit those least able to fight the effects: the elderly, the poor, the chronically ill, and children.

Tying this back to fossil fuel divestment, the moral argument around climate change and human health is obvious. As with other aspects of the divestment debate, there is also a powerful financial aspect. It makes far more sense to prevent the problem by lowering our global carbon footprint now – instead of creating an astronomical bill in the future to pay for all the health problems we will face.

The argument for divestment is about saving the environment. It’s about saving us. There is no space between. As Joanna Macy has said, “Our earth is not a supply house and a sewer. It is our larger body. We breathe it. We taste it. We are it.”

Hopefully, journalists and the media begin to step it up on this side of the story, too.  In the meantime – divest now.  And then tell everyone you know about it – including local and national media outlets, and your representatives in state and federal government. Tell them to get moving now. Money and votes make things happen.

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.

 

 

Divestment, Global Warming, and the Faith Based Community in 2014

A few weeks ago I was pulled into one of those team guessing games with a group of family and friends. The kind where one person has to get their teammates to guess an answer that only he or she knows. Somewhere along the line, I pulled a card from the “entertainment” category that said “James Cagney.” Seemed pretty easy – you don’t need to have Jimmy Fallon’s skills to impersonate an iconic movie actor like Cagney. Much to my surprise, my superb impression was a total bust. Other than the person who said “Dick Cheney!,” it was blank stares all around. As I looked around, it hit me that I’d landed on a team where the oldest teammate was half my age.

Anyway, I’ve grown accustomed to blank stares. You don’t get invited to parties because of your engaging stories about divestment from fossil fuels. Nevertheless, around the world there were a lot more people talking about divestment in 2014. And, as with so many aspects of the global warming movement these days, it was heartening to hear voices from outside the traditional environmentalist world (whatever that is). One particularly vocal community this year stands on a powerful podium that can cut through the babble of misinformation and political noise – the faith based community.

“The Earth is a stunning gift. It supports life. It is our temple, our mosque, our sanctuary, our cathedral. It is our home.” Those words come from a September GreenFaith statement on divestment  signed by Desmond Tutu and 80 other religious leaders, theologians and ethicists. The range of people and geographies on that list illuminates the truly global nature of the support within the community.  And, these words are backed up by action – many, many religious groups committed to divestment over the past two years.

While its fair to argue that GreenFaith is not exactly outside the “traditional” movement, the push for broad action on global warming is coming from a broad base of religious leaders. In the run-up to the November G20 meeting in Brisbane, an expansive cross-section of Australian faith based leaders urged governments to “commit to a rapid transition away from fossil fuels and towards renewable energy.”  A few days ago, Pope Francis stated that “there exists a clear, definitive and unpostponable ethical imperative to act.” In February, the Dalai Lama once again reiterated his unwavering position that governments and business leaders need to “listen to the scientists.”  In 2014, we have seen the emergence of a new level of engagement among faith based leaders. If the religious community across the planet becomes fully engaged, the impact on revving up action on global warming will be astounding.

The statement from GreenFaith wraps up with this: “Today, the balance of life on Earth is threatened by climate change. We must act decisively, now, to choose life. Divestment and reinvestment embody that choice.” Let’s hope that in 2015 we’ll see a huge wave of individuals and institutions join this call for divestment – and an even bigger upsurge in all actions tied to the crucial push to find a better way to power the planet.

One small hope I hold ties back to that guessing game I was talking about earlier. In a few years, I’ll be playing that game but we’ll be using, say, the 2018 version. I’ll look down and find myself staring at a card from the “popular phrases” category that says “fossil fuel divestment.” And, they’ll get it despite the fact that my Bill McKibben impression is really lousy.

Fossil Fuel Divestment – An Easy First Step For Individuals

The post on October 18 talked about the hypothetical impact of removing fossil  fuel investments from broadly diversified mutual or exchange traded funds. When taking money out of any single industry, whether the unwelcome stocks are in fossil fuels or mass media or donuts, it is hard to argue that extracting investments from a single industry will have a measurable effect on long-term fund performance. Diversification means that the sensitivity to whatever happens in any one industry is going to be very low.

