The flawed case for fossil-fuel divestment raises a carbon debate

Globe and Mail – Report On Business – JUNE 5, 2015. By Robert Walker, Vice-President, Ethical Funds and ESG Services, at NEI Investments.  Climate change was raised as a global concern more than half a century ago. The cries of crisis were dismissed as fearmongering for much of this time. But no longer can any business, government or consumer deny the scientific facts.

NASA declared 2014 the planet’s warmest year since 1880. And the 10 warmest in recorded history have occurred since 1998.

This accepted state of crisis weighs heavily on the investment community in every global market. On May 31, the Responsible Investment Association (RIA) brought together hundreds of leaders from across Canada and around the world in Banff, Alta., to discuss the future of responsible investing. A key topic was fossil-fuel divestment.

Is an industry-wide movement to divest a viable solution?

Fossil-fuel divestment grew out of a student-led campaign to push university endowments and charitable foundations to divest from coal, oil and natural-gas companies in order to fight climate change. If you have these types of institutions as clients, they may be threatening to walk if you don’t comply with divestment.

To deal with the challenges of climate change, we desperately need governments to establish a price on carbon in the form of either a carbon tax (as they have done in British Columbia) or a cap-and-trade system (as proposed by Ontario). But so far, most governments have failed to act in a meaningful way.

For the divestment campaign, investors have a key role to play: By treating the fossil-fuel industry as public enemy No. 1, the industry’s ability to prevent governments from taking action on climate change will be neutralized. What’s wrong with this picture?

Well, plenty.

The campaign rests on the myth that says fossil-fuel companies universally block meaningful government action on climate change. The fact is that for several years, industry leaders have consistently expressed support for a price on carbon.

With the encouragement of responsible investors, companies on both the energy supply and demand side have greatly improved their carbon-emission disclosures, established shadow carbon-pricing tools in anticipation of a price on carbon and begun to integrate improved performance on emissions as components of executive compensation.

Recently, Suncor Energy Inc. CEO Steve Williams authored an op-ed published in Calgary, of all places, that called for a broad and comprehensive price on carbon and pleaded with the new government in Alberta to place greenhouse-gas reduction at the top of its agenda. The fossil-fuel divestment campaign has painted a bull’s eye on the wrong target.

So what’s an investor to do?

First, consider a more selective form of divestment. Some companies – particularly in the United States – have worked actively to muddy the waters on climate science and have opposed a price on carbon. Consider taking those out of your portfolio.

But more importantly, investors should engage with fossil-fuel companies and the companies on the demand side of the energy equation. We all need to be working toward energy efficiency and using new, cleaner energy technologies where possible. Investors can also work with forest products, and mining, oil and gas companies to protect the boreal forest – the world’s largest terrestrial carbon bank.

Working in concert with hundreds of companies, organizations and individuals, responsible investors have helped advance the protection of 65 million hectares of Canada’s boreal forest – an area bigger than France. As a member of the Boreal Leadership Council, NEI Investments applauds this group’s vision to conserve intact ecosystems, which will help species, systems and local communities adapt to changing climate conditions.

Finally, the time to publicly support a price on carbon is now. Canadian organizations such as the Ecofiscal Commission and the International Institute for Sustainable Development are among many advancing carbon pricing as a core strategy for fighting climate change. And provincial governments are listening.

Now is not the time for investors to point fingers and demonize potential allies. Now is not the time to cast blame. Now is the time to recognize the monumental risks, to build strategies, speak out, work together and advance practical solutions for one of the greatest challenges of our era.

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