If you read Bloomberg’s recent story on the divestment movement, you could easily reach the conclusion that the oil and gas industry has nothing to worry about.
First, university endowment funds account for less than one percent of total assets under management. Second, it seems that the universities with the largest endowments strongly resist the idea of divestment, and even if they miraculously agree to do so, the article mentions that “selling stocks in fossil fuel companies will likely not drive stock prices down for those companies because buyers are waiting to purchase those stocks.”
And did we mention that according to a research conducted by the American Petroleum Institute (API), oil and natural gas company stocks outperform all other asset classes in college and university endowments?
Add to all those reasons the fact that so far only five relatively small colleges agreed to divest from 200 fossil fuel companies identified by 350.org, and this divestment campaign begins to look like a fly fighting an elephant.
So, there’s no reason for the fossil fuel industry to be worried, right? Well, not so fast. Actually, a closer look might bring you to a different conclusion. It’s still David against Goliath, but we all know how that fight ended. So here are five reasons that might keep the executives of the oil and gas companies awake at night because of Bill McKibben and his army of campaigners:
1. This fight is about reputation, not stock prices – The divestment movement’s goal is not to get the stock prices of oil and gas companies down, at least not in the short term, but to make these companies the enemy of the climate change movement, or “Public Enemy Number One to the survival of our planetary civilization” as Bill McKibben put it in his famous Rolling Stone article last year. “A rapid, transformative change would require building a movement, and movements require enemies…And enemies are what climate change has lacked,” he explained.
Basically, this is a fight about reputation. “Divestment is targeting the one thing that those companies can’t buy, which is their reputation,” says Jay Carmona of 350.org. So while the divestment movement seems to be fighting over the minds of university boards, it actually fights over the hearts of people. Given that the oil industry already has the weakest reputation overall among consumers in comparison to other industries, this is a fight where the movement’s chances to win are much greater.
2. Hitting oil companies in their Achilles Heel (aka the carbon bubble) – The share prices of oil, gas and coal companies depend, in part, on their reserves. The Economist reported last month that “several recent reports suggest that markets are now overlooking the risk of “unburnable carbon.”
A Carbon Tracker’s report shows that markets are mispricing risk by valuing companies as if all their reserves will be burned. Another report by HSBC argues that “if lower demand led to lower oil and gas prices…the potential value at risk could rise to 40-60 percent of market cap.”
The risk associated with the reserves is very much a matter of perception, and if the divestment movement becomes more popular and visible, don’t be surprised to see investors reassessing this risk. Then, we might find out the fossil fuel industry is actually much more vulnerable than it wants us to believe.
3. The South Africa precedent –There are a couple of important lessons to be learned from the campaign in the 1980s demanding universities to divest from companies doing business in South Africa, which inspires the current divestment campaign.
First, the South Africa campaign, which by all accounts was considered successful (well, it met its goal after all), included at its peak 155 campuses, so the bar is high but we’re talking in hundreds, not thousands. Second, it took time to get there and especially get the support of some of the largest universities – Harvard, for example, adopted a policy of selective divestment only after a decade of protests.
Last, but not least, we need to remember that this movement won because it managed to influence people, not the stock market. There’s evidence showing the main impact of the South Africa campaign wasn’t on the financial sector, where it had a little effect, but on public opinion, raising public awareness about Apartheid.
4. The math is on McKibben’s side – In This American Life’s episode ‘Hot in My Back Yard,’ which was aired last month, host Ira Glass made the point that neither ExxonMobil nor the API could contradict the numbers at the heart of McKibben’s argument.
“Finally,” Glass says, “Exxon sent me to an industry-funded expert at MIT who told me not only that the McKibben numbers were solid, but that in fact, at the current rates of emissions, by the end of the century we will probably raise the planet’s temperature by five degrees.” In other words, the oil and gas industry isn’t able to question the merits of the campaign when it comes to the data. The math is just not on their side.
5. The oil industry doesn’t have a winning argument – The arguments against the divestment campaign that were made on This American Life by Exxon’s representative, were that ExxonMobil is actually a very good investment, that the campaign oversimplifies a complicated issue and that it’s just not realistic to switch to renewable energy in a short time – the necessary resources are just not there, he said.
Well, if these are the best arguments the fossil fuel industry can come up with, then they’re in trouble because none of them sounds like a winning argument. Can the industry win this fight without having one? I truly doubt that.
So, what do you think – should the oil and gas companies be worried about the divestment movement? Feel free to add your opinion.
Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and the Parsons The New School for Design, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.