Mercedes Mullins
Divestment is the act of moving money out of unethical companies by selling stocks, shares, bonds, or investment funds. In the context of fossil fuels, divestment aims to weaken the financial and political influence of the fossil fuel industry, which has consistently hindered efforts to address climate change. Despite over 75% of councils in the UK declaring a climate emergency, local government pension funds still held about £10 billion of investments in fossil fuels in 2021. However, there has been a growing movement towards divestment, with Waltham Forest becoming the first council to fully divest in 2022, and over 60 councils passing motions in support. The Church of England has also decided to divest its endowment fund and pension scheme from fossil fuels, and more than 100 UK universities have made similar commitments.
| Characteristics | Values |
|---|---|
| Reason for divestment | To weaken the financial and political influence of the fossil fuel industry, which holds back action on climate change |
| Aim of divestment | To support those in poorer countries, like Mozambique and Nigeria, who are affected by exploitative fossil fuel giants and face human rights abuses |
| Impact of divestment | Creates public disapproval, causing significant damage to fossil fuel businesses |
| Institutions divesting | Over 1,500 institutions globally, including 100+ UK universities, the Church of England, and local councils like Waltham Forest, Southwark, and Haringey |
| Benefits of divestment | Opens up investment opportunities in growing sectors, such as renewable energy, which is a more prudent investment |
| Risks of non-divestment | Fossil fuel assets are overvalued in the long term due to climate targets, making them a risky investment |
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What You'll Learn
Local government pension funds
Waltham Forest became the first local authority pension fund to fully divest in 2022, removing over £53 million in oil, gas, and coal stocks. Other local authority pension funds that have committed to fully divest from fossil fuels include South Yorkshire and Haringey, which have committed to divesting from coal. Many more local authorities have voted in favour of divesting their pension funds, with over 60 councils passing motions in support of divestment.
The aim of divestment is to weaken the financial and political influence of the fossil fuel industry, which has been holding back action on climate change. By divesting, institutions can signal their support for a greener and fairer future. Additionally, divestment can make financial sense, as renewable companies have seen significantly higher share price growth compared to fossil fuel companies over the past decade.
However, some pension funds have opposed divestment, arguing that selling stock and walking away from fossil fuel companies deprives them of a voice in corporate decisions. They believe that they can be more effective by working from within and seeking to persuade managers to cut emissions.
Overall, the trend towards divestment from fossil fuels by local government pension funds is gaining momentum, with a growing recognition of the financial and climate risks associated with these investments.
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Councils and community groups
The London Borough of Waltham Forest became the first local authority in the UK to announce full divestment of its pension funds from fossil fuels in September 2016. Other local authority pension funds, such as Islington, Southwark, Lambeth, and Cardiff, have also committed to full divestment. Many more councils have voted in favour of divesting their pension funds or are gradually reducing their exposure to fossil fuels to meet "net zero" commitments and reduce financial risks.
Some council leaders have criticised the UK government's guidance against divestment as an "undemocratic attack on the renewable energy sector." They argue that local councillors should be free to choose investments that are in the long-term interest of society and the environment. Additionally, the legal NGO ClientEarth has supported local authorities' decisions to protect pension fund holders from climate risks, stating that it is a far-sighted investment decision rather than a political stance.
Community groups across the UK have also actively campaigned for their local authority pension funds to divest from fossil fuels. These grassroots networks, consisting of volunteers from diverse backgrounds, hold regular meetings, host public events, coordinate petitions, and communicate with their local authorities to advocate for divestment. More than 60 such groups are already working for divestment, and anyone can get involved in their local community to kick fossil fuels out of councils.
Overall, despite facing some opposition and challenges, councils and community groups in the UK have played a significant role in pushing for fossil fuel divestment, demonstrating their commitment to addressing climate change and reducing financial risks associated with fossil fuel investments.
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Charities and churches
Charities are encouraged to commit to divesting from fossil fuels within 3 to 5 years and to refrain from investing in fossil fuels in the future. They are also encouraged to share their decision with donors, supporters, and the wider public, explaining how it aligns with their organisational purpose and values. While there are no guarantees regarding the financial impact of divesting from fossil fuels, these investments are becoming increasingly risky, and divestment can help to weaken the fossil fuel industry's financial and political influence.
Dozens of churches across various denominations have committed to divesting from fossil fuels. In 2020, the Oxford diocese agreed on a plan to urge the National Investment Bodies of the Church of England and the Church Commissioners to prioritise investment in renewable energy. In 2023, the Church of England decided to divest its £10.3 billion endowment fund and £3.2 billion pension scheme from all oil and gas businesses, marking a significant shift after 10 years of engaging with the fossil fuel industry. Several Catholic dioceses have also committed to full divestment from fossil fuels.
However, despite these commitments and pledges, some churches continue to profit from investments in fossil fuel companies. For example, in 2018, the Church of England's regional dioceses were found to continue profiting from companies such as Shell, BP, and Total. As of 2020, the Church of England held an estimated £18 million invested in fossil fuels. While the Church's ethical investment policy excludes investments in weapons, pornography, tobacco, gambling, and other areas, it still permits investments in oil and gas companies.
