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Jul 7, 2022

The Story of Fossil Fuel Investment; Divest from Fossil Fuels

The phasing out of fossil fuels has been one of the key talking points surrounding the issue of climate change. We know that economic industrialization and globalization has resulted in massive amounts of pollution that we, as a species, cause to be released daily. There is no way around this hard fact. For those deniers out there… you’re wrong. Your uneducated opinions aren’t helpful. Fossil fuels are used to power our tractors, cars, factories, trains, and buildings 24/7, and this is taking a toll on the ecosystems, biodiversity and overall health of our beloved planet Earth.  

Although much has been said and done in regards to the technology created to replace our dependence on fossil fuels over the last decade, the actions performed to date still aren’t nearly enough to reach the goals outlined in the Paris Climate Agreement. Far from it. 

Is the goal to completely eliminate fossil fuels as an energy source? Perhaps one day, but that’s not the thesis with which we’re starting. Our goal as a species is simply to ween off the use of fuel sources that emit greenhouse gasses into the atmosphere… little by little.  

The good news is that we have the technologies and science to do the very things that will dampen or perhaps reverse the negative impacts of our globalized industrial economies. But the science isn’t enough. To date, we collectively have lacked the will to implement the necessary changes within our economic, political and industrial systems that will bring relief to an ailing planet. This may sound like an impossible task. It’s not.

The necessary forces that will bring systemic change have been seeded and are beginning to grow. How do we know? You’re reading this article is the very proof you need that this movement is building momentum. 

Over the last decade, themes of personal action, education and empowerment have taken hold. If access to money/wealth/security and the drive for it has led - at least in part - to the industrialization of our economy, perhaps those very forces and natural human instincts can be redirected towards building a more inclusive, fair and clean version of our economy: an Economy 2.0. 

This is what is at the heart of the Divest/Invest Movement. 

What does divestment mean?

The concept of divestment simply refers to the process of removing ourselves from the securities, sectors or companies that aren’t in line with our vision for an Economy 2.0. 

If it seems simple, that’s because it is. 

In the context of police brutality plaguing American law enforcement, we heard the phrase ‘Defund the Police’. For the issues of and around climate change, it largely refers to the industrialized agriculture and fossil fuel sectors. These are two sides of the same coin. If you don’t like it, don’t enable it. 

In specific terms, divestment means selling any shares, bonds, stocks or other economic interests in companies that you don’t agree with morally or ethically or that aren’t in line with your vision for the future. In the case of your liquid bank holdings (cash), that means removing your money from banks that support climate destruction. 

Does divestment work?

Companies, governments or financial institutions with access to capital continue to thrive and operate. If we want to more quickly transition to an Economy 2.0, removing access to that capital is a key step in the process. 

Of course, this doesn’t cause a change overnight and won’t independently bankrupt any bad actors. Afterall, there are lots of different sources of money that companies can turn to, including the bond market, hedge funds, private equity, banks or the public equity markets. In fact, this is a common retort by those that disagree with the concept of divestment. 

While true in a sense - that divestment alone doesn’t fix the problem - it’s not all of the story. The answer lies in what people do with their money after they divest and the combination of resulting pressures

Investing in the businesses and sectors in alignment with our Economy 2.0 will provide those companies with the means to gain footing in the marketplace. Afterall, for-profit companies need to make a profit in order to continue to provide those products and services that support the transition to a fair, just and transformed future. To make a profit, they need customers and investors. That’s where you come in by exercising your purchasing power and giving your money a voice. 

Divest / Invest:  A Case Study of the Fossil Fuel Sector 

Let’s use the fossil fuel sector as an example of how Divest / Invest works and push our assumptions to the limit. These are over-simplified examples, but are still accurate.

Divestment from fossil fuel companies in your investment portfolio

A shift in overall public sentiment results in retail and institutional investors selling their equity interests (shares of stock) in the dirtiest polluters, including mining, oil and gas, industrial agriculture, factory farming and fast fashion. 

Stocks are traded in the secondary market, so while it doesn’t have an immediate impact on a company, it does start a chain reaction. The large-scale selling of public stocks causes the prices of those securities to drop significantly. Money that is divested from bad actors is instead invested in companies that highlight sustainability and triple-bottom line business practices. Higher demand for those securities increases their relative value, causing investors to earn higher returns from investing with purpose. The various boards of the companies impacted recognize that the change in market cap is linked to the companies’ policies around sustainability. More companies implement new protocols and hire new management teams that more effectively pursue sustainability as a core pillar. 

