Regan Brown
Fossil fuel divestment is an attempt to curb climate change by exerting social, political, and economic pressure to encourage institutional divestment from companies involved in fossil fuel extraction. As of December 2023, more than 1,600 institutions, including universities, pension funds, and governments, have divested from fossil fuels, with assets totaling over $40 trillion. This movement, driven by people power, has been gaining momentum since it emerged on college campuses over a decade ago, with students urging their administrations to invest in clean energy and communities impacted by climate change. While some argue that divestment is a powerful way to undermine the fossil fuel industry, others believe it may not be the most efficient strategy for transitioning to renewable energy.
| Characteristics | Values |
|---|---|
| Total amount divested from fossil fuels | $11 trillion |
| Number of institutions divesting | 1,600+ |
| Types of institutions divesting | Universities, pension funds, governments, faith-based organizations, philanthropic foundations, for-profit corporations |
| Reason for divesting | To reduce climate change, transition to net-zero emissions, and drive investment in renewable energy |
| Impact of divesting | Increased "cost of capital" for funding new fossil fuel projects, loss of influence over the operation of fossil fuel companies |
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What You'll Learn
Student activism
One notable example of student activism leading to fossil fuel divestment is the case of Harvard University. After years of contentious organizing, students with Fossil Fuel Divest Harvard successfully pushed the university to divest its entire $42 billion endowment from fossil fuel-related companies. This marked a significant victory for the student activists, as Harvard is the world's richest private university.
Another marquee victory for student activism can be seen at Boston University (BU). The student-run group DivestBU faced initial resistance from the university president, who argued that divestment was not feasible. However, after a long journey of persistent organizing, the activists successfully swayed the board of trustees, and BU joined the growing list of universities committing to fossil fuel divestment.
The University of Pennsylvania, commonly known as Penn, has also been a site of student activism with groups like Fossil Free Penn demanding that the university withdraw its endowment from the fossil fuel industry. While Penn's leadership initially decided to continue investing in fossil fuels, student pressure led to a small win in 2020 when the university announced it had no direct investments in thermal coal or tar sands. Student activists at Penn continue to push for complete fossil fuel divestment.
High schools are also becoming a new arena for the fossil fuel divestment movement. The Nueva School, an elite private school outside San Francisco, pledged in 2024 to invest a portion of its $55 million endowment in renewable power after sustained pressure from students. Additionally, Seattle Academy in Seattle, Washington, voted in favor of a divestment proposal, demonstrating the impact of student voices in driving change. These victories show that students are taking climate change seriously and are committed to holding their institutions accountable.
Student activists have drawn inspiration from historical divestment movements, such as the fight against apartheid in South Africa, where universities, churches, and pensions played a crucial role in applying social, political, and economic pressure to bring about equality and justice. Today's student activists are leveraging their power to shape the future, demanding that their institutions align their investments with the urgent need to address climate change.
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Faith-based organisations
Faith-based organizations have been at the forefront of the movement to divest from fossil fuels, with faith representing the greatest share of divesting institutions. According to Arabella Advisors' 2018 Global Divestment Report, 29% of the nearly 1,000 organizations divesting from oil, gas, and coal companies are faith-based, with 138 faith-based organizations joining the movement since 2016.
Faith-based organizations committed to divesting represented $24 billion in assets under management, according to Arabella's 2016 divestment report. However, this figure has likely increased significantly since then, as investors with a total of $6.24 trillion in assets under management have committed to fossil fuel divestment as of 2020.
Numerous Catholic institutions worldwide have announced their decision to divest from fossil fuels, marking the largest faith-based divestment announcement. This includes organizations such as the Jesuits in English Canada, the Federation of Christian Organizations for the International Voluntary Service (FOCSIV) in Italy, and the Presentation Society of Australia and Papua New Guinea. The Catholic Church has also accelerated its divestment efforts, with approximately 40 Catholic institutions announcing their decision to divest, timed with the anniversary of the death of St. Francis of Assisi, the patron saint of the environment and animals.
The Church of England, which is part of the international Anglican communion, voted in July 2018 to divest its £12 billion ($15 billion) investment fund from fossil fuel companies if they do not align their operations with the Paris Accord by 2023. The Methodist Church has also voted to divest from coal, tar sand, oil, and gas companies that do not meet the goals of the Paris Agreement.
Faith-based groups have also brought forward resolutions at annual corporate meetings, requesting more proactive and transparent policies regarding climate change. For instance, the US Presbyterian Church, Mercy Investment Services, and Dignity Health urged the Valero Energy Corporation to develop a business plan outlining how efforts to limit climate change would impact its operations.
Faith-based organizations recognize the moral obligation and urgency to address the climate crisis and climate injustice. They view divestment as a way to live out their values and beliefs, turning away from an industry that is causing devastating harm to the planet.
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Universities
In the United States, the movement gained momentum in 2011, with Unity College in Maine becoming the first institution of higher learning to divest its endowment from fossil fuels. Since then, over 140 US colleges and universities have announced divestment commitments, either fully or partially. Notable examples include New York University, the University of Washington, the California State University system, and Harvard University. NYU has committed to full divestment from all fossil fuel companies, while the University of Washington aims to divest its $6 billion Consolidated Endowment Fund from the fossil fuel industry by 2027.
