April 08, 2013
From Divestment to a Sustainable Investment Strategy
by Robert Kropp
The authors of Crossing Thresholds: From Fossil Fuel Divestment to Sustainable Investment argue for
the inclusion of environmental and social thresholds in investment decision-making and corporate
When a capitalist who says that some of his political views "would be considered right-wing"
assails President Obama for failing to adequately address climate change—"Where are Obama’s
environmental experts hiding? Where was Obama himself on the climate bill?" asks Jeremy Grantham,
co-founder of GMO, an investment management
firm—then it's not hard to believe that we could well "unnecessarily ruin a pleasant and currently
very serviceable planet just to maximize the short-term profits of energy companies and others."
Embedded in Grantham's piece is a box entitled Carbon Math Made Simple, in which he
summarizes the findings of recent reports such as that of Carbon Tracker. The math really is simple: in
order to keep climate change from spiraling disastrously out of control, 80% of the reserves
currently on the books of fossil fuel companies will have to stay in the ground. In the meantime,
those reserves are considered assets by companies and markets.
I was led to Grantham's
piece by an article entitled Crossing Thresholds: From Fossil Fuel Divestment to Sustainable
Investment. The articles co-authors bring a wealth of experience to the theory and practice of
sustainable investment. Bill Baue is a former writer for SocialFunds.com who now consults with
organizations on sustainability. Cary Krosinsky is a former Senior Vice President of Trucost and is now Executive Director of Network for Sustainable
Financial Markets (NSFM). Mark McElroy is the Executive Director of the Center for Sustainable Organizations (CSO).
In a recent interview with SocialFunds.com, McElroy observed, "Most of what passes for
mainstream sustainability measurement reporting fails to express sustainability performance in any
literal or authentic way." An extreme example of this failure could be the presence of unburnable
reserved as assets on the books of fossil fuel companies.
Mainstream attention to the
issue can be attributed to the growing movement on college campuses in which students call on
endowments to divest their holdings in fossil fuel companies. Crossing Thresholds explicitly
congratulates Bill McKibben and 350.org for
encouraging the divestment campaign, and adds, "This campaign establishes the notion of thresholds
in the popular consciousness, which carries implications far beyond divestment."
the Gulf of Mexico oil spill disaster made a mockery of BP's presence on lists of top sustainable
companies, Krosinsky told me, "Divesting is a powerful tool, and if you don't use it enough you
don't have it in your toolbox." But more importantly to the authors, "divestment ripples outward to
more profound transformative implications for how business and investment function — namely, within
a 'safe and just operating space for humanity' that respects not only planetary boundaries but also
Krosinsky also edited Evolutions in Sustainable Investment: Strategies,
Funds and Thought Leadership, and in his foreword to that book he noted that the vast majority of
capital invested sustainably continues to focus on exclusionary screens; however, he wrote, "Take a
purely values-based approach, and you risk missing the very same practical opportunities in
eco-efficiency and innovation, where the sustainability we require will come from."
article's authors introduce the concept of thresholds as a means of moving beyond divestment in
order to develop positive screens that would contribute to the practical opportunities referred to
by Krosinsky. "Carbon screening is a complementary strategy that achieves the same ends through
means that many fiduciaries will likely find more defensible, based in empirical methodologies,"
But thresholds-based screening, which in the environmental space is based on
the amount of carbon that can be safely burned, can be applied to "all potentially material
sustainability impacts." To apply thresholds to issues of social justice, the authors cite a 2012 paper authored by Kate Raworth of Oxfam UK, in which social impacts are visualized
as being in the shape of a doughnut. The outer perimeter is supplied by environmental thresholds
while the inner perimeter, or the foundation, consists of basic issues of social justice such as
health, social equity, and income.
"The social foundation could be achieved for every
person alive today with strikingly few additional resources," Raworth wrote. The objectives of
eradicating poverty while reducing global resource use demand, she continued, "far greater global
equity in the use of natural resources, with the greatest reductions coming from the world’s
Effective positive investment screens based on thresholds will drive
changes in corporate behavior as well, the authors of Crossing Thresholds point out. "Applying
thresholds at the company level may be complex, but it's not rocket science. Many companies are now
doing it, and have been doing it since the mid-2000s."
At the heart of the authors'
argument is the fact that the applications of thresholds to investing and corporate behaviors are
inevitable if the crises facing us today are to be addressed. "We welcome this evolution, which
brings the business and investment communities into closer alignment with real world limits and
demands, finally decoupling finance from fantasy," they conclude. "Herein lies opportunity, as
companies and investors that work within a safe and just operating space nurture a sustainable and
thriving world, which is really our only option going forward."