Does divestment evangelize or enable the fossil-fuel industry?

(iStock)

How are we to deal with fossil fuel companies that fight the world’s shift to renewables, fund bogus research attacking climate change and generally strip-mine local communities’ tomorrows for short-term profits today?

One option that has been receiving more attention is divestment: pressuring investment managers overseeing pension funds, university endowments and other large pools of money to sell-off holdings in fossil-fuel related businesses.

In June Loyola Marymount University in Los Angeles became the first Jesuit institution to sign the Principles for Responsible Investment and is also one of only a handful of Catholic institutions that have done so.

Since 2005, the United-Nations-promoted Principles for Responsible Investment has offered itself as an international network for socially-minded investors and asset managers and also as a sort of Good Housekeeping seal for investment. Each of its over 1,700 signatories, many of them overseeing massive fund pools, commits to an ongoing consideration of the environmental, social and governance issues in their investments and must offer a public report on their progress each year.

In June Loyola Marymount University in Los Angeles became the first Jesuit institution to sign the P.R.I., and is also one of only a handful of Catholic institutions that have done so.

Christian Brothers Investment Services signed on in 2014. The organization, which manages nearly $7 billion in assets for Catholic groups around the world, saw the PRI as an extension of its work “at the fulcrum of where faith and finance connect,” executive vice president Francis G. Coleman explains.

Initially C.B.I.S. had concerns about whether the P.R.I. had any teeth to it. “We weren’t quite sure this wasn’t an activity where you could just sign on and check the box.” But as the years have gone by they have been pleased to see some progress. “Some organizations have been kicked out; the reporting requirements have gotten tighter; they’re taking the right steps,” Mr. Coleman says.

But divestment is not everybody’s go-to strategy. In 2015 P.R.I. Managing Director Fiona Reynolds noted that while she applauded students in particular for their activism on the issue of fossil fuels, “I’m concerned that the debate is being characterized as though divestment is a quick and easy solution.”

In reality, Ms. Reynolds argues, we are not yet at the point where we can simply walk away from fossil fuels. Renewable technologies are not there yet. Mass divestment risks “triggering serious volatility” in the market, harming investors’ assets.

Mr. Coleman echoes those concerns. While C.B.I.S. sees itself as always looking for the opportunity to “catalyze change” in its asset managers and investments, it also has to remember the needs of its clients, organizations “serving the poor, clothing the naked.”

“We have to be competitive in what we are trying to achieve for those organizations,” Mr. Coleman says. “If you begin saying, ‘We’re going to stop here and there,’ then we’re saying to those organizations: ‘Put your money in a mattress.’”

A key alternative tactic to divestment is engagement, using the seat at the corporate table opened up by investing to advocate change. “Investors, especially when they work collaboratively, are finding that flexing their financial muscle to engage with companies can yield better results,” says Ms. Reynolds.

Mr. Coleman finds this a very Catholic way of proceeding. “Our faith teaches us that we’re all imperfect, and our road is to move from where we are further down the road towards perfect understanding,” he says.

There are certainly industries and businesses C.B.I.S. will avoid completely as investments because their missions are “antithetical to basic core Catholic teaching.” But otherwise C.B.I.S. tries to resist the facile labeling of an organization as “good” or “evil.”

“One of the things about Catholicism that has attracted me to it all these years is that it understands that that we live in a very complex and interrelated world,” says Mr. Coleman, “and the solutions are never binary.”

So Apple Inc., he notes, does great work. But it has also had great troubles at times with issues like the treatment of workers by their suppliers. “They’ve gotten a whole lot better than they were,” Coleman notes, “because of the advocacy we and others have done with them, [helping them ]understand the cost that could be looming in their supply chains, if they’re not careful.”

And the approach to the fossil-fuel industry, Mr. Coleman argues, can proceed similarly. He believes there could be the possibility for change even for a fossil-fuel colossus like ExxonMobil, “if we can have a conversation with them about the basic arc of their current business, the reality that they have reserves they are probably not going to be able to pull out of the ground without exceptional cost to them and the world, the trend lines as it relates to the Paris climate accords.”

Already “the conversation is far different today than it was ten years ago. I think the writing is on the wall,” regarding fossil fuels, Mr. Coleman states.

And yet at some point doesn’t engagement reward companies that actually do deserve to fail? Given their rapacious histories (which continue into the present), why would we want to enable fossil fuel companies to find a way to continue? How would that be any different than trying to help Big Tobacco pivot to, say, fair trade coffee?

Mr. Coleman acknowledges wholeheartedly the conflicts that can arise working with the industry. “They have huge problems, I don’t want to suggest they don’t.” He also notes that a strategy of engagement “doesn’t mean there aren’t other strategies happening at the same time.”

At the same time, at C.B.I.S., the question of writing a group off speaks to a challenge of our faith. “When do you stop talking to the sinner?” asks Mr. Coleman. “It’s a fundamental faith question. And our faith teaches us you don’t stop talking to the sinner. Our belief is that if you keep talking there’s always the possibility for faith and evangelization.”

