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Climate Activism: Fossil Fuel Divestment & The Green Transition

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Nowadays, it can feel quite hard to detach ourselves from that looming sense of doom even a passing interest in politics can generate. Culture wars rage, the coronavirus (COVID-19) pandemic has the world beneath its thumb, Brexit is a barely discussed catastrophe, political choices have rendered millions of people in Britain poverty-stricken, and all the while, the prospect of environmental crises hangs above, an existential threat to us all.

Governments around the world, with ours in Britain first among them, leap with a vexing enthusiasm to any issue other than environmental crises; our impending climate-doom seeming not to tickle our political leaders enough to take action of any meaning.

Contrary to what we may read in such overwhelming political inertia and moral recalcitrance, the urgency of the issue is very real. We’re sliding ever closer toward ecological collapse and climate crisis, and the majority of countries missed their most recent Paris Agreement deadlines to increase their climate ambitions. While most of the world’s biggest economies now have the long-term goal of reaching net zero by mid-century, few have the policies required to meet them. As economies turn to the issue of post-COVID-19-recession recovery, most countries are gearing up for a return to fossil fuel use instead of forging a green recovery from the pandemic.

In spite of the gloomy headlines, there is room for hope. The last few years have shown us that people around the world are agitating for action on climate change. From the school strikes and Extinction Rebellion, to political efforts around the Green New Deal and green European electoral successes. There has been an upswell of activist and political energy, a broader ecology of social movements, speaking to the issue of climate justice and sustainability. 

We have but a few short years to make radical changes to our societies, our economies and our politics. A key lever in enabling this transformation will be continued and growing levels of activism and social movements working to apply pressure to political systems around the world: keeping sustainability on the agenda and shifting public opinion, building a foundation of legitimacy for political action, and forging a path for the creation of a sustainable global economy.

In recent years, a key component of this broader grassroots mobilization for climate justice has been the fossil fuel divestment movement

Over the years, there have been numerous campaigns on ‘divestment’. Each of these has sought to pressure institutions of different forms – universities, religious organisations, pensions funds, local authorities, governments, and beyond – to sell any financial assets they own that are damaging to society or environment.

One of the most successful divestment campaigns was that on South African Apartheid. By the mid-1980s, the campaign had led to twenty-six state governments, twenty-two countries, ninety cities and 155 university campuses divesting from companies that did business in South Africa, helping to break the back of the abhorrent, racist Apartheid government.  

Since 2011, similar efforts have focused on climate change, sustainability and fossil fuels. Originating in the advocacy work of the NGO, the fossil fuel divestment movement first gained prominence on US university campuses through student-led activism. Campaigning efforts were focused on convincing asset owners to divest from fossil fuels and invest in zero-carbon climate solutions; attracting attention to issues of climate and sustainability by stigmatising fossil fuel companies; and engaging in broader debates about economy, morality and justice. In 2012, the movement gained global visibility thanks to a Rolling Stone article by environmental activist Bill McKibben titled ‘Global Warming’s Terrifying New Math’, advocating cuts to the supply of financial capital to the fossil fuel industry. In 2013, the movement spread to the UK with the launch of Fossil Free UK, focused on the £5bn held by British university endowment funds. Its rapid growth would mean the fossil fuel divestment movement was soon identified as the fastest growing divestment campaign in history: within a few years it had gone global and divestment commitments had been made by numerous universities, religious institutions, art galleries, museums, banks, charities and pension funds, and national and local governments in countries around the world.

Fossil fuel investments are the focus of such campaigning because energy use is the single biggest cause of global greenhouse gas (GHG) emissions.

In 2016, where fossil fuels provide 80% of the world’s primary energy, energy use accounted for 73.2% of global GHG emissions across sectors and industries. To successfully transition to a green economy and achieve net zero emissions by 2050, it is crucial that the global economy moves from fossil fuels to renewable energy. While economies shift to a green energy infrastructure, there will of course be a few years where some amount of oil, gas and coal will be burnt. But to reach the required targets to achieve sustainability by mid-century, significant quantities of existing fossil fuel reserves must to bet left in the ground and investments in renewable energy need to increase significantly with urgency.  

