Carbon divestment is the latest version of the boycott
The economic boycott as a means to achieve desired ends goes back to colonial America’s Stamp Act of 1765. The better-known 1955 Montgomery, Alabama bus boycott was initiated by the arrest of Rosa Parks and it lasted 381 days until it equalized bus riders’ rights in the Jim Crow south. Between these two events (and since) the political and economic power of the boycott has been employed over a wide variety of issues, causes, and belief systems. It continues today with a newer version with similar goals—divestment. Lately, this involves climate defense by walking away from carbon and embracing renewable energy of all kinds.
Money is what fuels business-
Business start-ups commonly begin operations on a shoestring; sometimes with loans. When they grow bigger, they often incorporate because that is the path that leads to selling shares to others through public exchanges like the New York Stock Exchange. That step provides cheaper access to cash for operations and expansion—without the timed series of loan repayments to a bank. It provides breathing room.
However, the larger a corporation becomes and the more stock it has outstanding (in the hands of others) the more vulnerable it becomes to swings in the price of its stock that can be influenced by isolated factors unique to it, or the market as a whole, such as a recession or depression. Even if a corporation’s founders hold 51% of the outstanding shares, they only retain control of operations; but neither they nor other shareholders control the price of that stock.
What is divestment?
Divestment is the sale of a particular stock issue, partially or completely over some period. When the number of shares sold is high and the sale period is shorter, the market’s response to this heavy selling results in a lowered price (unless high buyer demand remains for that stock). When a coordinated campaign exists that encourages the sale of that stock, the resulting drop in price can penalize the fortunes of the issuing corporation.
Divestment has been encouraged for some time related to fossil-based corporations that extract and facilitate the access to hydrocarbons for combustion-based energy. With the recent focus on greenhouse gas emissions and climate change, divestment from carbon has become more common among shareholders.
The 400 pound gorilla-
Pension systems pool periodic paycheck reductions from employees who will someday receive a fixed series of payments in retirement. These systems are composed of both public and private employees. Two of the largest are the California Public Employees and the California Teachers. Like all pension systems, they are managed for the benefit of their current and future retirees. This means they have a fiduciary responsibility to earn the highest possible returns with the greatest safety and asset stability.
Both of the California public systems are under a new influence, courtesy of SB 964, signed in 2018. The measure does not mandate the divestment of carbon or establish a timetable for that. It requires the two systems to assess the risk of financial losses of their investment portfolio due to climate change and to publish a report on their analysis every three years until January of 2035. The first of those reports is due 1/1/20. The statute does not require action to divest but it does recommend that the pension boards’ trustees manage their funds in light of carbon and climate change risks. This could be considered an anti-carbon policy at its most stringent or a desirable carbon management at its least influential. There is stong potential here to de-fund carbon based businesses (which echoes public support).
Is divestment alone?
While potential divestment of carbon from pension portfolios may seem like the point of a policy spear against carbon, it is important to remember that pension systems aren’t alone. Banks and other financial insitutions that specialize in corporate bonds have been increasingly skeptical of carbon for years.
When anything falls out of favor (and thus attractiveness as an investment) it is important to check whether some other alternative is involved. In the case of carbon for electricity generation (fueled by coal, oil, or gas) renewables have delivered more like an uppercut than a jab. Fossil-based electricity is more controversial, is longer to permit and construct, and is more expensive than the renewable alternatives that work without emissions.
The more the public learns of and cares about climate change and its costs, the more ready they will be to divest on their own and oppose carbon intensive infrastructure nearby.
The future is accelerating green-
The public wants clean power with limited emissions and government policy has been responding. Beneficial electrification is gaining traction and the heat pump industry is already seeing expansion. Those of us favoring geothermal heat pumps see a brightening future as more citizens understand what’s in their reach. They are the most efficient means of providing heating, cooling, and hot water. They are good for balancing the seasonal grid and they produce no on-site emissions. This is important because 25% of all greenhouse gas emissions come from occupied buildings. Some jurisdictions are passing “reach codes” that make housing even less consumptive, allowing even smaller HVAC equipment capacity (at lesser cost).
Banks are already accelerating their business to expand renewable infrastructure, and an increasing number of cities are banning new gas connections. The electric car and truck industries are expanding and it looks like aviation is going along for the ride.
As divestment and under-financing of fossil-based technology continues, the renewable alternatives shine brighter. The financial industry looks for more certain bets with less regulatory risk than before. That outcome favors clean renewables over carbon. Divestment is one of the phenomena that will continue to drive us toward a greener future—maybe even minimizing the effects of climate change.