Christopher Lochner
2 weeks 2 days ago

Why, I thought LMU was supposed to be not-for-profit. If so then how did you come by the excessive funds for investment? Of course this is quite different than placing monies for pensions and the like as it is much more speculative. And who is to say what Catholic politics, using the disingenuous term of teaching, should be? Yes, quite so, whosoever controls the purse strings has the power...in a Loving and Christian manner it goes without saying. ;))

Aryt Alasti
2 weeks 1 day ago

It's disappointing to see comments from a faith-based investment manager about how "complex and interrelated" the world is, which on the other hand include simplistic misrepresentation of what are divestment activist's aims and exaggerated claims about what has been and could be accomplished with "engagement." Is Apple's supplier Foxconn "a whole lot better" now because there aren't quite so many suicides of workers taking place as was the case a few years ago? He should read: "Life and Death in the Forbidden City," published in The Guardian a couple of months ago, to see just how little progress has been made. If that's a metaphor for what Mr. Coleman hopes to accomplish with regard to ameliorating climate catastrophe, we certainly can't be looking to the likes of him for solutions to fossil fuel companies' recalcitrance in shifting from business as usual to a mode of operation which isn't driving destruction of planetary habitability.

To consider these companies' recent acquiescences to reporting on climate-change impacts to their businesses - and their token capital expenditures on renewable energy - as significant progress is turning a blind eye to the severity of the crisis now confronting humanity. Pope Francis has fully elaborated on that threat and the present impacts which are already being manifested on millions of people by climate change, and he has certainly communicated in the strongest terms about the moral burdens of those who pursue financial self-interest in this regard at the expense of human well-being. Investors such as the Rockefeller Brothers Fund, which have successfully divested after years of fruitless efforts to meaningfully redirect the fossil-fuel juggernaut, amply show that by no means is the alternative to endorsing these businesses by taking profits from their operations to just "put money in a mattress."

As to Ms. Reynolds' statements: divestment advocates have never indicated that creating necessary change would be "quick and easy," or that we should be abruptly "walking away" from fossil fuels. Instead, the goal is a "just transition" to a more sustainable future, with a mobilization of civilization to enable that transformative process as a matter of utmost urgency; with an educational process for our citizenries taking place as rapidly as possible, congruent to the unprecedented urgency of our circumstances. The divestment movement has made extraordinary progress toward those goals, with millions of people involved in schools, government councils, religious groups, investment funds and media. That must translate into potent governmental actions, as are increasingly occurring.

Meanwhile, the fossil-fuel industry and its sovereign equivalents are finding themselves in increasingly precarious financial circumstances. There couldn't be a more "volatile" investment category than one in which prices have precipitously dropped by more than 50%, with numbers of companies going bankrupt, others extraordinarily highly leveraged, money being borrowed to maintain dividend payouts, oversupply being a chronic dilemma, and the international community of nations committed to reducing usage of products.

John Walton
1 week 6 days ago

"There couldn't be a more "volatile" investment category than one in which prices have precipitously dropped by more than 50%," I guess you missed the mortgage crisis of 2007 etc. How about the Hunt Silver Debacle? Here's a little principle of micro-economics you might want to brush up on -- in the absence of constraints on capital, prices decline to the marginal cost of the lowest cost producer.

J Cosgrove
2 weeks 1 day ago

I think Fr.McDermott should get out of his echo chamber. I find it ironic that he said

bogus research attacking climate change

when the authors and editors of America point to a bogus research study to justify their position. The so called 97% is just that bogus. It was pointed to by an editor not long ago to justify his position on climate change.

The climate change people say there is no more debate when what is needed is debate. You can bet that any time someone tries to shut down debate by declaring there is no need for debate because the science is settled that they do not have the evidence on their side.

Now before anyone goes off on my denial, I am not denying that there has been warming in the last 150 years. What I am asserting is that we do not know how much warming has taken place, the cause of this warming, how harmful is the warming and what can be done to change the climate if in fact we actually want to change the climate.

Also everyone of the climate models has failed to explain current and past climate so are all these models examples of bogus research? I would say they are. So lets not have any accusations against those who oppose the climate change people when the evidence may be on their side or at best unsettled.

I was just at a glacier in Norway and the guide told us how this glacier has receded huge amounts in the last 20 years. He said the reason was that snowfall on the glacier origin has been down during that time so there has been less snow/ice to feed the glacier. But at the same time glacier ice in Greenland has been growing the last 3 years. It is hard to make sense of it all.

joe kowalczyk
2 weeks ago

J. Cosgrove, there has been a scientific consensus on the important aspects of this issue since at least the early 1990s [when I first engaged in some academic research on the subject]. Unfortunately, the fossil fuel industry then engaged in the tactics used by groups such as the tobacco industry to confuse people and delay action. Read the executive summary of the draft Climate Science Special Report in today's news. Here is an excerpt: "Many lines of evidence demonstrate that human activities, especially emissions of greenhouse gasses, are primarily responsible for observed climate changes in the industrial era. There are no alternative explanations, and no natural cycles found in the observational record that can explain the observed changes in climate." This Report is issued every four years and provides a synthesis of the federal government's knowledge on the subject. Previous assessments have shown that climate change is already affecting the the United States' weather and economy. Its science man.

