DivestInvest Philanthropy Guide

DivestInvest Philanthropy Guide

Australia is a small country by many standards.  But as the world’s single largest exporter of coal – in the minds of those who are tackling dangerous global climate change – Australia is a superpower. That’s why it makes perfect sense that the Australian Environmental Grantmakers Network (AEGN) has produced the DivestInvest Philanthropy Guide, a unique step by step governance and implementation tool about divestment designed for trustees, managers and investment committees. Co-author of the Guide, Lou O’Halloran, reflects on divestment as a high impact tool for getting results, and the burgeoning power of the corpus to leverage change.  

 

I am a glass half full person and for many years I did not fully understand the notion, posed by a growing chorus of experts and thought leaders, that our human species could possibly be the maker of its own end. With all our unrivalled capacity for analysis and problem solving, empathy and foresight, intellect and dominance, surely they couldn’t be suggesting that we, the human species, the highest one, might go the way of all dust?  But now I understand what they were trying to say.

 

There are many ways that we might be the makers of our own end, but climate change is among the most likely. We are already experiencing devastating floods, fires, droughts, heatwaves, exacerbated cyclones, new diseases and drug resistance to old diseases, rising sea levels and alarming rates of extinction across our finely tuned biosphere.  And apparently we are now so far into this problem that we have just three years to galvanise and accelerate our co-ordination across government, businesses, citizens and scientists to arrest the inevitable conclusion to this trajectory.

 

THREE YEARS

 

This call to action – our three-year window – was delivered recently in the esteemed journal, Nature, by former UN climate chief Christiana Figueres and Hans Joachim Schellnhuber of the Intergovernmental Panel on Climate Change. They calculate that if we can bring emissions down considerably and permanently by 2020, then “temperature thresholds leading to runaway irreversible climate change will not be breached”. (The Guardian, World has three years left to stop dangerous climate change, warns experts, 29 June 2017)

 

Figueres said, “The opportunity given to us over the next three years is unique in history.”

 

LATER NEVER COMES

 

Even a cursory look at the science explains why this trajectory should be so alarming – to all of us concerned with health and disease, poverty, refugees from climate catastrophe, food and water security, the environment and a myriad other issues that beckon philanthropy to step up with influence, funding and imagination.

 

You probably know the science, but there is one part of the story worth reflecting on to emphasise why this problem is not for later – it is for now, and to be precise, it is for the next three years.

 

By studying ice cores, scientists know that carbon dioxide in our atmosphere over the last 800,000 years has ranged between 180 and 280 parts per million (ppm). Roughly 200 ppm during ice ages, and 280 ppm during our warmest periods (NASA Global Climate Change).  Then suddenly, just 200 years ago, when we started using fossil fuels, the ppm of CO2 in the atmosphere started rising above 280ppm. First quite slowly, and then, in just the last 50 years, it has shot up in a hockey stick shape and is now 400ppm – and rising. Almost all of this is due to human activity related to the use of fossil fuels. Our delicate and balanced climate system has never had to deal with this level of insulation and blanketing – and the frightening weather we are experiencing now is a direct result of that.

 

DIVESTMENT – WHY DO IT AND WHY NOW?

 

Philanthropy has played a massive leadership role in the divestment movement. 688 institutions with $5.2 trillion in funds under management are now pledged to divest – 23 per cent of those signatories are foundations. By participating they have gained in two important ways.  Firstly, they have added their influence (e.g. Rockefeller Brothers Fund) to a public movement that has prompted whole new levels of financial analysis into the coal, oil and gas sectors leading to a material, upstream impact on the allocation of capital away from fossil fuels and toward the green economy.  And secondly, they have reduced the carbon risk exposure of their portfolio investments.

 

The power of symbolism and movements contained in the first point cannot be underestimated. The second point about financial risk is worth unpacking for those who are not au fait with the mechanics of stock valuation.

 

In 2012, the International Energy Agency stated that no more than one third of the “proven coal, oil and gas reserves” held on the balance sheet of companies could be consumed prior to 2050 if the world is to limit warming to 1.5 to 2 degrees celsius. For coal, this figure is drastically lower. No more than 12 per cent of “proven coal reserves” can be consumed if we are to reach our already agreed upon targets. What does this mean for your portfolio risk?

 

When a financial analyst values a stock in the fossil fuel sector, they will incorporate the expected future earnings from the company’s fossil fuel reserves into that company’s current stock price (AEGN, DivestInvest Philanthropy Guide, page 5 – The Divestment Argument). If 66 to 88 per cent of these “proven fossil fuel reserves” will be staying in the ground, consistent with global agreements, and this is currently not factored into pricing and analysis, what happens next?  The answer is that company valuations will never be realised, and prices are vulnerable to collapse – resulting in what is commonly known as “stranded assets”.

 

This is why the AEGN has developed the DivestInvest Philanthropy Guide. While many mission aligned investors are willing and see good sense in participating in this growing movement, some are still unsure how to go about it.  This Guide fills a gap to help philanthropy management, trustees and investment committees to navigate this area carefully, backed by good governance and reasoned decision-making.

 

We encourage you to look at the publication, consider where climate change fits in relation to your mission and goals, and to join together in the human project to save this rare planet Earth, and our own rare human species, from the trajectory we now know is well underway.

 

Lou O’Halloran

Australian Environmental Grantmakers Network

 

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