Wildly dismissive of these looming horizons and its’ devastating impact on the environment, the fossil fuel industry remains vast both in the scale of its assets and the annual flows it creates. As Carbon Tracker reports, existing fossil fuel assets include 900 billion tonnes of coal, oil and gas, valued by the World Bank at $39tn, a supply infrastructure valued at $10tn and demand infrastructure (electricity, transport and heavy industry) of $22tn. The key flows in the fossil fuel system include $1-3tn a year in economic rent to petrostates from fossil fuels; yearly capital expenditure of $1tn on supply infrastructure and $3-4tn on demand infrastructure; and yearly profits of around $1-2tn. And in the pipeline, there are clear intentions to expand the fossil fuel system through a further $6tn of equity investment, from oil exploration and gas turbines, to diesel cars.

To the glee of investors, the fossil fuel industry has spent many years leading economic indicators and has been the king of shareholder pay-outs. But nowadays the fossil fuel industry is low growth, has high fixed costs and low returns. Shareholder returns have declined after a decade of lagging stock market performance. And the declining performance of fossil fuel companies looks all the more stark when compared to the performance of renewable energy markets. The costs of renewable energy are down 90% and the cheapest source of electricity in almost every country in the world is renewables. Across investment portfolios renewable power now generates significantly higher returns relative to fossil fuels, at a rate of 363.7% over the last decade. And annualized volatility – a measure of investment risk – for renewable power was lower than fossil fuel in global and advanced economy portfolios, although it remains higher in China and other emerging market and developing economies. 

Quietly propping up the companies and governments that are pushing us into climate crises, global financial markets are deeply invested in fossil fuels. 

Around the world, financial markets own vast sums of fossil fuel assets, including $18tn of equity, $8tn of traded bonds, and up to four times as much in unlisted debt. Since the Paris Climate Agreement in 2016, the world’s biggest sixty banks have provided $3.8tn in financing for fossil fuel companies. US and Canadian banks account for 13 of the 60, but they make up for almost half of global fossil fuel financing over the last five years. JPMorgan Chase provided more finance than any other bank. UK bank Barclays provided the most fossil fuel financing among all European banks and French bank BNP Paribas was the biggest in the EU. Even as overall financing dipped by 9% in 2020 due to the pandemic, funding for those fossil fuel companies with the biggest expansion plans rose by 10%. Such poor results occur even as 17 of the 60 banks have committed to be net zero by 2050, revealing even these few pledges to be “dangerously weak, half-baked, or vague”. 

Meanwhile in 2018 it was reported that the world’s fifteen largest asset management companies, managing a combined $40tn in capital market assets – on behalf of large pension funds, university endowments and insurance companies – had increased their holdings of thermal coal reserves in their funds by 20% since 2016. In 2019, the world’s three largest asset managers – BlackRock, Vanguard and State Street – were reported to have built a combined $300bn fossil fuel investment portfolio. Since the Paris Agreement, they’ve continued to grow billion-dollar stakes in some of the most carbon-intensive companies in the world. Their effective holdings of thermal coal, oil and gas through the companies they managed has increased by 34.8% since 2016, making them the biggest investors in public oil, gas and coal companies. While such asset managers do not own the companies in which they invest, they can exercise shareholders rights on behalf of clients to vote on board members and company policy issues. Reports show that BlackRock and Vanguard have routinely opposed motions at fossil fuel companies that would have forced directors to take more action on climate change.

With its efforts focused on the financial markets that direct global capitalism, long assumed to be passive redistributors of resources, the scale of the challenge facing the fossil fuel divestment campaign is vast.

Yet in the decade or so since the movement has emerged, the fossil fuel divestment campaign has made important strides in supporting the transition to a global green economy. As May Boeve, executive director of writes, the fossil fuel divestment campaign has permeated “every sector of society: from universities and pension funds, to philanthropic and cultural institutions, to citiesfaith groupsinsurance companies and more.”

Numerous stories help to reveal the divestment campaigns’ successes. The campaign group ShareAction has led shareholder climate resolutions at UK banks like HSBC and Barclays to cut exposure to fossil fuels. Major UK pension funds that own assets worth £870bn, including those of the Church of England, Lloyds Banking Group and the National Grid, have committed to cutting the carbon emissions of their portfolios to net zero by 2050 or earlier. NGOs such as the Gates Foundation have divested after being publicly shamed for investing in fossil fuels. Thousands of organisations, such as universities, churches and other institutions have chosen to divest. The movement has led to the creation of new financial products such as fossil fuel free indices, which are sold to institutional investors around the world. And even governments, such as the Republic of Ireland in 2018, have legislated for divestment. 