J Cosgrove
2 weeks ago

Do you agree that the climate model research and the 97% claim are bogus research? Also, what is the consensus on the sensitivity of temperature to CO2 concentration?

How has climate affected the United States weather and economy. My understanding is that if anything it has been positive so far. That does not mean it may not change.

John Walton
1 week 6 days ago

Loyola Marymount is "virtue signalling" via their investment portfolio and attendant public pronouncements. I'm just going to make an educated guess, that David Swensen at Yale sees this as an opportunity.

Joseph J Dunn
1 week 5 days ago

This article should provoke careful thought. I have long wondered about the objectives of those who divest. If the intent is to avoid all financial risk of investment in corporations whose business may be affected by depletion of fossil fuels, etc., then divestment makes sense. Share prices in such corporations already include the sum of all investor’s estimates of those risks. But investors who find the risk unacceptable at any price should divest. But keep in mind, an investor might move his money from a fossil fuel company to a renewable energy company, only to see that company fail, as have Solyndra and many other solar, co-generation, wind turbine, trash-to-energy companies.
Is the objective to convince fossil fuel execs that global climate change should be a major concern? ExxonMobil acknowledged that message in their communications as early as 2006. In the 2011 Citizenship Report: “Global climate change remains an extraordinarily complex issue. Scientific evidence points to the fact that rising GHG emissions present risks to society and ecosystems—and that these risks warrant action by governments, companies, and citizens. Reducing GHG emissions while expanding energy supply is one of the greatest challenges facing our industry and modern society.” If ExxonMobil knows about it, so does everyone in the “energy patch.”
Is the aim to hasten the adoption of renewable fuels? I see no mechanism by which divestment would affect this transition. Renewables have simply not yet attained the capabilities to replace fossils. There is much confusion on this. For example, many people fail to realize that electric vehicles (Tesla, etc.) are powered in part by fossil fuels, as most regions of our country derive some portion (usually more than 50 percent) of their electric power from fossil fuels. What looks pure may not be so pure.

Is the objective to financially harm the fossil fuel corporation? Many investor-owned fossil fuel corporations use corporate funds to buy up shares of the corporation’s stock, from shareholders who want to sell, including divestors. So divestors play into the overall capital plan of the corporations. Does divestment reduce the value of other shareholders’ investment? If so, certainly not enough to be quantifiable, since the buy-back programs buy back more shares than the total number being sold by divestors. All else equal, divestment concentrates corporate power into fewer hands.

Divestors and other concerned people and organizations have been heard at the offices of publicly-traded corporations. But what reception has occurred at state-owned companies like Petroleos Mexicanos (Pemex), or at PDVSA, which is entirely owned by the Venezuelan government and possesses the largest proven oil reserves in the world (yes, even larger than Saudi Arabia’s)? Saudi Aramco is the world’s largest oil and gas company. While that company is currently owned entirely by the Royal Kingdom of Saudi Arabia, some stock may soon be offered to the public, and the company is estimated to have a market capitalization of $2 trillion—more than five times the market cap of ExxonMobil. Rosneft is majority-owned by Russia. Any discussions there? Capitalism, for all its problems, promotes conversation.

I was troubled by a new theology of redemption: “And yet at some point doesn’t engagement reward companies that actually do deserve to fail? Given their rapacious histories (which continue into the present), why would we want to enable fossil fuel companies to find a way to continue? How would that be any different than trying to help Big Tobacco pivot to, say, fair trade coffee?” Does this new theology apply to individuals, such as everyone who still uses fossil fuels, or only to people operating in for-profit association (corporations), but not to people operating in other associations (like colleges, hospitals, parishes) that use fossil fuels, perhaps inefficiently? By the same yardstick, would an organization that banned books, sold official favors (indulgences), burned witches, laundered money, abused children, and if I read Valerie Schultz’s article in America correctly, pays less than a living wage to its workers, etc., be among those that deserve to fail? Many of us in business need clarification of this new theology.

Theology aside, from a purely business point of view, very few corporations survive transitions from one industry to another—in more than one hundred years, probably only a handful. Most corporations have to run fast just to keep up in their core industry. Thus most corporations, large and small, succumb to Schumpeter’s creative destruction.

Finally, I wonder if fossil fuel execs sitting at the table with concerned shareholders/divestors/evangelists, misread the generosity of “When do you stop talking to the sinner?...our faith teaches us you don’t stop talking to the sinner” as arrogant or condescending? I hope that such a misconstruction would not derail the conversation.

Divestment neither enables nor disables the fossil fuel industry. I believe that a shareholder is a more effective evangelizer to corporate management than a non-shareholder, since the shareholder is a direct stakeholder, notwithstanding the sincere interest of both the divested evangelizer and the listening corporate exec in promoting the common good.

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