ESG screening isn’t a substitute for fossil fuel divestment

2016-04-05

in Canada, Economics, Politics, The environment, Toronto

Following up on their public criticism of President Gertler’s decision in The Varsity, eight out of eleven members of the ad hoc committee published a letter in The Globe and Mail:

Quoting from our report: “The committee recognizes that fossil fuels will remain indispensable and a contributor to social welfare for many years.” We did not recommend universal divestment.

Instead, we called upon the university to lead an effort to, in The Globe’s language, “gradually ratchet down fossil-fuel use worldwide,” beginning with the worst offenders, whose behaviour we should not tolerate. Much like the apartheid regime, the worst offenders need to be identified and isolated. These fossil fuel companies are the ones blatantly disregarding the international effort to limit the rise in average global temperatures to not more than 1.5 C, thereby greatly increasing the likelihood of catastrophic global consequences. These are the companies that are properly the focus of divestment and such a targeted strategy is an application of what has become known as the Toronto Principle.

We tried to get an op-ed, but the G&M was unwilling.

On Thursday, a member of the campaign will be addressing the Governing Council. Before their meeting begins, we will be holding a rally outside.

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{ 2 comments… read them below or add one }

. April 24, 2017 at 3:45 pm

IT’S not easy being green, especially if you’re a fund manager. A decade or so ago, when mainstream politicians such as Britain’s David Cameron were petting huskies and embracing environmental issues, the stocks of renewable-energy producers were in vogue. But as in the dotcom boom a few years earlier, share prices ran way ahead of the potential for profits. An exchange-traded fund in global clean-energy stocks, set up by iShares in 2008, has lost investors 79% since its launch. Over the longer term, an analysis by Gbenga Ibikunle and Tom Steffen in the Journal of Business Ethics found that European green mutual funds had significantly underperformed their conventional rivals between 1991 and 2014.

The rise in shale-oil and -gas production, and the accompanying decline in energy prices, have spelled double trouble for green investors. On the one hand, they have reduced the incentive for governments to favour renewable-energy producers—and thus dented the prospects of some green stocks. On the other hand, they have also hit the share prices of conventional oil and gas companies, which environmental funds tend to avoid.

That decline has given succour to a campaign joined by a number of investors—mostly from the public and charitable sectors—to boycott the shares of fossil-fuel producers. Such investors cannot be accused, at least in the short term, of breaking the “fiduciary duty” that fund managers owe to their clients to generate the best possible return.

In a new paper, BlackRock, a big fund-management group, argues that there are more sophisticated approaches to greenery than boycotting oil and coal companies, or piling into wind-turbine manufacturers. For example, investors could own a portfolio as close as possible to a given index, but choose the greenest companies within each sector. BlackRock reckons that it is possible to create a portfolio which tracks the MSCI World Index with an annual error of just 0.3% a year, yet comprises companies with carbon emissions 70% lower than the index as a whole.

. April 24, 2017 at 3:46 pm

IT HAS been a grim decade for investors in international oil firms—among them, many of the world’s biggest pension funds. Even before oil prices started to fall in 2014, the supermajors threw money away on grandiose schemes: drilling in the Arctic and building giant gas terminals. Their returns have trailed those of other industry-leading firms by a huge margin since 2009.

In the past 18 months things have gone from bad to worse. The Boston Consulting Group, a consultancy, calls it the industry’s “worst peacetime crisis”. That is evident in first-quarter results released in the past week by Exxon Mobil and Chevron of America, and European rivals, Royal Dutch Shell, BP and Total, which bear the scars of a collapse in oil prices to below $30 a barrel in mid-February (see chart).

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