In 2016, the value of those investment funds committed to selling off fossil fuel assets had reached $5.2tn, which included around $400bn of that total having been in coal, oil and gas. Reports at the time found that 688 institutions and more than 58,000 individuals across 76 countries were committed to divestment. By 2021, there were 1313 institutions around the world that had committed to divestment, representing a value of around $14.56tn. These included institutions ranging from the University of Glasgow, the City of Oslo, and the British Medical Association, to the Guardian Media Group, the Norwegian Sovereign Wealth Fund, the Rockefeller Brothers Fund, the World Council of Churches, Allianz and Aegon, among many others. 

Beyond the money value of divestment commitments there is a growing range of research literature that explores the mechanisms through which the fossil fuel divestment movement exerts influence on the political system. 

For instance, Bergan writes about how the divestment movement has made significant contributions in shifting public discourse. It has put questions of finance and climate change on the agenda and contributed to a change in the discourse around the legitimacy, reputation and viability of the fossil fuel industry. This has helped push through new demands by shareholders and investors in the finance industry, such as rethinking the notion of ‘fiduciary duty.’

Others such as Cojoianu et al. have explored how the divestment movement has influenced patterns of investment and fundraising into the fossil fuel industry. They find that in countries where there are increasing pledges on fossil fuel divestment, this is associated with lower rates of new capital flows to domestic oil and gas companies. Government policies and national regulatory environments play an important role in influencing the legitimacy and impact of such social movements. The impact of increasing pledges on fossil fuel divestment is enhanced in countries with more stringent environmental policy regimes and diminished in countries that heavily subsidise fossil fuels. At the same time, they also find that the divestment movement may have an unintended effect. Domestic banks situated in countries with high divestment commitments and stringent environmental policies were found to provide more finance to oil and gas companies abroad. 

Despite such progress and the clear successes the fossil fuel divestment campaign can claim, there is a grim reality lurking behind the headlines. Even in the years that the fossil fuel divestment movement has been active, working alongside a broader network of social movements advocating climate justice, the world has witnessed significant increases in fossil fuel investments and our ecological systems and climate have continued to deteriorate. This does not diminish the value of such campaigning and it does not mean it has been without effect. Rather, it shows us the scale of the task at hand; the amount of work that still needs to be done. 

“The only way you can win against forces with a huge amount to lose is to build a movement of people, many more people, with a huge amount to gain”, Naomi Klein writes.

While the window to effectively respond to the environmental crisis is narrowing, we are living in times that are ripe for change. Since 2007/8, the world has endured a succession of crises – of economy, public health, democracy and environment. While such periods of extended crises have caused suffering to many millions of people, they are also the periods from which the greatest evolution, change and transformation can emerge. 

The majority of people in the world now recognise that climate change is a global emergency and want greater action to address the crisis. Increasingly consumers are willing to pay more for the goods they buy to be more sustainable. Recent elections in major economies such as the US offer hope for more action on climate change internationally and other major emitters such as China have committed to carbon neutrality. Progress in technologies such as renewable energyautomobiles and housing offer the opportunity to create lower carbon ways of living. And patterns of finance, although not nearly in the right volumes as yet, are slowly shifting away from fossil fuels as renewable energy has become the cheapest and highest return energy source. 

In just a few short years, we need to see countries around the world making the political choices required to achieve a sustainable, equitable and effective transition to global green economy. Right now, this feels far away. But clearly, to push us over the line, the continued efforts of activist and political movements in applying pressure to the political system will be pivotal. 

As a key part of the broader ecology of social movements advocating climate justice, the fossil fuel divestment movement has helped to reveal the ways in which global financial systems are deeply wedded to patterns of environmental degradation, pushing us to the brink of ecological collapse. Continued efforts to target banks and financial institutions by campaigners and activist shareholders could help change bank policies, help to shift the narrative around financial regulation, and facilitate broader incentive and structural changes across the financial systems that power our economies and global capitalism. 

In a century that will be defined by humanities’ response to climate change, it is no longer enough to see the financial institutions and the systems they prop as inert and passive re-distributors of resources. In the years to come, scaling up activism and political pressure, like that of the fossil fuel divestment movement, will be a key ingredient in our efforts to turn the tide; facilitating the shift to a sustainable, equitable and green economy for the future of our planet, creating a balanced relationship between humanity and the natural world.  

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