Sporton (World Coal Association): The High Cost of Divestment

From the brief article:

Since 2012, when 350.org launched its “Fossil Free” campaign, there has been an increasing global campaign to divest fossil fuel assets, particularly coal. The approach has been supported by some institutions that have divested, while rejected by others. For instance, in February 2015, despite an expert panel supporting continued investment, NBIM, the manager of Norway’s sovereign wealth fund, announced it had divested a number of fossil fuel companies from its portfolio.

In contrast, a number of other high-profile organizations have resisted calls for divestment. Harvard University, Brown University, the University of Oxford, and the Wellcome Trust, among others, have released statements questioning the rationale of the campaign. Indeed, the President of Harvard, Drew Faust, who controls the university’s $32 billion endowment, stated:

Divestment is likely to have negligible financial impact on the affected companies. And such a strategy would diminish the influence or voice we might have with this industry. Divestment pits concerned citizens and institutions against companies that have enormous capacity and responsibility to promote progress toward a more sustainable future.

As the divestment campaign has grown in exposure, proponents have begun to suggest that the financial valuations of energy companies may be damaged by strict international climate policies. Campaigners suggest that in order to avoid the potential impacts of climate change, governments must adopt policies consistent with limiting global average surface temperature increases to 2°C above pre-industrial levels. This scenario would require deep structural  changes to the business model of conventional energy companies. In effect, they argue, it would render large volumes of coal and hydrocarbon reserves “unburnable”. The concept continues that stock market valuations of fossil fuels are overvalued creating a “carbon bubble”. Under these circumstances, campaigners have begun to pressure governments and institutions to divest their financial holdings from companies that explore, produce, market, and/or exploit fossil fuels. However, with deeper analysis, it is clear that the movement is built on unsubstantiated claims and flawed logic.

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