Green energy continues to grow by leaps and bounds, as we begin the massive undertaking of decarbonizng the global economy. It’s been thought that making the shift from fossil fuels to clean energy would take generations, but reports released this week suggest that the writing really is on the wall for fossil energy.
The Canadian Centre for Policy Alternatives released a report that shows how major Canadian public pension fund managers are losing money by backing fossil fuel industries (see:“Pension Funds and Fossil Fuels: the Economic Case for Divestment,” Canadian Centre for Policy Alternatives, November 2015). Clean capitalism research company Corporate Knights also released a report which concluded that by betting on fossil fuels, some of the world’s largest pension funds have collectively lost out on $22 billion since 2012 – the year the divestment movement began (see: “What kind of world do you want to invest in?” Corporate Knights, November 16, 2015).
Back in 2012, 350.org founder Bill McKibben wrote a now famous piece for Rolling Stone magazine calling on University endowments, pension trusts and other fund managers to divest their holdings in fossil fuel companies (see: “Global warming’s terrifying new math,” Bill McKibben, Rolling Stone Magazine, July 19, 2012). McKibben suggested the aims of fossil fuel companies to derive profit from their resource holdings were incompatible with limiting warming to just 2 degrees Celsius – the international target established in the 2009 Copenhagen Protocol.
McKibben drew the parallel with the 1980’s divestment movement aimed at South Africa’s apartheid government, linking fossil fuel divestment with a moral imperative to stop harming the planet. This moral imperative was loudly echoed earlier this year by Pope Francis, who alerted all global citizens and our leaders to the need to be better stewards of the planet and the global economy.
Many have doubted that a moral case alone would be enough to motivate financiers to move away from profitable fossil fuel holdings. In the world of high finance, return on investment often trumps just about every other consideration. But It’s because ‘money talks’ that optimism is growing for green investment initiatives, due to their high rate of return. For example, last year’s government of Ontario $500 million Green Bond option for transit quickly became oversubscribed with bids totalling $2.5 billion.
As for fossil fuels, investors have numerous reasons to abandon ship, as green energy infrastructure becomes more competitive with fossil sources. The latest slump in oil prices has meant that new production from expensive tar sands projects will be delayed. If the world decides to take real action to hold warming below 2 degrees Celsius, those delays could become permanent, as the best available science says as much as 80% of Canada’s proven oil resources will need to remain safely sequestered in the ground (see: “Canada’s Carbon Liabilities: The Implications for Stranded Fossil Fuel Assets for Financial Markets and Pension Funds,” Canadian Centre for Policy Alternatives, March 2013).
Those proven reserves represent real value to shareholders. If reserves can’t be exploited due to market pricing condition or climate initiatives (or both), whomever is left holding the fossil fuel hot potato when the carbon bubble bursts is going to get burned. And that’s why public pension fund managers need to make sure their members are safely insulated from the coming shock by passing on risky, money-losing fossil holdings.
Climate liability is another factor investors are starting to consider. Will our children hold the world’s fossil energy companies legally culpable for the damages done to the planet, in the same way that we’ve made tobacco companies pay for some of the public health costs attributable to their products? While that may seem an abstract question right now, pension fund managers who take a longer view of investment risks should take note.
Divesting from fossil holdings is consistent with the fiduciary responsibility of investment fund managers. As financial backers increasingly flee bad investment choices in the fossil energy sector and embrace green economic initiatives, a decarbonized economy will likely be upon us sooner than we think.
(opinions expressed in this blog are my own and should not be interpreted as being consistent with the Green Parties of Ontario and Canada)
Originally published in the Sudbury Star as "SudburyColumn: Fossil fuel becoming bad investment," on November 21, 2015 - without hyperlinks.