Five years on, the fossil fuel divestment campaign shows no signs of slowing down. Aleya Begum takes a look at how falling prices and an increased focus on green power have affected the movement.


The fossil fuel divestment campaign started in 2011 when students from a handful of universities across the US called on their administrations to pull away from fossil fuels and invest in cleaner and more sustainable energy. The movement aimed to support climate change action and empower those impacted by environmental damage. The students were inspired by other divestment campaigns that had successfully triggered a push for change, such as that for tobacco advertising, and more notably, the 1980s campaign demanding divestment from companies doing business in apartheid South Africa. Today, according to campaign organiser, 552 institutions across the world have signed up to the movement and divested an estimated US$3.4tn.

One of the most notable divestments is probably that of the Rockefeller Brothers Foundation, a philanthropic foundation built on the wealth of Standard Oil’s John D Rockefeller. The foundation’s decision to withdraw from fossil fuel investment and relocate funds to green energy has drawn criticism from some in the sector, who see it as a betrayal. But the president of the fund, Stephen Heintz, says the switch was in keeping with the family spirit.

“John D Rockefeller was a great visionary who saw in petroleum a product that was going to change the world. If he were alive today he would see that the future is going to be in green power,” he said in July, after the fund made a US$177.5mn investment in African solar energy.

The divestment campaign gained steam and drew international supporters when the moral arguments of the students were coupled with the financial risks associated with investing in fossil fuels. A report published in the same year by London-based independent think tank Carbon Initiative, Unburnable Carbon, highlights that the viability of the fossil fuel industry is based on the assumption that the fossil fuel reserves held by companies can all be utilised. However, doing so would mean exceeding the carbon allocations agreed on to keep global warming below 2°C.

“Investors are thus left exposed to the risk of unburnable carbon. If the 2°C target is rigorously applied, then up to 80% of declared reserves owned by the world’s largest listed coal, oil and gas companies and their investors would be subject to impairment as these assets become stranded,” says the report.

The think tank called on capital market regulators and asset owners and managers to start collecting data to analyse and factor this exposure into their risk models.


Falling prices support divestment

In recent years, the price of oil, gas and coal has been crashing – providing further support for the divestment case. Oil prices have tumbled from a peak of US$136 per barrel in 2008, to below US$30 per barrel in February this year. Gas and coal have followed a similar pattern. This has led to projects becoming economically unfeasible, with many either written off or put on hold. While many in the industry argue that it’s just a matter of time before prices in the cyclical industry pick up again, others are not so convinced.

There are a number of reasons why prices may not recover. Normally, in a period of low prices, demand for fossil fuels is expected to soar. However this time, particularly in the case of coal, demand has not followed this pattern. This has been partially due to poor economic conditions across the world, as well as a general move towards “less polluting” fuels – namely a shift away from coal to gas. On the supply side, massive gluts in all three fuels have further kept prices down.

In the same period, the renewable energy market has also made significant headway in becoming more competitive. The unit price of wind and solar energy has dropped dramatically as technology efficiencies have increased and the cost of battery storage, which has been one of the major issues for the sector, has also gone down. According to Bloomberg New Energy Finance, clean energy investment broke new records in 2015 and is now seeing twice as much global funding as fossil fuels.

Furthermore, there has been a marked change in the political will to tackle climate issues. In April this year, close to 200 countries signed the Paris climate agreement that sets ambitious goals to limit temperature rises and to hold governments to account for reaching those targets. Most notably, China and the US, the world’s two biggest polluters, were among the climate action signatories for the first time.

The agreement, which sets a new goal to reach net zero emissions in the second half of the century, was seen by many as a powerful signal to global markets, and as adding pace to the transition away from fossil fuels.

Former US vice-president Al Gore, who helped draft the 1997 Kyoto climate treaty, said in a statement following the signing: “This universal and ambitious agreement sends a clear signal to governments, businesses and investors everywhere: the transformation of our global economy from one fuelled by dirty energy to one fuelled by sustainable economic growth is now firmly and inevitably underway.”


Potential lawsuit liabilities

As well as a bad business environment, fossil fuel companies are also facing a new wave of lawsuits that aim to hold them accountable for the greenhouse gases they emit and the subsequent effect this has on the environment and quality of life. In a landmark move this July, the Commission on Human Rights of the Philippines (CHR), sent 47 companies a petition for a request for investigation, accusing them of breaching the fundamental rights of people to “life, food, water, sanitation, adequate housing and to self-determination”.

The document was sent to companies the CHR described as “carbon majors” and includes fossil fuel mining companies Shell, BP, Chevron, BHP Billiton and Anglo American. The move is the first step in what is expected to be an official investigation of the companies by the CHR, and the first of its kind to be launched by a government body.

With over 7,000 islands, the Philippines is one of the most vulnerable countries to climate change and has suffered from super-cyclones, severe floods and heat waves that have been linked to global warming.

CHR argues that the companies should be held accountable for the effects of their greenhouse gas emissions on the Philippines and demands they explain how human rights’ violations caused by climate change will be remedied and eliminated going forward.

In a similar vein, 21 young people from across the US have filed a constitutional climate change lawsuit against the federal government in the US District Court of Oregon. The charge, which was originally made in 2011, asserts that, in causing climate change, the federal government has violated the youngest generation’s constitutional rights to life, liberty and property, as well as failed to protect essential public trust resources.

