State of Green Business

Redirect, don't divest: New guides for climate change investment

Redirect, don't divest: New guides for climate change investment

Many sustainable institutional investors disagree with the campaign to divest holdings in fossil fuel companies launched by last year.

"To divest is to relinquish those shares to another owner who may not be practicing active ownership," the Interfaith Center on Corporate Responsibility (ICCR) points out. "This approach, in effect, serves to strengthen management control. ICCR members advocate for amplifying our collective voice by bringing more shareholder advocates to the table -- that is, we support engagement."

Whatever one's position on divestment may be, the campaign by -- along with recent insights into the natural boundaries of the planet and stranded fossil fuel assets -- apparently have raised awareness in the sustainable investment community about the need to act decisively on investing to help combat climate change. Not only has ICCR published four pages of insight from which the above quote is extracted; Ceres also has published "The 21st Century Investor" as well, which outlines 10 steps for investors to incorporate sustainability into their decision making.

The Forum for Sustainable and Responsible Investment (US SIF) has weighed in on the issue as well, with a pair of brief guides designed to help both retail and institutional investors direct their investments to address climate change. Each guide begins with a brief overview of the nature of the crisis:

"To have a chance at staying within the 2°C limit, climate scientists say the world’s human population must add no more than about 565 gigatons of carbon dioxide to the Earth’s atmosphere," the guide for institutions states. "However ... oil and gas companies as well as the countries, such as Venezuela and Saudi Arabia, that control and develop fossil fuel reserves, have reserves sufficient to put another 2,795 gigatons into the atmosphere."

Moreover, the guide continues, "many fossil fuel companies and other companies continue to lobby against measures such as a carbon tax or regulations to cut carbon emissions from electrical power plants. Numerous prominent companies pay dues, make contributions to or sit on the boards of organizations that oppose legislation and regulation to curb greenhouse gas emissions."

Both guides offer instruction in the approaches familiar by now to most institutional investors. Each emphasizes the importance of reviewing the performance of portfolio companies and voting on shareowner resolutions, and describes the process for filing resolutions. The institutional guide includes information on the range of holdings available to institutions as well, including the growing popularity of alternative investments such as private equity and venture capital.

The public face of sustainable investment traditionally has been that of institutions, which have the resources available to advocate for long-term investment horizons that incorporate environmental, social and corporate governance (ESG) criteria. So it is especially welcome to have a guide directed at retail investors, many of whose investments are in mutual funds which for the most part have lagged in incorporating sustainability.

The first step recommended for retail investors with holdings in mutual funds is to educate themselves about their funds' activities and contacting them to encourage policies on investing to curb climate change. Many mutual funds and exchange-traded funds already invest according to sustainability criteria, and retail investors should consider switching to them if they are dissatisfied with the ESG performance of the funds they currently hold. The guide also includes information on banking to curb climate, and as with institutions as well recommends that retail investors add their voices to advoocacy for effective public policy.

Reprinted with permission from