What fossil fuel investments does the pension hold, today?
It is hard to know precisely. Canadian equity holdings are divided up by sector. Our pension holds approx. $23 million dollars worth of shares in Canadian companies engaged in fossil fuel extraction and/or transportation. This is only 3% of the 655 million total held in our Balanced Fund. In the Defined Retirement Benefit Fund we have approx. $7 million of $88.7 million dollars in clear fossil fuel equities (8%). But both the balanced fund and defined retirement benefit fund have large investments in Foreign Equity funds that are black-boxed. Without some digging – which we’ve started to do – we don’t know how exposed these funds are to fossil fuel investments. Part of this process is learning more about the kind of investments our pension fund is making. The returns the fund has historically delivered have been handsome, but it will be helpful to have a clearer picture of the kinds of companies our investments support (and which we benefit from).
What are the financial risks?
As with all financial decisions, it is difficult to say definitively. But there is increasing evidence that the risk from holding fossil fuel-related investments are significant. This is because of the scientific evidence that for a liveable planet, we must keep 80% of known fossil fuel reserves in the ground. Funds that have divested have not seen signficant changes in their returns. A recent report found that excluding the top 200 fossil fuel companies from an indexed portfolio would increase theoretical return risk by a mere 0.003% – and this is without considering the write-down costs of their becoming stranded assets. For example, Norweigan asset management firm Storebrand divested from 40 companies last year based on risks associated with the carbon bubble. The companies they dropped from their portfolios all held assets in fuels associated with carbon emissions. Christine Tørklep Meisingset, head of environmental and social governance research at Storebrand, said the decision had been guided by financial interest, rather than any ethical agenda. She said the carbon bubble had been a defining factor in the decision to move money out of fossil fuel companies. “There is more than enough financial argument to divest from fossil fuels,” she said. Adding: “If you choose to divest, it does not necessarily hurt returns.” She explained that in a broad portfolio, companies with similar characteristics, but lacking the burden of large fossil fuel deposits, offered Storebrand more long term growth potential with similar short term returns. The fund was divesting methodically she said, rather than suddenly, as this posed the least risk to shareholders.
Are we hypocrites?
Most of us drive cars, fly in airplanes, and heat our homes using fossil fuels. Where do we get off calling for divestment from fossil fuel companies when we rely on fossil fuels pretty much everyday? The simple answer is that being a consumer of fossil fuels is very different from being a producer. Most of us do not have an ideological or romantic attachment to fossil fuels as our energy source. Were there scaled up and affordable alternatives we’d happily use them. The problem is that those alternatives have not been adequately incentivized or invested in. Oil companies are some of the largest and most powerful corporations in the world. Policy that disincentivizes fossil fuel use and facilitates the scaling up of alternatives runs counter to oil company interest and so they rationally resist it. We need to collectively challenge the social license to operate these companies enjoy, making it easier for governments to act with public interest in mind.
The way our lives, societies and polities are organized today make fossil fuels unavoidable. Divestment is a strategy that can help accelerate the deployment of alternatives so that we can live our lives without reducing the life opportunities of future generations. It is currently impossible to take up the climate challenge without being subject to charges of hypocrisy. These criticisms are red herrings that work to maintain a status quo that needs to change. The charge of fossil fuel hypocrisy is a sign that we’ve taken a collective stand against those actors who stand in the way of the alternatives we all need; it can be a badge of honour.
Are there more effective and/or efficient actions we can take?
Maybe. But that does not mean we should not do this one. The Faculty Association could consider doing even more than this on the issue of Climate Change, as should the University, this is a good place to start, one that is joined to an international movement.
Doesn’t it make more sense to stay invested and use shareholder resolutions to influence these companies and make them more sustainable?
This argument might make sense for companies where the problem is their practices, rather than their business model. Unfortunately, the problem with fossil fuel companies is that their whole business model is the problem: extracting and burning fossil fuels. It seems highly unlikely that Shell or Suncor will pass a shareholder resolution to shut down all of their fossil fuel operations.
What about other companies with questionable environmental or social impacts? What about companies that service fossil fuel companies, or companies that use fossil fuels?
The carbon bubble obviously threatens the value of fossil fuel companies more than that of companies who use or do business with fossil fuel companies as they are more removed from the risk of stranded assets.
UVic has investments in a variety of companies, many of which are ethically controversial. Some people, for example, might have a problem with UVic’s Walmart stock, or their investments in certain mining companies. We have chosen to focus on fossil fuel companies, defined as companies that derive the majority of their revenue from fossil fuels, as a starting point because of the urgency of climate change and the financial threat the carbon bubble poses to our pensions, research funding and student scholarships and bursaries. We hope that this starts a broader conversation at UVic about what we should and shouldn’t be profiting from.