Fossil Free SA – Consolidated fossil fuel divestment FAQ
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South African specific divestment questions
In South Africa, the University of Cape Town, the Desmond and Leah Tutu Legacy Foundation, the cities of Cape Town and Durban, the Anglican Church, Inyathelo, and the Lewis Foundation.
Around the world, over 1500 institutions with total assets under management exceeding $40 trillion dollars, including New York, London, Paris, Melbourne, Norway, Ireland, and many, many others.
A. There are different options for an institution that seeks to reinvest money withdrawn from fossil fuels. One route is to seek alternative energy sector investments, such as renewable energy. The scope for this in South Africa is at present comparatively limited. Another route is to seek (hopefully ethical and sustainable) investments in other sectors. Yet another option is to invest in reducing the institution’s own carbon footprint, an investment which can bring very high returns indeed, as George Washington University is discovering. Here’s an article discussing reinvestment in depth. This article describes how a Canadian NGO went about divestment.
A1. Naomi Klein: ‘The criticism overlooks the deeper power and potential of these campaigns. At their core, all are taking aim at the moral legitimacy of fossil fuel companies and the profits that flow from them. This movement is saying that it is unethical to be associated with an industry whose business model is based on knowingly destabilising the planet’s life support systems. Every time a new institution or brand decides to cut its ties, every time the divestment argument is publicly made, it reinforces the idea that fossil fuel profits are illegitimate – that “these are now rogue industries”, in the words of author Bill McKibben. And it is this illegitimacy that has the potential to break the stalemate in meaningful climate action. Because if those profits are illegitimate, and this industry is rogue, it brings us a step closer to the principle that has been sorely missing from the collective climate response so far: the polluter pays.’
A2. It’s difficult to measure, but we also have anecdotal evidence from people in the investment community that divestment is making investors think twice about new investment in fossil fuels. Obviously, it’s incredibly difficult to measure things that people are not doing.
A3. Some investors argue that shareholder engagement is a more responsible approach. Unfortunately, there is no evidence that shareholder engagement is persuading fossil fuel companies to abandon their core business model, which is what is now needed. That said, shareholder engagement can be part of a broad-spectrum approach, but divestment can give shareholder engagement teeth. We would argue that where shareholder engagement is preferred, it should be based on strictly measurable timelines and objectives.
A4. If divestment is an empty and symbolic gesture, fossil fuel companies would not be citing it as a risk in their annual reports, or attempting to discredit it, or pushing for laws against it.
A5. Divestment is as much a social as financial action. If announced publicly, divestment can deal rolling reputational hits to the companies concerned. As a 2013 Oxford Sustainable Finance Programme report on divestment notes: ‘The outcome of the stigmatisation process, which the fossil fuel divestment campaign has now triggered, poses the most far-reaching threat to fossil fuel companies and the vast energy value chain.’
A6. Divestment campaigns against slavery, apartheid and tobacco (now the target of renewed divestment efforts) have been part of many social movements that succeeded despite less ethical parties buying up shares.
A7. If funds can be redirected from fossil fuels into cleaner energy (admittedly not always simple), there is an undoubted direct benefit.
A8. In some contexts, divestment is now also having a financial impact on fossil fuel companies (goo.gl/XaYgzd).
A. Divestment is not just or even mostly about moving money; it is at its heart a social and moral movement that asks us all to take personal responsibility for climate change by examining how we are linked financially to the companies most responsible for it. Divestment works not just when money moves from fracking to wind power, but when a pensioner’s ethical decision about their savings turns them into an activist, when an engineering student decides they don’t want to go and work for Sasol, when a politician sees their constituents working to move their money and understands how important climate breakdown is. The divestment movement has fostered many climate activists who have gone on to work in new arenas, such as Extinction Rebellion and Greta Thunberg’s FridaysforFuture.
The social and political nature of fossil fuel divestment (and its links to our own anti-apartheid struggle in South Africa) has been very well explained by Robert Massie, a senior advisor from Boston Common Asset Management in the US, speaking in 2015:
Well, I’ve heard [this claim] that divestment is ineffective and I would like to suggest otherwise. Taking the South African case, where I wrote a 700-page book on it, it’s absolutely true it had no effect on the stock price and that’s totally irrelevant. At no point during the South African divestment or in the fossil fuel movement does anyone care about the stock price of these companies. If you look at it through finance, you see no effect and therefore you conclude that there’s been no impact. But if you look at it through the discipline of history, you see that it’s incontrovertible that step by step by step it was the South African divestment movement that changed the public discourse, that transformed the decisions of corporations to get out of South Africa and our government, led by a Republican Senate, to pass a comprehensive sanctions bill. Well, one of the things that’s fascinating about it is that climate change has been one of those problems where we’ve been hoping that someone else would do something about it. But divestment has the impact of saying, what are your direct responsibilities? If you own stock in Exxon, if you’re receiving dividends from Exxon whose business model is to destroy the planet, do you feel comfortable with that? Do you endorse what they’re doing? Normally, when you own a stock, you’re endorsing their business plan. And so instead of pushing this off to someone else, it transforms people and institutions exactly as a democracy should.
