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?