DAVID LE PAGE: UCT and Anglicans lead fossil fuel divestment in SA
Despite its hi-tech gloss, the finance industry is all too often driven by custom and tribalism
Fossil Free SA recently completed our first survey of six local institutions attempting to divest from fossil fuels. We congratulate the University of Cape Town (UCT) and the Anglican Church of SA, in particular, for their groundbreaking progress.
Fossil fuel divestment is still a marginal movement in SA, and our financial landscape makes the best divestment intentions difficult to implement. But divestment is the right and prudent thing to do, and the performance of SA’s two most significantly fossil-free investment funds suggests it offers above-average or respectable returns. Even climate deniers should divest if they follow the money.
However, we are disturbed that most asset managers and pension funds have not yet followed UCT and the Anglicans, threatening the wellbeing of their clients and stakeholders both financially and geophysically. Allan Gray stands out for last year turning down a modest request we co-ordinated from more than 100 of its existing clients for a fossil fuel-free fund. (If you want a fossil-free option from your asset manager, look out for our #InvestFossilFree campaign.)
Despite its hi-tech gloss it seems the finance industry is all too often driven by custom and tribalism: doing what you’ve always done and what your peers are doing usually trumps a rational, evidence-based approach.
Globally, the divestment movement has undoubtedly stalled somewhat since the pandemic and the tragic and destabilising war in Ukraine but it still spans funds and institutions worth more than $40-trillion in assets under management.
Despite arguments to the contrary, divestment does effectively challenge the social and financial licence of fossil fuel companies. A recent Harvard study showed viral news about divestment commitments has a real effect on the value of listed fossil fuel companies. The Financial Times noted that “the rising number of funds pledging to dump investments in carbon-intensive companies has led to more market participants grappling with the risks of holding fossil fuel assets”.
Though divestment and environmental, social & governance (ESG) investment should not be conflated, they can overlap. Growing conservative outrage over ESG-style investment in the US is further evidence that contrary to the assertions of most SA asset managers, divestment is an effective challenge to the fossil lobby.
The ESG movement has probably both stalled and accelerated divestment in ways that are hard to measure against each other. Stalled, as there have been fewer headline divestment announcements since the pandemic commenced, and the war in Ukraine has temporarily boosted the fortunes of the fossil fuel industry.
Accelerated, because for all their flaws ESG index funds often divest automatically to some degree without requiring active investor decisions, and because the temporary boost to the fossil fuel industry from the Ukraine war masks a longer-term acceleration away from fossil fuels.
Many African voices have reasonably decried the apparent hypocrisy of current European reinvestment in fossil fuels but then misinterpret the war-related fossil fuel bounce as a long-term trend. The real long-term trend is the opposite: the Ukraine war has accelerated the energy transition towards renewables, as the International Energy Agency (IEA) has highlighted.
Don’t believe the IEA? Well, oil giant BP agrees, saying in its 2023 Energy Outlook: “The desire of countries to bolster their energy security by reducing their dependency on imported energy — dominated by fossil fuels — and instead have access to more domestically produced energy, much of which is likely to come from renewables and other non-fossil energy sources, suggests that the war is likely to accelerate the pace of the energy transition.”
Whatever the balance between divestment, deferred divestment and reinvestment in fossil fuels, we know that overall investment in the global renewable energy transition remains inadequate for meeting the ambitions of the Paris climate agreement. Every penny of renewable reinvestment that can be freed up by divesting from fossils is needed.
In his response to the very urgent warnings in the latest report of the UN Intergovernmental Panel on Climate Change, UN secretary-general Antonio Guterres called on developed countries to bring forward their 2050 net-zero ambitions to 2040.
Because thresholds for further safe emissions of greenhouse gases into the atmosphere have been exceeded, it is geophysically impossible for investments in fossil fuels to generate profits when the very tangible costs of environmental effects are factored in. Investments in fossil fuels no longer offer a surplus to society. These investments now accelerate inequality as inevitably as a dropped rock falls to the ground. This little-understood dynamic underpins stalling global socioeconomic development.
Fossil investment is now a giant Ponzi scheme, in all cases dependent on the theft of environmental stability from current and future generations to present the illusion of present-day profits. This dynamic applies equally to the argument, whether sincere or opportunistic, that decarbonisation must be deferred to look after jobs and vulnerable communities. Delays only increase future pain. Investment in the just transition must be accelerated.
Too many investment professionals and custodians of funds and endowments are still assuming the world of tomorrow will be like the world of yesterday. But all available scientific evidence, not least emerging evidence that we are already triggering vital “climate tipping points” beyond which climate stability will be irretrievable, is that it will be profoundly different.
In just the next two years we face unprecedentedly warm oceans with a renewed El Niño effect, which is likely to have uncertain but most unpleasant consequences.
The underestimated upside of decarbonisation is freeing ourselves from the human rights abuses, corruption, air pollution, economic instability and global conflict that are the constant byproducts of this industry. Only closing the history books on the fossil fuel industry will avert the worst possible damage to the stable global climate that has been the foundation for the world we know and that we still hope to preserve and, indeed, improve.
• Le Page is co-ordinator of Fossil Free SA. Its report on the divestment survey can be accessed at www.fossilfreesa.org.za.
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