A1: No. In the long term, you will be creating more jobs, because renewable alternatives are more jobs-intensive than fossil fuels.
In the short term, you won’t be taking anyone’s job away either, because divestment doesn’t shut down companies overnight; it just makes it harder for them to raise new capital without adjusting their business model. Divestment is far from being a big enough movement in South Africa at the moment to have immediate, significant direct financial impacts. Even a relatively big investor like Wits does not have the power, even if it wanted to, to directly end anyone’s job. The primary impact of divestment at the moment is ethical and social – sending a signal to society at large that it is not acceptable to be investing in companies that are systematically undermining our collective human rights. Continued investment in fossil fuels is in fact far more risky to employment in the long run, because the energy transition to renewables is economically and socially inevitable; and clinging to fossil jobs risks the abrupt collapse of fossil businesses. It’s preferable to use divestment now as one of the pressures forcing business and policymakers to adopt a managed just transition.
A2: Arguments that jobs will be destroyed by divestment ignore the fact that these industries are already destroying jobs and livelihoods in other sectors; they are cannibalistic.
A3: The One Million Climate Jobs campaign estimates that over 20 years, 1.7 million direct and indirect new jobs could be created by decarbonising the SA economy, while 115,000 jobs would be lost. These estimates are consistent with the experience of countries that have already substantially decarbonised. Jobs in the fossil fuel sector are often hazardous and low-paid compared to those in the renewable energy sector, and these jobs are already disappearing. Painful job losses can most likely be eased if fossil fuel companies commit early to a carefully planned ‘just transition’.
A4: As has been pointed out by the International Trade Union Confederation, ‘there are no jobs on a dead planet’.
A. It is now nearly 30 years since the world established a consensus on the need to reduce global carbon emissions, in the form of the UN Framework Convention on Climate Change. SA asset managers have had decades to show the effectiveness of shareholder activism in persuading fossil fuel companies to change their ways. Yet most have only recently begun to engage on the issue, and none can point to any substantive changes in actual practice secured by their engagement. The time to engage is long past; calls for prosecution would now be more appropriate.
The evidence for dangerous climate breakdown is now so overwhelming that no-one serving as a fossil fuel company executive can claim ignorance. These executives are consciously and deliberately prioritising continued profit over environmental damage. Like tobacco industry executives, they are highly unlikely to be open to moral suasion.
Many institutions that discover a new-found passion for engagement when asked to divest turn out to have no track record of shareholder engagement. It is strange to argue that divestment would prevent an institution from doing something it has never done before.
Engagement, if adopted in all sincerity and not as a figleaf for inaction on divestment, can be pursued in tandem with partial divestment.
Dialogue and engagement can be useful, but only when managed by institutions with the resources, clout and determination to undertake the necessary research and demand the attention of company boards. Even with all due good intentions, UCT is probably not such an institution. The UCT Vice Chancellor, for example, acknowledged in 2017 that UCT does not have and cannot afford the expertise/resources to pursue a meaningful engagement policy of its own.
Engagement, if adopted in all sincerity, must be outcomes-based and set clear targets for success, failing which complete divestment should be announced. For example, the university could insist that investee companies such as Sasol must meet required global annual carbon emissions reduction targets, currently a minimum 7.6%, or face incremental divestment.
There is, sadly, little evidence that engagement with fossil fuel companies is ever effective in persuading them to adjust their core business models.
A: This argument is used to justify new explorations of fossil fuels, to stack the odds against renewable energy producers and to block any substantive carbon pricing or taxation. There is much evidence, however, that the interests of fossil fuels are actually at the root of many of South Africa’s developmental problems, rather than setting a path towards development. The fossil fuel industry has fomented corruption, inequality, deadly pollution and land degradation, all with heavy economic and social costs. The corruption around power stations at ESKOM, and the recent Powerships ’emergency’ leasing over 20 years at R225 billion are but two examples. The multiple constraints, arduous regulatory approvals and lengthy delays in licensing that renewable energy producers face in South Africa are designed to serve the coal lobby, proponents of nuclear energy and corrupt officials. Renewable energy, generated by multiple small-to-medium sized producers, is less amenable to the large-scale corruption or price fixing that characterises contracts with the fossil fuel industry. Moreover, by pursuing a fossil fuel-intensive development model, we are ignoring the fact that this is no longer the most effective way to build an equitable, stable and thriving economy. The government’s failure to promulgate policies compatible with our long-term best interests threatens the attainment of our commitments to the Paris Agreement, and sets the stage for a climate catastrophe.
