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January 08, 2014
Top Sustainable Investment Stories for 2013 Part 3
    by Robert Kropp

Divest or engage? Sustainable investors have wrestled with arguments of divestment versus engagement, and many have concluded that engagement provides them with the better opportunity to pressure fossil fuel companies to change their behaviors. Meanwhile, sustainable investment firms such as Green Century Capital Management and Trillium Asset Management have been offering fossil free investment opportunities for years.


Although it was published back in 2011, a paper by Carbon Tracker describing the financial implications of stranded assets on the books of fossil fuel companies became a rallying call for environmental activism the following year. That was when an article entitled Global Warming's Terrifying New Math, written by Bill McKibben of 350.org, was published in Rolling Stone.

“Climate change operates on a geological scale and time frame, but it's not an impersonal force of nature,” McKibben wrote. “The more carefully you do the math, the more thoroughly you realize that this is, at bottom, a moral issue.”

Sustainable shareowners quickly recognized the implications of stranded assets for their investment portfolios. During the 2013 proxy season, resolutions filed by As You Sow and the Unitarian Universalist Association (UUA) requested that two of the nation's largest coal companies report on the long-term effects of the issue.

Also, a coalition of global investors organized by Ceres and Carbon Tracker wr ote to 45 of the largest fossil fuel companies, requesting that the companies report on the exposure to and management of risks associated with stranded assets.

But by framing the debate as a moral issue, McKibben had something different in mind than the practice of shareowner engagement with fossil fuel companies. Spurred in large part by his article, and looking to the anti-apartheid divestment campaign of the 1970s as an example, students on campuses in the US organized to pressure their colleges and universities to divest their holdings in fossil fuel companies. By December, 350.org's “fossil fuel divestment campaign has spread to over 300 colleges and universities and more than 100 cities, states and religious institutions across the United States,” the organization reported.

Despite the widespread media attention given to the divestment movement, many sustainable investors remain committed to corporate engagement instead. “We're not seeing moves by big institutional investors to divest,” Simon Billenness of UUA told SocialFunds.com in November. “The University of Washington reached an agreement with its student divestment group, not to divest but in fact to use shareholder advocacy where they have fossil fuel holdings.”

Nevertheless, an article entitled Crossing Thresholds: From Fossil Fuel Divestment to Sustainable Investment explicitly congratulated McKibben and 350.org for encouraging the divestment campaign, and added, "This campaign establishes the notion of thresholds in the popular consciousness, which carries implications far beyond divestment."

“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 social equity,” the paper stated.

After trustees at Swarthmore College rejected students' call for divestment, the sustainable investment firm Northstar Asset Management concluded “that there is, in fact, no substantive reason for investment fiduciaries to not divest their fossil fuel holdings.”

“Shareholder efforts to convince fossil fuel firms to expand into alternative energy businesses have proven ineffectual and, as a result some fossil fuel firms have even stopped trying,” Northstar stated. “SRI investors and their fiduciaries also have a responsibility to consider the cost of NOT divesting—on people and the planet, as well as on profit.”

In October, 350.org collaborated with Green Century Capital Management andTrillium Asset Management in the publication of a divestment guide. The guide outlined several reasons for considering divestment as an option. One specifically addresses financial risk.

“Divesting now could allow investors to reduce their exposure to a possible collapse of the so-called 'carbon bubble,'” the guide stated.

The guide demanded that fossil fuel companies stop exploring for new hydrocarbons; stop lobbying in Washington and state capitals to preserve their special breaks; and pledge to keep 80% of their current reserves underground forever.

Both Green Century and Trillium are veterans of the practice of shareowner engagement, and their efforts in that direction are not likely to diminish. Nevertheless, both companies have offered fossil fuel free investment opportunities for years. The Green Century Balanced Fund does not invest in fossil fuel or nuclear power companies, but focuses on companies committed to protecting the environment and disclosing their sustainability performances. Nearly seven percent of the Fund's assets are in the Renewable Energy and Efficiency sector.

The Fund is managed by Trillium, whose Sustainable Opportunities investment strategy avoids oil and gas investment.

A report entitled Cleantech Redefined, co-authored by Danielle Fugere of As You Sow, argues that the basic drivers of cleantech products and services “are intact and fundamentally reshaping the future.”

“Investors need to understand and incorporate what has traditionally been so-called 'extra-financial' information into their risk analysis and investment valuation,” the report states, addressing the importance of risk mitigation in the investor's portfolio. “In order to achieve both our economic and environmental objectives, capital will need to be allocated toward products and services that can do and provide more with less.”

 

 
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