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Fossil fuel industry's financial risk
Fossil fuels have long been considered a safe investment, but this perception is changing. The fossil fuel industry is facing increasing financial risk due to several factors, including disruptive policy and technological changes, competition from renewable energy sources, and the growing awareness of climate change's financial risks.
One significant factor is the transition to a global low-carbon economy, which requires a rapid phase-out of fossil fuel production. This poses challenges for economic adjustment, as it will lead to the write-down of major capital assets and reserves reflected on fossil energy companies' balance sheets. The underperformance of the fossil fuel sector and its negative long-term outlook have been acknowledged by major investment houses, which have developed investment products with sustainable mandates.
The financial rationale for investing in the fossil fuel industry is also being questioned. A report by the Institute of Energy Economics and Financial Analysis (IEEFA) found that fossil fuel stocks have dragged down stock market returns over the last decade, and the sector posted an annual loss of almost 5% in 2023. Fossil-free equity indices are gaining market adoption and proving to be better investments.
The risks associated with stranded fossil fuel assets are another concern. Stranded assets occur when the expectations of future profits from invested capital decline due to disruptive policy and technological changes. This leads to a loss of value in fossil fuel assets, which is reflected in investor expectations and market prices. The transition to a low-carbon economy increases the risk of stranded assets, and the potential losses can propagate through highly connected financial networks, impacting pensions and government finances.
Additionally, divestment campaigns are gaining momentum, with institutions worldwide cutting ties with the fossil fuel industry. This public disapproval weakens the fossil fuel businesses' ability to operate and signals to governments that people want a greener future. Divestment also makes financial sense, as share prices for renewable companies have grown much more than those for fossil fuel companies in the past decade. As a result, investing in fossil fuels is becoming increasingly risky compared to investing in sustainable businesses.
In conclusion, the fossil fuel industry faces significant financial risks due to market evolution away from carbon, underperformance, stranded assets, and growing public pressure for divestment. These risks are leading investors to re-evaluate their portfolios and consider reducing their exposure to fossil fuels.
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UK universities and careers
The UK government, including its universities and career paths, has been under pressure to divest from fossil fuels and transition to a greener economy. This pressure comes from environmental activists, students, and staff alike, who argue that continued investment in fossil fuels contradicts the UK's commitment to tackling climate change.
UK Universities and their Role:
UK universities have been at the forefront of the divestment movement, with student-led campaigns gaining significant traction. Many institutions have listened to these calls and taken steps to divest their endowments and pensions from fossil fuel companies. For example, the University of Oxford announced plans in 2020 to divest its endowment fund from fossil fuels, becoming the first UK university to make such a commitment. This followed a prolonged campaign by students and staff, who argued that the university's investments were at odds with its research and teaching on climate change.
Other universities that have made similar commitments include the University of Cambridge, which has pledged to divest its direct investments in fossil fuel companies, and SOAS University of London, which became the first UK university to commit to full divestment from fossil fuels in 2015. These decisions send a powerful signal that universities recognize their role in shaping a sustainable future and are willing to align their investments with their values.
Career Paths in a Green Economy:
The push for divestment from fossil fuels extends beyond universities, impacting career paths and job prospects as well. With the UK's commitment to reach net-zero emissions by 2050, there is a growing recognition that a transition to a green economy is inevitable. This shift presents new career opportunities in sectors such as renewable energy, energy efficiency, sustainable finance, and environmental consulting.
Professionals with expertise in these areas are increasingly in demand, and students are recognizing the importance of aligning their skills with the needs of a low-carbon economy. For example, courses in sustainable energy engineering, environmental policy, and green finance are becoming more popular, reflecting the changing career landscape.
A Responsible and Necessary Transition:
Divestment from fossil fuels is not just an ethical stance but also a financially prudent decision. The risks associated with fossil fuel investments are becoming increasingly apparent, with the potential for stranded assets and regulatory changes threatening the stability of these investments. By divesting, universities and individuals can reduce their exposure to these risks and contribute to a more sustainable future.
In conclusion, the call for the British government, including UK universities, to divest from fossil fuels is gaining momentum and impacting career paths. Universities are leading the way by committing to divestment, signaling their support for a green economy. This transition presents new career opportunities and underscores the importance of aligning skills with the needs of a low-carbon future. Divestment is both a responsible and necessary step to ensure a sustainable and prosperous future for the UK.
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Frequently asked questions
Divestment is the opposite of investment. It involves removing stocks, shares, bonds, and investment funds from unethical companies, including the fossil fuel industry.
Divestment weakens the fossil fuel industry's financial and political influence, which has been holding back action on climate change. It also opens up investment opportunities in the growing low-carbon sector, which is financially prudent given the increasing riskiness of fossil fuel investments.
As of 2021, about £10 billion of investments in fossil fuels were held by local government pension funds across the UK, with over 75% of councils declaring a climate emergency. However, five local authority pension funds have committed to fully divest from fossil fuels, and Waltham Forest became the first council to fully divest in 2022. Over 60 councils have passed motions in support of divestment, and more than 100 UK universities have made similar pledges.