The practical question then is this – how can an individual divestor who wants to be in diversified funds take this idea and do something with it? You can’t tell a mutual fund company “I’d really like to invest in your XYZ fund – except, can you take out the fossil fuel companies?”

In fact, there are many, many ways for an investor to move into these waters. And, there’s one easy place to start.

The most straightforward first move is to reinvest freed up money into diversified small or mid-cap Exchange Traded Funds (ETFs), or small-cap mutual funds. (“Cap” is short for capitalization – the dollar figure you get when you multiply the number of company shares by the share price. There’s no standard designations, but large usually means a capitalization greater than $10B, mid cap is between $2B-$10B and small cap is below $2B.)  There are also a few funds that are specifically designed to exclude fossil fuel companies.

The major players in the fossil fuel business are big – really big. ExxonMobil’s market cap is currently about $400B. By putting your money into small and mid cap funds, you can avoid investing in these stocks. Stocks that are at ground zero when it comes to global warming since they are issued by the largest companies that find and sell fossil fuels. There are a lot of diversified small and mid-cap funds to pick from – both approaches are bread-and-butter offerings for many fund companies. (Note that a mid-cap mutual fund is fairly likely to hold some large cap companies, so an easy way to have a diversified position in mid-cap stocks would be with a mid-cap ETF.)

Investments are bets. And, so the natural next question is what bet is an investor making when using this approach?

Interestingly, a common conclusion of comparisons between mid or small cap stocks versus large cap stocks is that both tend to outperform large cap stocks (while both tend to be more volatile). Take a look at two example discussions from CNBC/Yahoo Finance: one and two.

Take a few minutes and look around for yourself. There are a lot of articles on these comparisons, particularly the small-large cap version. Most brokerage sites and personal finance sites have areas where you can compare small, medium and large cap funds for yourself. You can also look at the historical performance of market indexes that track different market cap stocks. Keeping with the diversification theme, the most meaningful comparison would be a combination of small and mid cap funds versus large cap funds, since a diversified investment approach would probably mean you’ll hold both types.

So, what’s the takeaway from all this? It’s a virtual certainty that people and the planet are in big trouble if we don’t massively curb the burning of fossil fuels. As we do that the value of the traditional fossil fuel companies will fall.  On the flip side, it would be reasonable to think that diversified small and mid-cap funds will hold up well against their large cap brethren over the long haul.  (Also, keep in mind this is just one of many reinvestment possibilities an investor  can follow – including supporting the growth of the new energy economy by investing in funds that tie to that theme or investing in fully fossil free funds.)

Many investment advisors make the point that your investment decisions should allow you to sleep at night. Will betting against the planet and your kids’ future keep you up at night?  Think about it.

Fossil Fuel Divestment Means Lower Returns – Huh?

One of the key arguments against divestment that shows up again and again in the press and on the web is the idea that fossil fuel divestors will sacrifice investment performance. Or, stated another way, their investments will do worse then those of people who choose not to divest. On the surface, it seems a simple point – if you don’t invest in a major sector of the economy (i.e., the fossil fuel industry), you’ll be missing out. But, as is true with most simple arguments in an increasingly complex world, this soundbite analysis is wrong on multiple levels.

By a big majority, most people who have stock market investments put their money into mutual funds or exchange traded funds (ETFs). And many people also follow the general investment axiom that it’s a smart idea to be diversified. So, the more relevant question is – what happens if a diversified mutual fund or ETF does or doesn’t hold stock in the fossil fuel industry?

By definition, a diversified fund isn’t going to invest a high percentage of its money in any one industry. If you look at the Security and Exchange Commission filing information for diversified funds, you’ll generally find that somewhere between 0-4% of such a fund’s holdings are in the fossil fuel industry. So, for the sake of argument, let’s say that on average a typical diversified fund invests 2% of its investors’ money in these companies.

