For a while it was just a dream of environmental activists and college student protesters. Then a handful of liberal universities, and financial institutions jumped in. And this week Norway’s $890 billion government pension fund joined the trend, followed by an endorsement by Sir Mark Moody-Stuart himself, the former chairman of oil giant Royal Dutch Shell.
We’re talking about divesting from coal investments, and even other fossil fuel funds. According to Bloomberg New Energy Finance, there are as many as 200 organizations that have pledged to cut back or eliminate investments in coal or in fossil fuels more generally. Large universities include Stanford (which took the plunge over a year ago) and Oxford. Large corporations include AXA, France’s largest insurer.
Coal is the easy fossil fuel to divest from. In developed nations like the U.S. it’s in decline and beginning to be seen as a risky industry for investors to put money into. And that’s not just because of climate change, though climate change is a massive global risk in itself.
Coal plants are being closed all over the U.S., and 23 gigawatts—or 7% of US coal capacity—will be taken offline, says Bloomberg New Energy Finance. For comparisons sake, a large coal plant can have enough capacity for a gigawatt. The coal plants are being shuttered thanks to a combination of low natural gas prices, aging coal plant infrastructure and new emissions and pollution standards, which older plants can’t meet without expensive upgrades.
China, too, is closing some of its smaller, and dirtiest, coal plants. The country has a serious air quality crisis on its hands. Three gigawatts worth of coal power-producing plants were closed in 2014, and 18 gigawatts have been closed to date in the country. China pledges to eliminate 20 gigawatts of capacity over the next five years.
But it’s the other fossil fuels, in particular oil and gas, that will be the harder ones to shed. If they ever are shed.
Just scan the Fortune 500 and you’ll see it’s the oil and natural gas companies which are some of the largest revenue-makers in the world. Stanford, and others, specifically are divesting from coal, and not “fossil fuels” in general, partly because the latter would “hit the school’s coffers too hard,” as Jeffrey Ball put it in the New Republic.
In addition, natural gas is not only exploding as an industry in the U.S., but the growing switch from coal to natural gas (which is cleaner burning) in the U.S. has led to a significant drop in carbon emissions over the past few years.
So for now, selling coal investments is the obvious — and increasingly popular — choice. It’s dirty, it contributes to climate change, but it’s also an industry that’s in decline in many regions.
However, coal companies are planning to find most of their future customers in developing regions, leaving them largely immune from the effects of the divestment movement. This leaves the entire divestment movement looking somewhat ineffectual and largely symbolic.
There’s an energy transition occurring from dirtier energy sources to cleaner ones, whether that’s natural gas, solar or wind. As this transition occurs, investors are wise to invest in, and bet on, the future of the transition, not the past. At its most cynical, one could read the divestment movement as a way for forward-thinking investors to avoid the risk of getting on the wrong side of the transition. And win a little positive PR.
