Opponents of fossil fuels think they have opened up a new front against the oil companies. A student group at Harvard is demanding that the university not invest its US$32 billion endowment in oil, gas or coal.
Other academic institutions and campaigning groups have taken up the baton. The climate campaigning group 350.org has been lobbying fund managers. An Australian campaign calls on its members to withdraw deposits from big banks funding coal projects. In the greatest of ironies, Norway’s sovereign wealth fund – financed with the country’s oil revenues – is also under pressure to withdraw from investing in other fossil fuel projects.
Campaigners see fossil fuels – and contributing to climate change – as a moral evil. They draw the comparison to the 1980s-era campaigns to boycott South Africa, and firms active there such as Barclays Bank and the oil companies Shell and BP, over apartheid policies.
Any investor who feels that fossil fuels are morally wrong is quite at liberty not to invest in them – as with tobacco or weapons. Equally, some fund managers may feel oil companies are simply bad investments – financially vulnerable to tougher policies against climate change.
But these campaigns are likely to prove misguided, hypocritical and ineffective.
In the case of South Africa, the country’s policies were clearly morally unacceptable and there were many alternatives to investing there. Nevertheless, the targeted companies’ financial standing was hardly affected.
This will be even truer of fossil fuel divestment. Other investors – such as well-heeled GCC sovereign wealth funds – will step in, and oil, gas and coal companies will find no problem in securing finance. The majority of global oil production comes from national companies not even reliant on public market funding.
The Harvard Political Review recently agreed that divestments were probably financially ineffective but still supported them on the grounds of "sending a message". But how should universities send a message? Through futile gesture politics? Or through educating their students on climate change and pursuing research into low-carbon energy?
A Norwegian withdrawal from fossil fuels suggests it is fine for wealthy Norwegians to extract their oil and gas, but not poor, capital-short countries such as Tanzania (where Norway’s national oil company, Statoil, is operating).
If funds divest from fossil fuels, maybe they should also divest from the whole modern world. Why divest from ExxonMobil, but not Ford, which makes petrol-burning cars? How about plastics, made from oil? Or steel, aluminium and cement – vital for building wind turbines and hydroelectric dams – that emit large amounts of carbon dioxide in their manufacture? Or the airline companies that carry environmentalists around on their campaigns?
Divestment campaigns are not about taking responsibility – they are an abdication of it. They do not distinguish between high-carbon fuels such as coal and low-carbon ones such as gas – even though climate researchers see gas as a key bridge fuel to reduce emissions. A fund that divests can no longer apply pressure on companies to clean up their act, for instance developing carbon capture and storage. Environmental campaigners call on oil companies to put more money into renewable energy at the same time they demand divestment from them.
What is a morally-superior investment? A well-run gas company that minimises its environmental impact or a clothes retailer using sweatshop labour in dangerous conditions?
Hypocritical and ineffective? The fossil fuel divestment campaign is worse than that. If industries and entire countries are given the choice between extinction and suicide, of course they will resist. Effective action on energy poverty and climate change needs a complex balance of technology, economics and political compromises. This is no time for a Manichean division of the world into good and evil energy.
Robin Mills is the head of consulting at Manaar Energy, and author of The Myth of the Oil Crisis
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