by Barry Wind and Jeremy A. Pearce
We have all heard about climate change, and most of us are actually quite concerned about the environmental impact we humans have imposed on Mother Earth. The melting ice caps and crazy weather patterns are all indicators of ominous changes ahead. What can be done? On an individual basis, we may do our part to lessen our figurative footprint by riding our bike more, driving a hybrid car or putting solar panels on our roof. On a collective level, many of us have started to see how changing our investment portfolios may also play an important role in slowing, perhaps, reversing the ill effects of climate change.
Various individuals, nonprofits, universities, businesses and government entities have joined the campaign to divest their investments of corporations that derive significant revenues from fossil fuel operations. Among others, Desmond Tutu, Al Gore and Barack Obama have called for divestment. From a moral or ethical perspective, many people simply do not want to profit from an enterprise that is actively engaged in permanently altering our climate for the worse.
From a practical standpoint, an organized fossil fuel divestment campaign can actually divert tens of millions of dollars in value from fossil fuel companies. Just a one penny decline in a large fossil fuel company’s stock price can decrease the value of that company by tens of millions of dollars. This decline in a company’s value in turn has a significant impact on its ability to extract fossil fuels, making the world a cleaner place.
So, what does fossil fuel divestment really mean? This is the tricky part, and different folks have different definitions of what divestment means. For some, it is simply reducing, but not necessarily eliminating, investments in fossil fuel companies. Others limit their investments to those oil, gas and coal companies that maintain “best practices” when extracting and processing fossil fuels. The Fossil Fuel Divestment Campaign advocates the immediate freeze of any new investment in fossil fuel companies and the divestment within five years from any existing ownership of companies or funds that include fossil fuel equities and bonds.
Some other folks believe that making their portfolios fossil fuel free (try saying that fast three times) needs to go a step farther by divesting from companies that are heavy users of fossil fuels, such as airlines and trucking firms. The difficulty with this approach is that almost all companies use fossil fuels in one way or another. One positive way to invest with a healthy planet in mind is to invest in renewable energy and energy conservation. While any investment needs to be vetted from a financial standpoint, there are increasing opportunities to invest in companies focused on serving our energy needs while protecting the planet.
One of the appeals of fossil fuel divestment is that everyone can participate as much or as little as makes sense for themselves and their investment portfolios. Just as we ride our bikes more and drive less, we understand that any effort to divest dollars from fossil fuels makes the world a bit healthier. And when we all join in and do our share, all our small, individual efforts have a much larger, collective impact.
Barry Wind and Jeremy A. Pearce are financial advisors in the Washington, D.C. area, specializing in socially responsible investing with SharePower Responsible Investing, Inc. Comments and questions can be sent to BWind@emailsri.com and JeremyAPearce@emailsri.com.
Investing involves risk including loss of principal. Different types of investments carry varying degrees of risk and clients and prospective clients should be prepared to bear investment and original principal loss. Investing, including socially responsible investing, does not guarantee any amount of success.
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