Let’s look at a hypothetical fund we’ll call the “incredibly neutral mutual fund (INMF).” The INMF manager’s general performance turns out to be supremely neutral. Somehow, with all the ups and downs of all the industries in the fund’s portfolio of stocks, the gains of almost all the stocks that do well are almost exactly counter-acted by the stocks that do poorly, and every year the fund’s annual return is basically 0%. But, there is one exception to this staggeringly bland performance – the fund’s investments in the fossil fuel sector.

Suppose that in an incredibly amazing 10-year streak, the combined fossil fuel investments in INMF go up 50% every single year. But, since the fund only invests 2% of its money in fossil fuels, the investors will gain just 1% each year. A return of 1% per year — that’s what you get if the fund manager has a completely unrealistic ability to pick an astounding set of fossil fuel stocks year after year after year.

Human beings and markets being what they are, a more realistic view of a fund manager who has a strong ability to pick fossil fuel winners (and avoid losers) would be if that part of the fund  had a consistent return of 5-10%. Now, the annual total return to you as a fund investor has fallen to between 0.1-0.2% per year. If you had invested $5,000 in INMF, your first year return would be $5-$10. The total cumulative ten-year return range would be slightly more than $50-$100 (due to compounding).

So, can moving away from fossil fuels negatively affect investment performance. Possibly. But if you invest in broadly diversified funds, the potential effect is tiny. The variation would be swamped out by the manager’s many other fund investment decisions, and also the myriad economic impacts that push all the other sector investments in the fund  up and down.

And, here’s a far more important point. New stocks that replace the fossil fuel investments may do as well as, or better than, the fossil fuel stocks that were removed. In which case, the divestor has lost nothing or may indeed do better after divesting.

The core argument that divestors should expect to lose out is just not accurate or reasonable.  More to come on how to put this idea into action…..

Personal Divestment From Fossil Fuels: What’s Your Goal?

In the run-up to the recent UN Climate  Summit, the idea of personal divestment from fossil fuels went from virtually total obscurity to receiving some coverage in the popular press. Unfortunately, many of the stories and blog posts missed key points — and others demonstrated muddled thinking and misleading conclusions including the idea that divestors will lose out financially (more on this in future posts).

In talking about the emerging discussion of personal divestment, an obvious place to start is the simple question: “Why should I make the effort to divest from fossil fuels?”

Here are four good reasons:

  • Divestment means not benefiting from the damage being caused by the fossil fuel industry. Every dollar earned from an investment in the fossil fuel industry represents a benefit derived from the continued growth of an industry that is the core driver of global warming and of growing hardship across the planet. Fossil fuels are also a focal point of on-going conflicts and wars  – carrying with them vast loss of life and displacing families by the hundreds of thousands.  (Coverage of the latest Pentagon assessment.)
  • Divestment sends a clear, unequivocal message. This is about numbers – not in dollars – but in people. If millions of people remove their financial interest in fossil fuel companies, that will send a very clear and very powerful message to governments, legislators, institutional investors, and the global business community. It will also signal a demand for change in other pivotal parts of the economy where consumption of fossil fuels can be reduced through innovation – enabling  new ways to generate energy and improving the energy efficiency of the things people use every day.
  • Divestment is a reminder. The more that each of us pays attention to all the ways in which energy plays into our lives (including our investments), the more likely we will move ourselves and our families toward generating and consuming energy in a sustainable and socially responsible way.
  • Divestment provides reinvestment opportunities. The clean energy economy is growing, and that growth is going to accelerate. New companies are being created every day, and established companies are quickly moving to create new products – including things like home energy networks, advanced energy storage systems, and smart efficient vehicles. That innovation will continue to ramp up, and it will last for decades. Whether your investment style is aggressive and “growth” oriented, or conservative and “income” oriented, the emerging new energy economy provides compelling reinvestment opportunities.

Whether these ideas, or others put forward by other divestment proponents, resonate for you, the most important thing is to realize that what you do with your money matters.  It matters a lot.

If you’re already a divestor, “thank you.”  If you haven’t already, head over to GoFossilFree and DivestInvest – and add your name to the lists of people who have become divestors.

If you’re not yet a divestor,  ignore the noise – the science is telling us that there is absolutely no time to waste.