There is much debate about what fossil fuel divestment accomplishes. Some critics say it sounds good but accomplishes very little. They look at the economics and correctly conclude that divestment does not financially hurt fossil companies. However, these critics miss the political impact of divestment.
The goals of fossil fuel divestment are twofold. First, is to raise public awareness of climate change and the responsibility of fossil companies. Second, is to stigmatize or delegitimize the fossil fuel industry by calling them out as bad actors, weakening them politically, and thereby helping win government action on climate change. The University of Oxford Stranded Assets Program studied a number of divestment movements and concluded that almost all had been successful in ultimately winning restrictive legislation against their targeted industries.
Divestment is the start of a process of reducing the tremendous influence of the fossil fuel industry on our political system and thereby making it possible to win government action on climate change. Think about how the tobacco divestment movement made it unacceptable for politicians to take their campaign contributions and that in turn made it possible for the first time to pass public health legislation aimed at reducing smoking.
We are slowly starting to see delegitimization happen with fossil fuels.
Think about how the divestment movement from South African Apartheid in the 1980s made Apartheid unacceptable. And this in a country that has long turned a blind eye to racial oppression at home and oppression by U.S. supported regimes around the world. Twenty-six states, 22 counties, and over 90 cities took some form of divestment action against companies doing business in South Africa. As a result, the divestment movement had great power to shape public opinion and sway politicians. In 1986, Congress passed the Comprehensive Anti-Apartheid Act, which banned new U.S. investment in South Africa, and sales to the police and military. President Ronald Reagan vetoed the act, but the Republican-controlled Senate overrode the veto. That was the power of the divestment movement.
We are slowly starting to see delegitimization happen with fossil fuels. Nationwide over 3,700 politicians have signed a pledge not to take campaign contributions from the fossil fuel industry, including most notably President Joe Biden and Vice President Kamala Harris. The California Democratic Party recently voted not to accept fossil fuel money. In 2018, the Democratic National Committee did the same thing, but then quickly reversed course under pressure from some sectors of organized labor.
Economics versus Politics
Although divestment involves stocks and investments, the effects of divestment are political rather than directly financial. Research to date indicates that at best divestment announcements may have small, very short-term impacts on companies’ stock prices. There is no research showing that divestment directly financially harms fossil fuel companies or changes their behavior. Three economists won the Nobel Prize for their work showing that the massive anti-apartheid divestments had no effects on the share prices of targeted companies. Even the Oxford report on divestment movements, which finds strong political effects of divestment, recommends divestment campaigners “understand that the direct impacts are likely to be minimal.”
Of course, government action promoting clean energy and restricting fossil fuel projects, and possibly reduced bank financing will ultimately greatly harm fossil fuel companies, but this will come about due to the political effects of divestment, rather than direct financial impacts.
Even if divestment did financially harm companies that would be woefully inadequate to address climate change. We cannot wait for economic pressure to make new fossil fuel projects unprofitable—governments can stop permitting new projects now. We need government incentives and mandates for building electrification and electric vehicle use. To grow clean energy requires government tax credits, subsidies, and renewable portfolio standards. It will take government policies to ensure all this happens in a just and equitable way. We need government action on many fronts, and divestment can helps us win that action against fierce fossil fuel industry opposition.
Implications for the Divestment Movement
Whether the effects of divestment are political or financial affects the divestment movement in a number of ways.
Publicity and Messaging: For politics-focused divestment activists publicity and messaging are key. They want as many people as possible to know about a divestment demand or actual divestment action, and they want the message to be that divestment was done because of the immorality and responsibility of the fossil fuel industry with regard to climate change. If the message is instead that divestment is a smart financial move (which it is) that is not as powerful an outcome as it contributes less to delegitimizing the fossil fuel industry.
Politics-focused activists still need to use financial arguments to convince decision makers to divest and, in the case of pension funds, convince pensioners that they will not be hurt. But in a thoughtful paper, Daniel Apfel warns that too much focus on financial arguments distracts from moral arguments and may “...come into conflict with raising awareness of the destruction of frontline communities from fossil fuel extraction and effects of climate change.” It is also important that stigmatization be focused on fossil fuel companies not the institutions doing the investing, whether that be pension funds or universities.
For politics-focused divestment activists, divestment is a means to winning government action on climate change. Divestment in of itself is not the end.
What Gets Divested and Timeframe: Finance-focused activists often advocate for divestment not just from fossil fuel producers, but from a broad array of related industries such as equipment manufacturers, pipeline companies, and fossil fuel powered electric utilities. And they often want divestment to occur in as short a timeframe as possible and include not just fossil fuel stocks and bonds but also index funds that contain any fossil fuels and private equity. For politics-focused divestment activists a broad divestment demand is viewed as not as important as it does not affect the political impact of divestment. Strategically, a very broad divestment demand will be harder to win than a narrower demand, and it is the victory that most achieves the publicity and delegitimization goals of divestment.
Building a Movement: For politics-focused divestment activists, divestment is a means to winning government action on climate change. Divestment in of itself is not the end. Therefore, it is important to create a broad movement fighting on climate change issues that will build on divestment wins and push for government action on climate. For finance-focused divestment activists, divestment is seen as directly impacting fossil fuel companies, so there is less of a need to focus on winning government action or on building a broad movement.
Fortunately, despite differences in views about what divestment accomplishes, activists of different views are successfully collaborating in building a global fossil fuel divestment movement. To date almost 1,600 organizations have divested, with combined holdings of over $40 trillion.
