Divestment is the reduction of some kind of asset for financial, ethical, or political objectives or sale of an existing business by a firm. Divestment from fossil fuels is an action by which money managers withdraw their investments from fossil fuel companies and other investment vehicles, and complement or replace these investments with ESG screened investments. In this section, we will illustrate how divestment from fossil fuels companies and funds can help the environment significantly, and we will suggest the steps to take for action.
Why should your company divest?
Climate change represents a direct threat to businesses and the economy, and the use of fossil fuel usage is the primary human action that triggers global warming, along with deforestation. Furthermore, fossil fuel operations tend to have most pronounced negative impacts on marginalized communities, such as those of BIPOC. As such, there is financial sense, as described in the University of California’s decision that completely divests their funds from fossil fuels assets as of May 2020, for companies to make environmentally-minded decisions that align with their fiduciary duty. Divestment makes business sense for improving long-term business sustainability risk and socially responsible reputation, which is especially important in the current world, as a recent survey suggests that:
63% of millennials — essentially workers under 35 — said the primary purpose of businesses should be “improving society” instead of “generating profit.“
Impact investing is an alternative destination for funding clean energy, sustainable agriculture and fisheries, or technologies to mitigate climate change. In the U.S. alone, one in four dollars, or $12 trillion, was invested according to sustainable investing strategies in 2018, and the trend is on the rise.
Steps towards a fossil-free strategy for your company
You can help your company ride the wave into a climate-conscious future. First things first, find out if your company actively invests its own money (and investment management colleagues): Does your company invest in fossil fuels or use financial services providers that fund fossil fuels?
If your organization is cleaning up its environmental act, further this by selecting responsible financial services providers and greening your pension funds. Here is a list of the 35 banks that are most invested in fossil fuels.
- Speak with colleagues in Corporate Social Responsibility, HR, Finance, Investor Relations, or Procurement about your financial services providers.
- If your company is in the financial or investment industry, these strategic conversations are likely already ongoing. The following steps should inspire a strategy to make sure your company is on the right side of history.
Commit to divestment
- After your organization recognizes the climate emergency and realizes that a stable environment is integral to your business, your company should commit to not funding the fossil fuels industry.
- Make a commitment to review how your company’s money may contribute to the problem and direct it away by choosing more sustainable financial services alternatives is a great start.
- Make a commitment to divest could be an employee-driven initiative raised to decision-makers through HR or Corporate Social Responsibility partners or an all-staff Town Hall or similar forum.
Review & refuse
Review your financial services providers & refuse business to those that fund fossil fuels.
- Review your financial service provider list with your Procurement/Operations colleagues.
- Compare your provider list with those of top-fossil fuels financing and top-most advanced on climate policies; the below resources could be your starting points:
- Give business to banks and insurers who support climate action. Keep in mind that there are numerous financial services providers who care about the future of our planet as much as you do!
Invest for impact
- Engage asset managers with ESG experience: Change the capital mix of your pensions, trusts, other funds, and property. Your money can make you money while funding the transition to the green and blue economy!
- Avoid greenwashing: Investing in funds or projects that do not have a tangible positive effect on the climate. Moreover, while divesting a small part of your portfolio from fossil fuels and putting that money into sustainable funds could be an important first step, ensure that your efforts go beyond box-checking or publicity-oriented actions.
Over 1,200 organizations have divested over $14 trillion in funds, and universities are leading the charge.
University of California: Which has both divested of fossil fuels and has “allocated over $1 billion to climate change solutions and, through our UC Ventures program”
Stanford: The Board, completing a year-long review of fossil fuel investments, reported that Stanford Management Company (SMC), applying economic assessment in the context of its Ethical Investment Framework, has reduced active fossil fuel holdings in Stanford’s Merged Pool of investments by more than 90% to now represent less than 1.5% of the portfolio and that SMC has no direct holdings in the top 100 oil and gas companies.
For financial and investment firms
Divestment can be applied to financial services providers that continue to invest in fossil fuels. If your company is committed to ESG, the following groups provide analysis and additional related services.
- Cicero provides environmental assessments of green bond frameworks; if your company is interested in debt capital markets, this is a potential partner.
- Sustainalytics provides independent analysis of companies; a good resource if your company is committed to improving its ESG performance as well as identifying other ESG-focused companies to partner with
- S&P Global Ratings provides ESG assessments of funds
Report your efforts and receive recognition. Including climate change considerations at the core of your money management strategy can put your company on the radar of impact investors, lead to an appearance in ESG best practice rankings, and bring you positive PR.
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