The Interfaith Center on Corporate Responsibility (ICCR) has just published an excellent report on how investors can respond to the call for stock divestment of fossil fuel companies by 350.org. Most significantly, ICCR makes the case for more stepped-up shareholder advocacy rather than just stock divestment.
This recommendation for stepped-up shareholder advocacy deserves respect. It comes from a coalition of investors that has for decades been in the forefront of efforts to use shareholder power to curb climate change. It should not be countered with the glib assertion – by supporters of stock divestment only – that “shareholder engagement has been tried and has not worked.”
Disclosure: I serve on the Committee on Socially Responsible Investment of the Unitarian Universalist Association, a member of ICCR. I have also actively participated in discussion at the ICCR on how investors should respond to Bill McKibben’s call for stock divestment of fossil fuel companies. Some of my expressed views are in the report.
For me this is the report’s key quote:
The ICCR model of active ownership maintains that shareholders have an obligation to use their voices to positively influence corporate decision-making. Even if this voice is only used to vote their proxies in favor of others’ resolutions, for the purposes of engagement, shareholder advocates may choose to hold problematic companies in their portfolios in order to retain a “seat at the table”. To divest is to relinquish those shares to another owner who may not be practicing active ownership. This approach, in effect, serves to strengthen management control. ICCR members advocate for amplifying our collective voice by bringing more shareholder advocates to the table – that is, we support engagement.
It is not true to say that shareholder engagement of fossil fuel companies has been tried and has failed. The fact is that shareholders have tried a combination of both divestment and shareholder advocacy. For instance, socially responsible investors have largely divested from or avoided investing in most fossil fuel companies. At the same time, where social investors have held stock in those companies, many have used their shareholder clout to press those corporations to address climate change. It is that combination of divestment AND advocacy that has only marginal impact on the fossil fuel companies thus far. However, for social investors to abandon shareholder advocacy entirely – as Bill McKibben advocates – and to divest from all fossil fuel company stocks would be to throw away one of the more effective tools in the investor toolbox.
Anxious to remove the pressure, corporate executives have often told shareholder advocates to just divest and go away. Why give the fossil fuel companies a victory?
I don’t think 350.org or Bill McKibben is being that simplistic. We always discussed holding the minimum to file shareholder resolutions and differentiating between extraction and generation companies.
A company like Alpha Resources, has no real place in our portfolios. The best you can expect from shareholder advocacy is perhaps some mitigation of their worst practices. A company, like Duke Energy, you can push to embrace more clean energy options, perhaps. There is still a huge role for shareholder advocacy at banks, funds, manufacturers, purchasers of power and fuels, but for the extraction companies and those owning the fossil fuel reserves….probably not so much.
Thank you for the comment, Richard.
The trouble is that Bill McKibben *is* being that simplistic. When he spoke at the US Social Investment Forum conference in May, he only addressed the fossil fuel companies and only argued for divestment over shareholder advocacy. I questioned him, saying it made no sense for religious investors – like the Unitarian Universalist Association – to quit our shareholder advocacy at the fossil fuel companies and sell out stock to another investor unconcerned about climate change. McKibben’s response was glib. “We’ve tried shareholder engagement and it’s failed,” he stated. My post above is essentially a response to that inaccurate assessment.
I am very glad that there is some discussion at 350.org differentiating between the extraction and generation companies. The weak spot of the oil, gas, and coal extraction companies is their principal customers; the electricity generators. The trouble is that public discussion about strategy is becoming bogged down in an essentially sterile debate of divestment versus shareholder advocacy. We need to shift the discussion on strategy to how to more effectively pressure the utilities to end their purchase of fossil fuels.
I will explore these points in more depth over the next few weeks.
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There is something missing in this discussion. In North America we have a GDP per capita of about $40,000, about the same as most countries in Europe. In North America we generate about 16 tons of carbon per person. In Europe the number is around 8 tons of carbon per year.
We have chosen to consume and waste on a ridiculous scale and have been irresponsible with a built environment that is terribly inefficient.
In my view nothing much will change with the fossil fuel enterprises and the power generation companies until there is massive change in consumer behavior and a big commitment to making the build environment energy efficient.
This 2 page paper shows the carbon comparisons I refer to:
Peter Burgess – TrueValueMetrics
Multi Dimension Impact Accounting