In April, the court ruled in favour of the 21 young petitioners in their case against the government and the fossil fuel industry. The ruling, a major victory for the 8 to 19-year-olds, is now under review by the US District Court Judge and due for oral arguments on September 13, 2016.


Assessing the divestment damage

The divestment campaign has now been running for five years: after starting off in a few university campuses in the US, it is now a fully-fledged global movement. The call for regulators and asset managers to incorporate the stranded asset theory into their risk models has been heeded by various governments, institutes and organisations. It has resulted in hundreds of organisations pulling out of fossil fuel investment, including state pension funds, foundations, NGOs and private investors.

In June, the European Union (EU) reformed the Institutions for Occupational Retirement Provision (IORP) directive to include a clear requirement for EU pensions to consider climate change and risks related to the depreciation of assets due to regulatory change. EU pensions must now show how they do this and where these factors are considered in investment decisions. The condition will apply to pension funds holding assets worth around €3.2tn on behalf of some 75 million citizens, according to The change is due to be ratified by the European Parliament in October and then transposed into national law in the member states.

However, despite the numbers and impressive lists, assessing the direct success of (or damage done by) the campaign is not that easy, since it doesn’t appear on the company’s balance sheets or its profit and loss statements. While some have pointed out that it is near impossible to actually put a value on each and every share divested, others have stressed that what is really hampering the campaign is its focus on publicly traded securities such as stocks and bonds – when much of the fossil fuel investment today is taking place in private markets.

A study by the Smiths School of Enterprise argues that the maximum possible capital that might be divested by university endowments and public pension funds from the fossil fuel companies represents a relatively small pool of funds. On average, university endowments in the US have 2% to 3% of their assets committed to public equities in fossil fuel, while the UK has around 5%.

The report, Stranded assets and the fossil fuel divestment campaign: what does divestment mean for the valuation of fossil fuel assets? argues that the direct impacts of fossil fuel divestment on equity or debt are likely to be limited and that “even if the maximum possible capital was divested from fossil fuel companies, their shares prices are unlikely to suffer precipitous declines”.

“The implications for fossil fuel companies are mainly indirect in terms of the stigmatisation of those firms and changes in regulation that could impact their core businesses,” the director of the sustainable finance programme at Smiths, Ben Caldecott, tells GTR.

“The fossil fuel divestment campaign is by far the fastest-growing divestment campaign we’ve ever seen. Investors are showing more and more interest in reducing their exposure to fossil fuel companies, not just because of ethical arguments, but because of genuine investment risk facing these sectors.”

Founder and executive director of Carbon Initiative Mark Campanale tells GTR that there is evidence to suggest that the campaign has directly affected access to finance: “We have reviewed the security filings of coal companies. A number of them, including Peabody Energy, have said the divestment movement has affected the cost of capital and the ability to raise capital.”

“We also get information from investors that they are a lot tougher towards companies. Whilst they may not be divesting their stock, the level of evidence [companies] will have to demonstrate to prove the economics of what they are doing has risen considerably higher, and is more demanding and challenging. People are now asking the fundamental questions,” he says.

Of course, pension schemes and trustees questioning the rationale behind a pension fund (which has a purpose to assure a certain quality of life in 30 to 40 years’ time) investing in things that are going to make the world a worse-off place is logical. But there is also a significant economic case to change the traditional fossil fuel business model, which Campanale believes the questioning has highlighted.

“Our view is that companies should be contracting and getting smaller in line with the forecast of the carbon budget. They should be discarding uneconomic projects that are not in line with the 2°C scenario,” he says.

He explains that Carbon Initiative conducted a 2°C stress-test scenario on major fossil fuel companies and found that if companies, particularly those focused on oil, offload high-cost, high-impact projects, it improves the return on capital on the remaining lower-cost, lower-impact projects. This improves the companies’ return profile.

“The rationale is that they can decline in size while becoming more valuable. The [traditional] idea that they have to triple in size, volume-wise, to become more valuable is not correct,” he says.

Companies can also take different approaches to divestment: the International Investors Group on Climate Change, a trade association that represents a broad selection of members from across the investment community, says its members have used a variety of strategies for this purpose.

A spokesperson for the organisation, which represents US$13tn of assets, tells GTR: “Some prefer to pursue a dynamic engagement strategy with companies in the fossil fuel sector, for example through shareholder resolutions, rather than to actively divest. Others have divested substantially in recent years. In between, some members are starting to divest selectively.”


Risks and opportunities

While the focus of the divestment campaign has centered on the risks that investors must consider, there are opportunities to be had too. In the UK, for example, the Bank of England’s governor, Mark Carney, has advised that the transition towards a low-carbon economy could “spark a fundamental reassessment” of assets and laid out both the positives and negatives of such a shift.

Globally, around a third of equity and fixed income assets are associated with natural resource extraction or power utilities and related industries, he pointed out at the Lloyd’s of London dinner last September, making the exposure of investors to these shifts “potentially huge”.

However, financing the de-carbonisation of the economy is a major opportunity, and implies a sweeping reallocation of resources with chances to invest in long-term infrastructure assets at roughly quadruple the present rate, he added.

For this to happen “green finance cannot conceivably remain a niche interest over the medium term”, he warned.