Importantly, the operating costs of renewable energy are now cost-comparative with coal-based energy, especially given the solar and wind resources in the country. The hidden costs of fossil fuels – air pollution and carbon emissions – are not accounted for in these calculations. Existing carbon pricing or carbon taxation in South Africa does little to offset the true costs of air pollution and carbon emissions, which instead are borne by communities surrounding power plants and future generations. If costs of pollution and carbon emissions were taken into account, the fossil fuel industry would be unable to compete with renewables, and funds from carbon taxation would be available to assist vulnerable groups to cope with the sequalae of CO2. Accepting the principle of divestment sends a strong signal that the fossil fuel industry business model is illegitimate, unjust. Delegitimising the industry is a key step towards creating a policy climate which facilitates expansion of renewable energy.
A: Only to the extent that sanity in climate policy-making remains fringe! But no. Policy in climate change evolves at a very rapid pace – what may have seemed radical a few years back is now mainstream. More than half of all universities in the United Kingdom have divested, for example (88/165, as of 2021). Many international cities, like London and New York – and Cape Town – have divested; even whole countries like Ireland and Norway have divested sovereign wealth funds. A full list of the more than 1500 institutions around the world that have divested, including leading corporations, can be viewed here.
A: There is no direct link between divestment and job losses. Divestment makes it harder to raise new capital, and reduces market confidence in companies, but leaves them room to improve their performance in response. Without doubt, it is important to ensure a ‘’Just Transition’’ for workers and communities involved in coal and other extractive mining, and to secure their livelihoods. Compared with the coal mining sector, renewable energy is more labour-intensive, and provides safer work conditions and more opportunities for skill building. There are detailed plans and proposals for a transition to renewable energy in South Africa. Moreover, the world is learning fast that a robust environment is essential for a robust economy. Paradoxically, by protecting the fossil fuel industry, we are accelerating climate change and thereby destroying livelihoods, especially those of subsistence farmers throughout Africa who are among the population groups most affected by intensifying droughts, floods and temperature extremes. Indeed, ”Environmental racism’’, driven by the fossil fuel and other polluting industries, makes mostly low-income, Black and other communities of colour victims of the pollution from elite, wealthy communities.
A: Divestment of financial assets and pension funds is NOT tied to receipt of research funding from industry or engagement with industry through participation in company boards, for example.
Universities globally have made a clear distinction between divestment of financial stocks, investment funds and pension funds on the one hand and research funding on the other. Industry obtains major benefits from research partnerships with, for example, Wits University and oftentimes rely heavily on academics at the University to provide critical technical and other inputs into their work, especially during this period of major flux in the industry. Many companies are requesting assistance in decarbonisation, and are well aware of the need for rapid reform. There are few specialist research groups and experts in South Africa and an industry partner would often struggle to find another university in South Africa that is able to provide the research expertise that is available in leading universities. Divestment can also be used as a lever in these interactions, where companies who achieve their targets for reducing emissions are then not divested from. Divestment in a considered manner, that is accompanied by engagement with affected companies, is unlikely to affect research funding. Ultimately, decisions of a University around divestment must centre on ethical principles primarily, and only secondarily on relations with industry.
Universities usually do not promise every donor that it will invest in them.
Even if companies like Sasol do withdraw research funding, more progressive companies, such as Axa which has both divested and funds the UCT African Climate Risk chair, are sometimes stepping in.
A: We agree that universities should, while adopting an ethical investment policy, also work to reduce the various environmental impacts of operations in all dimensions, and have always advocated for this. But efforts to reduce environmental impacts are usually incomplete and imperfect, and action in one domain cannot be predicated on first achieving perfection in another. Decarbonisation efforts in all realms are extremely urgent and must be pursued in parallel: universities should divest AND decarbonise their own operations.
A: Our continued dependence on fossil fuels is now in a very good part a function of fossil fuel industry efforts to slow and stop the energy transition. In South Africa, numerous studies now show renewable energy would be a healthier, cheaper option in the electricity sector. Change will be slower in the transport sector, but the time to set clear targets for decarbonisation is now, as even other developing countries are already doing. (No less than 48 developing countries now have targets for 100% renewable energy.) Too many fossil fuel companies play lip service to the Paris climate agreement while in fact doing their best to stall compliance even with existing regulations for controlling air pollution, much less setting their own clear targets for phasing out emissions. Continued investment in any particular fossil fuel company can only be justified when that company has committed itself to science-based targets for decarbonisation in alignment with global targets. For examples of companies that have already done this, see sciencebasedtargets.org.
See our UCT campaign page for these.
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