Johann Klaassen & Kimberly Kiel
As investment advisors who specialize in “sustainable, responsible impact” investing (SRI), we do not offer most of the biggest fossil-fuel companies in our client portfolios. The ecological devastation caused by the largest of those companies is impossible to ignore, and they appear to have no real interest in addressing the problems they’ve caused. But a small number of fossil-fuel companies—smaller firms, mostly, and companies that have a record of being willing to talk to environmental activists and shareowner advocates—do appear in our clients’ portfolios. One of the most frequent questions we’ve heard recently is about those firms: should we divest from those last few carbon-energy companies?
Bill McKibben and the folks at 350.org, GoFossilFree.org, the Responsible Endowments Coalition and a wide variety of other groups are urging us all to divest from carbon-energy companies now. We’ve already overloaded our atmosphere with CO2, they argue, and we have to stop adding more immediately. The companies that are making money pulling carbon out of the ground can’t be expected to stop themselves, so we need a divestment movement to withdraw any sense of support for those companies that are causing catastrophic climate change. The idea is this: if we all sell the shares of those companies and are open, even loud, about why we’re doing so, we can bring attention to and put pressure on those companies and drive them out of business. It’s too late to do anything but divest, it is argued; to do otherwise is actually immoral.
Taking their cue from the anti-apartheid movements of the 1980s, these groups are working to convince institutional investors like college endowments, large pension plans, and even some city governments to sell all of their fossil-fuel-company shares and reinvest in non-polluting alternatives. To date, while the divestment movement’s progress has felt slow, it has actually gained more ground faster than any similar movement of the last century. The pressure on carbon-energy companies may not be high yet, but it’s rising.
Others—perhaps most notably Joe Keefe of Pax World Funds—argue that while we all agree that these companies are a huge part of the problem, we can’t simply do away with them and create a carbon-free world economy overnight. Simply put, we don’t have an alternative infrastructure in place to support our existing world; we can’t turn off the gas pumps until we have something to replace them. Instead, we would be better off pursuing an engagement strategy with carbon energy companies, to get them to help make the transition smoother and cleaner than it could be. We probably need to set ourselves a timeline for the transition from carbon energy to renewables, and to keep in mind that we will be shifting from engagement to divestment along that timeline, but there is work to be done before we divest completely.
Many of the largest carbon-energy companies are resistant to engagement strategies, and they refuse to talk with their shareowners about these issues. But there are some exceptions, and some of the smaller firms are recognizing that the world is changing around them. If some of these firms can be convinced to reorganize their fundamental business models, and to lower their carbon footprint while we all search for an alternative-energy future, the result might just be a lower hurdle to jump when the time comes. If we don’t even try to engage these companies, though, we’ll be missing out on that important opportunity.
Both strategies have strong points. We’re well past the point where climate change denialism is anything but a crackpot’s position, and we clearly can’t continue pumping carbon dioxide and other greenhouse gases into our atmosphere for much longer. But we can’t simply turn off the carbon energy today, or tomorrow, or in the coming year, because we aren’t ready with zero-impact energy solutions to replace it. We understand that some of our clients want to take a divestment stand today, and not wait for engagement’s impact; we have developed a Zero Carbon Energy portfolio to help those clients. But we believe that an energetic engagement strategy that tapers smoothly into a divestment strategy is the best approach to take: we want to talk to carbon-energy companies now in order to help them make a transition to a carbon-free energy future.
Disclosure: Kimberly Kiel is the president and Johann Klaassen is the chief investment officer of Horizons Sustainable Financial Services, Inc. in Santa Fe, NM. Horizons is a Registered Investment Adviser firm offering advisory services in the state of New Mexico and other jurisdictions where registered or exempted. Horizons is an Independent investment firm providing investment advice to clients who want to invest with their values and focus on sustainable investment practices. 505.982.9661, http://horizonssfs.com