Divestment from banks supporting fossil fuel companies

There is a broad realization that money deposited into banks is funding severe climate destruction due to the negligence by banks to properly assess the climate impacts of their loan portfolios. 

Individuals, companies and institutions close their bank accounts and open accounts at values-based financial companies focused on financing Economy 2.0. The decline in deposits and negative customer growth (primary KPIs for the industry) cause affected banks to miss their earnings targets and their stocks decline. Conversely, account and deposit growth at sustainable banks gives them more capacity to grow their balance sheet with loans that have a measurable positive impact. Those banks that had been funding severe climate destruction unwind themselves from those industries. Instead of accessing cheaper bank capital (your money), the dirtiest polluters are forced towards other more expensive forms of capital, which eats away at their profit margin and make them less desirable to investors. 

Why should investors divest from fossil fuels?

You may realize from the case studies illustrated above, that these forces are extremely complicated and do not have immediate impacts. Moreover, only by pairing divestment with a counter-balancing investment at scale will this achieve its goals. 

While not there yet, the Divest/Invest Movement has gained considerable momentum and it is close to a tipping point. 

To date, more than 17 trillion dollars of investable assets has been moved towards sustainable alternatives. Getting involved gives your money a voice and moves the various industries and companies affected closer to making the changes needed. 

At this point, the benefits of divestment are considerable and range from environmental to financial. Here are just a few:  

Stable long-term financial health

If we look at green energy and environmentally-friendly companies nowadays, we’ll see that they are doing much better on the financial side than ever before. With the threat of climate change looming over our heads, renewable solutions are headlining global talks. 

There’s no doubt that fossil fuel companies will be deprioritized over the next 5-20 years. Unless they move quickly to change their trajectory of bad behavior, which has still yet to be seen, their shares, bonds, and stocks will decline in value. This turbulent period can end up very detrimental to investors who still choose to stay with them. 

Green companies are here to stay as the world slowly moves toward green energy and environmentally-friendly ideas that can be applied all over the world. 

High probability of higher profits in the future

Although fossil fuel companies still earn massive amounts of money and invest slightly less than that, the ripples in the market have begun to form. Phasing out fossil fuels takes a lot of work, but it has been put into motion. 

This process has already begun and we’re seeing companies that dabble with green energy soar in the market and in popularity. This is evident as car manufacturers are now focused on electric vehicles like never before in order to stay relevant in the Economy 2.0. Now is the perfect time to invest in such companies and move away from conventional fossil fuel companies because the potential for higher profits is there. 

Helps the environment

Ultimately, the main goal of the fossil fuel divestment movement is to create a better future for us and future generations. Climate change is a very real threat that is already impacting millions upon millions of people worldwide. 

By divesting from fossil fuels, you’re playing an important part in the transition. Money talks, and short of massive political intervention (unlikely!), there is no other feasible way. 

Numerous government institutions and lawmakers have failed to punish the negligible actions of fossil fuel companies. Certain countries are even promoting them! It’s not wise to expect changes to come when there’s no sign they will. 

How can you help the global renewable energy movement?

If you are an average investor or an institutional money manager that’s seeking to create positive change in the world, divesting your money from fossil fuels is one of the key ways that you can get involved. 

To get started, get a complete snapshot of your financial position, including your bank deposits and assets you might have subject to long-term or short-term capital gains. For most people, to avoid costly taxable events from selling stock, transitioning your bank deposits is one of the easists things you can do. Atmos is the most climate-positive bank though it is only available in the US. There are a growing number of sustainable banks around the world, so do your research and be sure you pick one that matches your values.  

It isn’t necessary to rip the band-aid off if it will put you in financial harm. If you have long-term holdings in fossil fuel companies or other companies contributing to climate-destruction, identify losses in your portfolio and plan to sell these securities together. There are a growing number of funds and money managers that are dedicated to this transition. 

You can also invest in climate movements and charities that aim to help people most affected by the effects of climate change. 

If you aren’t quite ready to take these actions, then you can help in numerous other ways. Consider opting in for renewable energy from your local energy providers, sell your gas-guzzler and opt for an electric car, use LED light bulbs that use less electricity, invest in solar panels, and make other lifestyle choices that are sensitive to climate. No matter how small, every positive action is helpful.

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