Rights Wire

The Human Rights Blog of the Leitner Center for International Law and Justice

Climate change divestment, the moral crusade

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By Jennifer Li

Like a bad Nelly song, the temperature keeps rising. In the Northern Hemisphere, the previous 30 years was likely the warmest period out of the last 1,400 years. Between 1880 and 2012, global temperatures increased approximately 0.85 degrees Celsius – not an insignificant increase when considering that just the slightest temperature change can produce calamitous results. The post-industrial temperature increase of 1.5 degrees Celsius in total threatens food and water security, particularly for populations along the coastal communities and their livelihoods.

During the much-maligned 2009 UN climate summit in Copenhagen, governments signed a nonbinding agreement pledging to keep temperatures from rising above 2 degrees Celsius (3.6 degrees Fahrenheit), a target that was informed more by political motivations than scientific data. The focal point of much of the criticism of Copenhagen was its failure to produce binding commitments from governments. Without stringent mitigation measures to accompany political lip service, average temperatures may increase 4 degrees Celsius by century’s end. The World Bank has warned in a report that a 4 degrees warmer world will be “marked by extreme heat waves, declining global food stocks, loss of ecosystems and biodiversity, and life-threatening sea level rise.” Four degrees could translate to global sea level rises of up to two meters, drowning Tuvalu and the Maldives, and inundating coastal areas from California to the Northeastern U.S. “There is also no certainty that adaptation to a 4 degree Celsius world is possible,” the same report cautioned. We are all 4 degrees from crossing the Rubicon.

Current fossil fuel reserves in the world are at least three times greater than the maximum amount that can be burned while keeping global average temperature increase below the 2 degrees Celsius aspirational limit settled upon by world governments. While these reserves are potentially worth trillions of dollars, investment in them contributes to the creation of a carbon bubble, a term that refers to the over-valuation of companies like Exxon, Lukoil, and other fossil fuel energy producers who would not be able to fully tap into their reserves if we are to avoid climate catastrophe. By some estimates, at least two thirds of current fossil fuel assets must remain untapped to curtail climate change and keep temperatures below the 2 degrees Celsius limit.

In the last several years, sovereign wealth funds, religious organizations, charitable foundations, universities and other institutions have pledged to divest from fossil fuels. Divestment – removing financial support from different issues by shedding stocks, bonds, investment funds – is not a new strategy. Previously, divestment campaigns have targeted issues such as landmines, tobacco advertising, sweatshop labor and, most famously, apartheid in South Africa. The South Africa divestment campaign in the 1970s and 80s has been hailed as a model for success, as it was bookended by the dismantling of the apartheid system. The real impact of divestment under the South Africa paradigm, however, remains unclear, as studies have indicated that public market valuations in fact remained unaffected. “The sanctions may have been effective in raising the public moral standards or public awareness of South African repression, but it appears that financial markets managed to avoid the brunt of the sanctions,” concluded a 1999 study published by the University of Chicago Journal of Business.

The current fossil fuel divestment movement relies on a similar tactic of moral persuasion. Spearheaded since 2012 by 350.org, the divestment campaign is premised on the idea that public interest institutions cannot possibly serve the needs of its constituents while simultaneously feeding the business model of fossil fuel companies whose financial profits derive from climate destabilization. As Naomi Klein explained in her recent book, This Changes Everything, “[Y]oung people have a special moral authority in making this argument to their school administrators: these are the institutions entrusted to prepare them for the future; so it is the height of hypocrisy for those same institutions to profit from an industry that has declared war on the future at the most elemental level.” Indeed, some of the most vigorous divestment movements have been led by students on hundreds of university campuses worldwide, including at Stanford, which committed to divest from coal companies in May 2014. This past March, the UN joined the clarion call for divestment, and the Guardian launched its own divestment campaign, “Keep it in the ground,” which combines hard-hitting journalism on climate change with calls urging large institutions like the Gates Foundation and Wellcome Trust to jump onboard.

Critics have rightly and pragmatically pointed out that divestment alone is hardly a sufficient financial incentive to shape the energy sector’s behavior. Just as other buyers stepped in to pick up the pieces when funds were pressured to sell off the stock of companies active in South Africa, so, too, will other investors rapidly take the place of the Stanfords of the world and absorb the loss if and when they sever financial interests from fossil fuel companies. Further, despite the focus on the cessation of direct investments, many institutions invest indirectly through managers. Stanford’s divestment pledge has committed only to cease direct investments in coal companies, which says nothing of its plans to discontinue any indirect investments in coal, or any direct or indirect investment in oil and gas companies, for that matter. And despite perhaps a signaling effect, the actual impact on portfolios is low.

However, the objective is not – and should not be – to bankrupt fossil fuel companies, and the energy sector needs to play a critical role in any viable climate strategy. Rather, proponents argue, as with previous divestment campaigns, the primary objective here is the indirect impact of divestment: stigmatization and public shaming. Just as international opposition contributed to the decline of apartheid, increased visibility and public pressure may amplify calls for cleaner energy solutions. In a 2013 report published by the University of Oxford, Ben Caldecott wrote that “the outcome of the stigmatization 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. Any direct impacts pale in comparison.”

Jennifer Li is a Staff Writer for Rights Wire.

The views expressed in this post remain those of the individual author and are not reflective of the official position of the Leitner Center for International Law and Justice, Fordham Law School, Fordham University or any other organization.

Photo credit: maisa_nyc/Creative Commons

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Author: leitnercenter

Rights Wire is the human rights blog of the Leitner Center for International Law and Justice at Fordham Law School.

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