By Robert Blood, managing director of NGO tracking and issues analysis firm SIGWATCH
In the US, Chubb, JP Morgan Chase, Bank of America, Wells Fargo, Citi, Morgan Stanley and Goldman Sachs have all announced partial or complete coal exits. Australian institutions are following suit, as are Japan’s leading banks and insurers, even though coal remains a primary energy source for Asia’s expanding economies.
As the flight from coal gathers pace, activists are now demanding boycotts of other forms of ‘extreme carbon’ including oil sands, deep-sea and Arctic oil, fracked gas, and LNG and oil sands infrastructure. Street protests and public shaming face those institutions that refuse to negotiate.
Yet less than a decade ago, the carbon divestment movement did not exist. Student environmental groups in America first began demanding that their colleges’ endowment and pension funds dump shares in fossil fuel-related firms and projects in 2012. They took as their model the anti-Apartheid divestment campaign of the 1980s, which succeeded in forcing not just colleges but American businesses to cut links with South Africa. Once the campaign caught fire in a Democrat-controlled Congress, South Africa became a pariah investment for nearly a decade until the Klerk-Mandela settlement, and subsequent election of a black majority government, in 1993.
Climate activists and other campaigners have latched onto the financial sector as a powerful lever with which to put pressure on polluting industries, or at least get their attention. Financial institutions publicly boycotting named companies is effective, if only for the dismay it tends to cause in their boardrooms. The fact that it works at all is only because environmental and social responsibility standards have recently become normalized in the investment community. Exclusion criteria and enhanced due diligence were once the preserve of SRI and ethical funds on the fringe of the investment industry. Not any more.
Campaigners have not been slow to exploit investors’ new-found willingness to listen to them in order to push their wider agenda on a wide range of environmental and social concerns. These include human and indigenous rights, sustainability, corporate environmental responsibility and benchmarking, labour standards, even animal rights. ‘Green vegetarianism’ – eschewing meat for environmental rather than health or ethical reasons – is rising fast, and likely to prove a major headache for agribusinesses and their investors that are unwilling to adapt.
Major financial institutions, as they develop ever more expansive policies and standards under pressure from NGOs and other stakeholders, have no choice but to track the long-term implications of the criteria they are enforcing. Divestment on the basis of increased risk has a tendency to become a self-fulfilling prophecy. When money flows out of an asset type, the remaining investors are by definition exposed to increased financial risk, and this in turn stimulates additional cycles of divestment. It is not for nothing that fossil fuels are commonly described by climate campaigners as ‘stranded assets’. That they are becoming stranded at all is in large part due to successful demonization by campaigners.
Pension funds linked to ‘politically sensitive’ workforces such as public sector employees, health and education, are especially exposed to this kind of argument. Student carbon divestment campaigns moved from endowments to staff retirement funds once they secured the support of a significant number of faculty. In Denmark, Greenpeace has been putting pressure on the main state-backed pension funds. In Sweden, it recently launched a boycott of contributions to the mandatory state pension scheme AP3 until it agreed to divest from all fossil fuel-related firms and projects.
Institutions need to be on the front foot on the issues that NGOs are bringing to the table, or are likely to in the near future, and prepared as to how they plan to respond. A good start is to watch what the activist groups are demanding and on what issues or objectives they are allocating their resources. This way you can usually get at least 12 months’ head start. Another indicator of urgency is the response of your direct competitors and other peer institutions. Try to hold onto positions that your rivals have abandoned, and you are simply inviting campaigners to line up and attack.
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