Ben’s Strategy Blog: Disinvestment
Over three years ago now, I wrote a blog about why anyone investing in a pension – and that means …
Over three years ago now, I wrote a blog about why anyone investing in a pension – and that means most of us, with auto-enrolment meaning that all employers will soon have to provide a workplace pension – should consider a fund that avoids investing in fossil fuels. A recent report brings this up to date and makes even more stark predictions.
The report, published in the highly respected academic journal Nature Climate Change, spells out the risks. When I was writing back in 2013, my point was that as climate change became more urgent, companies whose worth was based on their fossil fuel assets would lose value as people realised that the oil and gas wells, coal mines and tar sands they owned would never be exploited as fossil fuels would become too expensive or illegal to use. This is still the case, and a speaker at a discussion after the Paris Climate Change talks suggested that one reason why Saudi Arabia is not curtailing its oil production to raise the price, as it would have in the past, is because it knows that in future its oil will be harder to sell, so it might as well pump as much as it can now.
The risk today is wider. The report argues that the impact on global financial assets of 21st century climate change is equal to 1.8% of the total, or $2.5trillion, assuming that we take a ‘business as usual’ approach to climate change – ie we don’t make any changes to the way in which we run the world. However, this is just the lower end of the estimate and in the worst scenarios it rises to nearly 17% of the global financial assets or $24trillion. These are substantial sums.
The losses would be caused by severe weather events, and the damage done to buildings, infrastructure and land used for agriculture; and by the reduction in earnings and presumably productivity for people affected by higher temperatures, drought and other climate impacts. In recent decades, there has been a great deal of high value building on relatively low lying land – areas like Florida for example, or the bank of the Thames. Flooding caused by sea level rise and storm surges; therefore, now has much greater financial impact than would have been the case in the past when land at risk of flooding was routinely less developed.
The report argues that taking action to contain climate change to below 2°C will reduce the potential losses significantly:
‘Including mitigation costs, the present value of global financial assets is an expected 0.2% higher when warming is limited to no more than 2◦C, compared with business as usual. The 99th percentile [ie the worst case scenario] is 9.1% higher. Limiting warming to no more than 2◦C makes financial sense to risk-neutral investors—and even more so to the risk averse.’ (Nature Climate Change 4 April 2016. DOI: 10.10138)
So what should the pension investor, or perhaps more importantly the arts manager who is setting up an auto enrolment scheme for their company’s employees, do? The answer must be to avoid investments in companies with interests in fossil fuels – oil, gas and coal. Not only will their assets become less valuable, as Carbon Tracker continues to demonstrate, but their continued development of the fossil fuel reserves that they own will also affect the wider portfolio of shares and assets that pension funds invest in. There are numerous pension funds that avoid environmentally problematic investments – Aviva’s Sustainable Futures funds are just some of the best known (and this isn’t a recommendation – I’m not qualified for that!).
There’s another angle to this. I signed a letter that was published in the Guardian on Monday urging Hartwig Fischer, the new
Director of the British Museum, to drop sponsorship by BP. Liberate Tate, Platform and Art Not Oil have been very successful at raising this issue and apparently having some success: BP will no longer be sponsoring the Tate. Their approach has been political, artistic and fun, demonstrating that art and politics can happily go to bed together. Similarly the divestment campaign at Edinburgh University continues to make waves – and to be fair, seems to have had an effect. And Glasgow University was the first in Europe to disinvest. Things are happening.
Many years ago, Scotland faced the poll tax before England and our protests were a bit too restrained – nothing happened. Shortly after there was more… robust protest in England, Thatcher and the poll tax were chucked out. Is it time we in the arts became a bit less restrained here about fossil fuel?