As global temperatures rise with climate change, so too does the heat of debate over the issue of investment in the fossil fuel industry. With this debate has come a call for the Minnesota State Board of Investment (SBI) to divest its fossil fuel holdings. Currently, a Divest-Invest Minnesota Committee is actively lobbying for the SBI to divest its holdings of these stocks.
A twofold controversy arises over the divestment issue:
1) The right of one group of beneficiaries of the state’s assets to impose its will on all beneficiaries
2) The consequences of the proposed divestment
Normally, the answer to the first issue would be simple—a minority interest group should not control the majority. However, if, as some argue, we are truly on the brink of destroying the life-sustaining environment of our planet, a more compelling argument might be made for the minority point of view.
A response to the second issue of the consequences of divestment is also complex. Will selling shares from one investor to another send a message, ease a conscience, or alter the behavior of the targeted corporation? If other large shareholders divest, will that collective action affect corporate behavior? It is hard to say. Another question lingers—Does ownership of an asset indicate endorsement of that asset’s goals and activities?
Those who argue against divestment point out that in doing so a shareholder forfeits the opportunity to influence the governance and operation of the company through proxy voting and the introduction of resolutions. A collaboration of large shareholders, exercising their shareholder power, might affect corporate behavior, protecting fragile areas from exploitation or forcing a company to disclose what it knows of the harm done by its operation or by convincing the company to transition from fossil fuel investment to renewable energy alternatives. By forcing a long-term view of operations, the worst of short-term devastation may be avoided
The fossil fuel industry has demonstrated itself to be brazenly unscrupulous, wreaking ecological devastation and lying to the public about its effects on climate change. The question remains: What is the most effective investor response to the threat the industry poses for the planet and the investor’s quest for profit? Will divestment or activist shareholders make a greater difference?
The controversy over the ethics of investment in fossil fuels will undoubtedly continue. However, there can be no reasonable doubt about the science supporting the urgent need to find alternatives, to break our addiction to carbon based energy and to find future profits in the development of renewable energy.
Committee of Thirteen member, Larry Risser
for more thoughts, see:
Tim Smith. “Impact through Shareholder Engagement,” Journal of Environmental Investing, 7, no. 1 (2016)