What is divestment?
The opposite of investment, divestment simply means getting rid of stocks, bonds or funds that are related to unethical or damaging companies, industries or practices.

Why divest?
Divestment in our context isn’t primarily an economic strategy, but rather a moral and political one. Divestment is one of the most powerful statements that an institution can make. It helps to remove the social license that has allowed the fossil fuel industry to pollute the planet at no cost. It’s also financially sensible, as explained later. To have any chance of living on a planet that looks something like our current one, experts agree we must limit global warming to 2 degrees Celsius. To achieve this means 80% of current fossil fuel reserves must remain in the ground. [1] This has been proofed by the Carbon Tracker Initiative. To avoid the most catastrophic effects of climate change, only 565 gigatons of carbon can be burnt. [2] However, if the fossil fuel industry burns all the fossil fuels currently held in their reserves this will lead to 2795 gigatons of carbon being burnt – five times the safe carbon budget. Two hundred publicly-traded companies hold the vast majority of the world’s proven coal, oil and gas reserves. [3] Since 2001, they have amassed over $1 trillion in profit. [4] Many of these companies, incidentally, are also the largest contributors to politicians globally. They’re the ones influencing legislation, funding deniers and getting billions in government handouts each year. [5]

What is the Carbon Bubble?
As current fossil fuel reserves are valued at $28 trillion, the industry would have to wipe out almost $22 trillion of their value to remain within the carbon budget. This $22 trillion is what is now commonly referred to as the “carbon bubble” (a term closely related to the concept of the property bubble). If the laws of physics are to be obeyed and our planet to remain stable, the carbon bubble will inevitably pop.

What about the risks?
Increasingly, respected authorities such as Lord Stern and experts at HSBC, Citi, [6] the International Energy Agency [7] and Australia’s own Climate Commission [8] are warning us of the financial (not to mention environmental and social) risks of investing in fossil fuel reserves that can never be safely burnt. While it’s undeniable that certain sectors of the fossil fuel industry have raked in record profits over the last decade, there is no guarantee that these companies will continue to deliver good returns in the future.

What can you do?
We are calling upon you, as institutional leaders, to demonstrate your climate commitment by:
1. Ceasing any new investment in fossil fuel companies
2. Divesting from direct ownership and any commingled funds that include fossil fuel investments within five years.

This is how you can get active. We will support you along the whole way.
1. Find out what funds your institution controls and how much is invested in fossil fuels
2. Meet with your fund managers
3. Ask for legislation or develop policy to remove your institution’s holdings from fossil fuel companies and/or ensure they won’t be invested in the future
4. Build support for a commitment
5. Consider investing the funds in more positive ways (renewable energy, etc.)

Divesting from fossil fuel companies poses minimal financial risk, may reduce risks in the longer term and offers opportunities to invest in industries that foster solutions while providing comparable or even higher financial returns. For more information about how your institution can join the growing divestment movement, drop us a line at: [email protected]

[1] Carbon Tracker (2013), Wasted Capital & Stranded Assets

[2] Meinhausen et al (2009)

[3] http://gofossilfree.org/companies/

[4] Daniel J. Weiss and Valeri Vasquez, “Big Oil’s Mountain of Cash” (Center for American Progress, September 27, 2011)

[5] Natural Resources Defence Council

[6] All contributors/supporters of Carbontracker’s work

[7] World Energy Outlook 2012

[8] The Critical Decade 2013