Bill McKibben’s groundbreaking Rolling Stone story (Global Warming’s Terrifying New Math) and 350.org’s Do the Math divestment campaign raise important and difficult questions about fossil fuels. One that is starting to roil the world of socially-responsibly investing is this: How should mutual funds that strive to be green or sustainable or socially responsible deal with the fossil fuel companies in their portfolios? Should they divest, as McKibben argues?
That was the topic of a column I wrote last week for the Guardian Sustainable Business, which generated some noteworthy responses. It’s part of the British newspaper The Guardian, which has one of the most popular English language media websites in the world. Here’s how the column begins:
“We’re going after the fossil fuel industry,” Bill McKibben tells about 1,800 cheering fans in a Washington, D.C. theatre. “They’re trying to wreck the future, so we’re going after some of their money.”
Al Gore notwithstanding, McKibben -- an author, academic and founder of the grassroots climate group 350.org -- is America’s leading environmental activist. His 21-city Do The Math tour begins a campaign to persuade colleges, churches, foundations and governments to divest their holdings in coal, oil and natural gas companies.
“It does not make sense,” McKibben tells the Washington audience, “to invest my retirement money in a company whose business plan means that there won’t be an earth to retire on.”
He’s right about that, but the divestment campaign raises a thorny question: Where can investors who worry about climate change put their money?
Very good article. I was
Very good article. I was part of the crowd who was able to see & hear Bill McKibben this past Saturday in Omaha. (twice that day!)
Regarding the final question, perhaps it would be better stated as:
"Would [investors] be willing to accept GREATER VOLATILITY (rather than "lower returns") in exchange for a portfolio free of fossil fuels?"
I suggest that wording because there are plenty of non-fossil-fuel companies which have the potential to provide attractive returns. However, there is also potential of negative returns at times as the economy goes through its cycles. Mutual fund managers are attracted to many fossil fuel companies because they have a history of consistent performance, and because the immediate future looks positive for those companies -- since we are not currently seeing a large call to abandon fossil fuels. By including these more-stable companies, it reduces the overall risk profile for a given mutual fund.
That mindset may be changing, however, as more people consider the *risk* of continued use of fossil fuels, and therefore the financial risk associated with the fossil fuel industry. I suspect that fund managers will be looking for those companies that are making a strong effort to diversify into alternative energy.
As co-director over the last
As co-director over the last several years of investor engagements with energy companies on disclosure and management of environmental risks from shale gas development, I provided an extensive discussion of our experiences in comments I posted on Marc's blog page where this article originally appeared. So with apologies to my good friends at greenbiz.com who host my own blogs on fracking and safer chemicals, I'll encourage you to take a look at my comments posted at Marc's page: http://www.marcgunther.com/should-green-funds-invest-in-fossil-fuels/
A great article - and
A great article - and reflects a very similar debate that has been happening about SRI funds in the UK.
Before you write off the whole industry, I would stress that there are some sustainability funds that totally avoid fossil fuels. WHEB - a boutique sustainability investor - where I am Head of Sustainability Research - only invests in companies providing solutions to sustainability challenges. We do not think that natural gas - or any fossil fuels - falls into this category. We publish our full portfolio holdings (with accompanying rationale) every six months (available at http://www.whebam.com/responsible-investing/portfolio-holdings) so anyone can take a look and see for themselves. We have also blogged on why we think natural gas does not qualify as a 'solution to a sustainability challenge' here (http://www.whebam.com/our-blog/entry/why-gas-is-not-green).