Let your money do the talking: fossil fuel divestment and COP26

Fossil fuel divestment involves the removal of money from shares, funds, or bonds that support the fossil fuel industry. The movement started in 2012 and is the now fastest-growing divestment movement in history with over $14 trillion committed to divestment globally.

Early adopters included universities and religious organisations and divestment has now been undertaken by an increasingly wide range of institutions such as sovereign wealth funds, professional associations, and financial institutions. Individuals divest through ensuring their personal investments or pensions funds are fossil-free or choosing a bank that does not support the fossil fuel industry. Lobbying or petitioning employers, universities, or pension funds that support the fossil fuel industry to divest, are additional ways individuals or groups can engage with divestment to take climate action. As well as imposing financial pressure, the divestment movement also aims to help remove the social and political license for fossil fuel companies to continue business as normal. Precedent exists for success; the Anti-Apartheid divestment campaign was considered to be a major contributing factor in ending Apartheid both through exerting huge financial and social pressure for change on the South African government.

Supporters of divestment consider it to be both necessary and urgent in speeding up the transition from fossil fuels due to the severity of the climate crisis. The 6th IPCC report unequivocally states that humans have caused widespread and rapid climate warming, principally through CO₂ emissions from fossil fuel use. The fossil fuel industry has resisted accepting responsibility for its contribution to climate breakdown, using its wealth and political influence to preserve the status quo. The good news is that we now have viable alternatives, as renewable energy has rapidly become cost-effective. Renewables now provide 42% of UK electricity, 29% globally and the industry is growing exponentially. Despite this, globally, fossil fuel companies receive nineteen times greater levels of subsidies compared to renewable energy. Additionally, fossil fuel companies, often with government support, continue to prospect for more oil and gas globally, even though if current reserves are used, we will be locked on a pathway to severe climate breakdown. 

Critics point out that divestment alone is unlikely to solve the climate crisis. Arguments against it, highlight that divestment predominantly impacts International Oil Companies (IOCs) that produce only 10% of global oil, with little impact on National Oil Companies who produce the majority and are usually less transparent than IOCs. Others worry that if investors disengage from fossil fuel companies, the opportunity to influence from inside these companies is lost. However, decades of shareholder engagement on this issue have failed to deliver change fast enough as current global policies put us on a path to 2.9^o of warming instead of 1.5^o.

...humans have caused widespread and rapid climate warming... IPCC report

In the past, there were concerns that investors would be reluctant to let go of shares or financial interests in this historically profitable industry for fear it would damage returns. However, over the last decade investments in renewable power generated significantly higher returns than those in fossil fuels. An additional concern for investors and those with a fiduciary duty is the potential for fossil fuel investments to become stranded assets (where reserves suddenly can’t be used due to decreased customer demand / restrictive legislation, and rapidly lose value). However, divesting from fossil fuels and shifting investment to the low carbon sector can reduce the risk of exposure to stranded assets while simultaneously helping achieve net-zero.

COP26 has been touted as the last best chance to avert climate catastrophe. One of its four goals is to mobilise finance to help achieve climate aims with a target of raising $100bn per year towards financing the pathway to net zero. COP-associated global and national financial initiatives are stepping up pressure and support for divestment, both to accelerate a shift away from fossil fuel technology and to encourage the divested funds to be reinvested in new greener technology and initiatives.

There is evidence of this strategy at work; in higher education, many universities are setting goals consistent with COP26’s aims and the UN’s Sustainable Development Goals, often spurred on by student pressure.  More than half of UK universities have already committed to divest or have already divested (over £15 billion) and many have reinvested a significant ­­­­proportion of these funds in sustainable and green tech. Edinburgh University has invested more than £170 million of its divested funds in businesses that benefit the environment and climate research and Kings College London which has reinvested £42.9million of its divested funds into sustainable initiatives, as examples. Institutions involved in climate research and education, consolidate their reputations when they lead by example and reflect that research and teaching through their financial behaviour and general policies.

The divestment movement is a practical and powerful way to galvanise public opinion to respond to the challenges of the climate crisis through its strong potential to accelerate political and financial will. Given its current trajectory, fossil fuel divestment is likely to gain momentum across more sectors and will both be further encouraged by and support COP26 and its goals.

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