Harvard University, following a decade-long campaign by students and faculty, ended its direct investments in companies exploring or developing further fossil fuel reserves in 2021. Boston University, Brown University, the California Institute of the Arts, Columbia University, Cornell University, and many others in the US and worldwide have also joined the movement.
While the impact of divestment campaigns on publicly traded fossil fuel companies may be limited, these campaigns carry symbolic significance and demonstrate a commitment to combating climate change. Additionally, they can drive investment in clean energy and communities impacted by climate change. However, it's important to note that not all campaigns have been successful, with some schools publicly rejecting divestment due to fiduciary responsibilities and concerns about the lack of impact on fossil fuel companies.
Overall, universities have played a significant role in the fossil fuel divestment movement, with a growing number of institutions choosing to align their investments with their values and commitments to environmental sustainability.
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Effectiveness of divestment
Fossil fuel divestment is a strategy to reduce climate change by exerting social, political, and economic pressure for the institutional divestment of assets, including stocks, bonds, and other financial instruments connected to companies involved in extracting fossil fuels. The movement emerged on college campuses in the United States in 2011, with students urging their administrations to invest in clean energy and communities impacted by climate change.
The effectiveness of fossil fuel divestment can be examined from various perspectives.
Impact on Investor Returns and the Fossil Fuel Industry
Fossil fuel divestment has positively impacted investor returns in the long term. By withdrawing investments from fossil fuel companies, investors signal their commitment to sustainability and ethical practices. This can enhance their reputation and attract environmentally conscious consumers and investors. Additionally, divestment contributes to reducing the social license of the fossil fuel industry, making it more challenging for them to secure funding and operate. As a result, the sector may become less attractive to investors, leading to a potential decline in its financial performance.
Social and Political Impact
Fossil fuel divestment campaigns have led to increased social and political stigmatization of the fossil fuel industry. This stigmatization creates uncertainties about the long-term viability of the industry and pressures companies to invest in renewable energy sources. The movement has forced a fundamental reckoning within finance, government, and civil society, prompting discussions about the future of the global energy system.
Symbolic vs Practical Impact
Critics argue that fossil fuel divestment campaigns are largely symbolic, especially considering that many fossil fuel companies are state-owned and not publicly traded on stock markets. In these cases, divestment may have little practical impact on the companies' operations. However, supporters of divestment view it as a powerful statement and a way to align investments with core values.
Alternative Strategies
While fossil fuel divestment has gained momentum, some critics argue that it may not be the most efficient or targeted strategy to transition to renewable energy sources. They suggest that engagement with fossil fuel companies and collaboration on sustainable practices could be an alternative approach. Additionally, the continued inflow of capital into fossil fuels since the 2015 Paris Climate Agreement has led some to question the effectiveness of divestment in reducing fossil fuel investments.
In conclusion, the effectiveness of fossil fuel divestment is a complex and multifaceted issue. While it has achieved significant milestones in terms of public awareness, social impact, and investor commitments, there are also limitations and alternative strategies to consider. The ultimate success of fossil fuel divestment may depend on a combination of factors, including the scale and influence of the divestment movement, the availability of viable alternative energy sources, and the regulatory environment surrounding the energy sector.
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The future of fossil fuels
The success of the divestment movement can be attributed to the growing awareness of climate change and the need to decarbonize the economy. Institutions are recognizing that divestment is not only a moral call to action but also a financially prudent decision as the fossil fuel industry has been underperforming and exposed to transition risks. The cost of capital for new fossil fuel projects has increased, making it challenging for the industry to secure financing.
Faith-based organizations have been at the forefront of the divestment movement, with Catholic institutions, in particular, heeding Pope Francis's call to divest. Universities, pension funds, and governments have also joined the movement, with Harvard, Boston University, and the University of Washington notably ending their direct investments in fossil fuels.
However, critics argue that divestment may not be the most effective strategy to transition to renewable energy. Werner Antweiler, an environmental economist, suggests that divestments are largely symbolic, especially since many fossil fuel companies are state-owned and not publicly traded, rendering divestment campaigns ineffective against them. Additionally, the World Coal Association claims that divestment does not reduce the demand for fossil fuels but rather results in environmentally conscious investors losing influence over the operations of these companies.
Despite these differing views, the divestment movement continues to gain momentum, and the future of fossil fuels appears to be increasingly uncertain. The growing trend of divestment sends a powerful message to the energy industry and accelerates the flow of money and investment into renewable energy alternatives. As more institutions and individuals join the movement, the pressure on the fossil fuel industry is likely to intensify, shaping the future of energy towards a more sustainable and renewable path.
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Frequently asked questions
As of 2023, over $11 trillion has been committed to divest from fossil fuels. This number has increased rapidly, with the most recent $2 trillion taking just under 6 months.
Faith-based organizations comprise the largest group at about 35% of the total, followed by educational institutions (nearly 15%), philanthropic foundations (12.6%), pension funds (11.8%), governments (11.4%), and for-profit corporations (8.7%).
Divestment is seen as a way to undermine the power of the fossil fuel sector and raise the costs of its capital. It is also a way to shift investment towards clean energy and communities most impacted by climate change.
