For you to divest, someone else needs to invest — so divestment could actually end up breathing new life into fossil fuel assets.
from $234 billion in 2000 to approximately $700 million in 2015. If history is any guide, past efforts at divestment suggest limited future success at best, with capital availability emphasizing that forecast.How effective divestment campaigns are depends on perspective. From the perspective of the divesting party, is highly effective. Fossil fuel asset sellers vote with their dollars and proclaim their positions publicly — and $40 trillion is an eye-popping commitment.
The problem is bigger than just “money out, money in” though. The real issue is that the new buyer has a salient interest in making that asset perform and generate returns. This often means improving the overall productivity of the fossil fuel investment, including pushing for increased output through a longer useful life.
Consider an example. The divesting asset manager sells an oil refinery and reallocates its capital to renewable energy assets. The party buying the refinery invests in improvements. To gauge the benefits of divestiture, the climate benefits of the renewable portfolio would have to outpace those of the improved refinery.
Fossil fuel divestment certainly has some amount of value as a tool for promotion and advocacy, and in general, the decision by asset managers to divert capital from fossil fuels is laudable. However, it requires near total adoption to truly be effective, and without that penetration, divestment could have the unintended negative consequences shown above. For more effect than symbolism or public discourse, alternatives to the sale of fossil fuel assets must be considered.
Run-off, of course, lacks the immediacy of divestment. Selling an asset today — or committing to do so — is easy to communicate: I’m getting this off my books now. It makes for a great a great line in a letter to investors. Explaining a fossil fuel run-off strategy requires complexity, nuance, and patience. In the long run, it’s worth the effort. And, run-off can even be paired with divestment.
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