Divesting from Climate Change: The Road to Influence

• Author: Benjamin J. Richardson
• DOI: http://doi.org/10.1111/lapo.12081
• Date: 01 October 2017
• Published date: 01 October 2017

Divesting from Climate Change: The Road to Inf‌luence

BENJAMIN J. RICHARDSON

Is fossil fuels divestment likely to achieve its aims? This article evaluates the rationales for

divestment in terms of their capacity to give the campaign inf‌luence. It focuses on the direct

effects of divestment on f‌inancial actors because divestment is a specif‌ic means of exerting

inf‌luence outside of conventional political channels. In seeking to end fossil fuel industries in

order to halt climate change, the campaign deploys a variety of arguments to win support and

wield inf‌luence, namely, the legality of divestment and, indeed, the emerging duty to divest;

investors’ moral responsibility to avoid complicity in the fossil fuel economy; investors’ moral

responsibility to use their leverage against climate polluters; and the power of f‌inancial sanctions

to create a business case for abandoning fossil fuels. Although in combination they may be

effective, each of these asserted rationales has some limitations that may diminish the inf‌luence

of the divestment movement. Moreover, the movement does not engage suff‌iciently with the

systemic qualities of f‌inance capitalism that must also be reckoned with in order to address

broader patterns of environmental unsustainability. Although the divestment movement aspires

to ultimately change government policies on climate change, it may achieve greater inf‌luence by

also seeking better government regulation of the f‌inancial economy.

I. DIVESTING FOR INFLUENCE

As states prevaricate on climate change, an ensemble of civil society and market actors,

including universities, religious groups, and boutique social investors, have initiated a

global campaign against f‌inancial investing in the fossil fuel industry. With governments

such as those of Canada and Australia recently opposing carbon taxes, and the United

States under President Trump even more hostile to climate change action, along with

international efforts such as the Paris Agreement of 2015 failing to raise the bar enough

(Bawden 2016), some climate activists have sought solutions through market forces. Bill

McKibben (2013), one of the de facto leaders of this divestment campaign, believes that,

given political gridlock on climate change action, it is vital to weaken the offending com-

panies f‌inancially. Because big money is at stake, their campaign uses a variety of argu-

ments to woo followers, and this article evaluates whether these arguments are plausible

and likely to make the movement inf‌luential. Under the auspices of transnational net-

works, such as 350.org’s Fossil Free

1

and the Fossil Fuel Divestment Student Network,

2

the campaign pressures investors to shun the biggest carbon emitters, mainly oil and coal

companies, in hopes that they will change their ways or go out of business. “Divestment”

means withdrawing f‌inancial ties, such as selling a company’s stocks or bonds, and refus-

ing bank loans. The investors targeted by the movement, which took off in 2014, include

pension funds, university endowments, banks, insurance companies, and sovereign

Address correspondence to: Benjamin J. Richardson, University of Tasmania—Faculty of Law; Institute for

Marine and Antarctic Studies, Private Bag 89, Hobart, Tasmania 7001, Australia. Telephone, 161 475399448;

E-mail: B.J.Richardson@utas.edu.au.

LAW & POLICY, Vol. 39, No. 4, October 2017 ISSN 0265-8240

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C2017 The Author

Law & Policy V

C2017 The University of Denver/Colorado Seminary

doi: 10.1111/lapo.12081

wealth funds, although the core of the campaign targets the f‌irst two actors. Divesting

from fossil fuel companies is controversial because of its f‌inancial and legal repercussions,

with concerted criticism coming not only from the fossil fuel lobby (Davidson 2014) and

conservative politicians (Cox 2014) but also from some environmentalists who favor

other ways of cutting carbon emissions (Tollefson 2015). The editorial preface to this spe-

cial edition of Law and Policy elaborates further on the history, aims, and methods of the

fossil fuel divestment campaign.

This article focuses on how the divestment campaign inf‌luences f‌inancial actors rather

than other goals of the campaign, such as to create new constituencies for political pres-

sure on governments to tighten regulation on fossil fuel industries. The latter objective is

not unimportant, of course, as the f‌inal section of this article acknowledges in ref‌lecting

on the wider political and governance context of action on climate change and the f‌inan-

cial economy. And as I have argued in some of my other writings, social investors must

target policymakers in order to create a more conducive regulatory milieu for their aspira-

tions (Richardson 2012a). Corporate governance, tax reform, and environmental regula-

tion are among areas of law that some social investors have begun to target. The

strategies of the fossil fuels divestment movement to shift the governance milieu, such as

by delegitimating the coal and oil industries, is explored in other articles in this special edi-

tion of Law & Policy, notably Ayling (2017) and Franta (2017). But in the current political

context, especially in the United States where President Trump is aggressively rolling

back his predecessor’s climate change regulations and has repudiated the Paris Agreement

(Volcovici and Mason 2017), it has never been more important for the divestment cam-

paign to achieve inf‌luence through the market itself.

A seminal but unresolved question is whether fossil fuels divestment inf‌luences those it

shuns. We should understand the direct effects of divestment, apart from any f‌low-on

effects it might have on political decision making. Divestment itself has a long lineage

within the tradition of socially responsible investment (SRI) (Sparkes 1995). Faith-based

investors have practiced divestment for centuries to disassociate themselves from “sin

stocks,” and in recent decades others have done so in taking a stance against apartheid,

tobacco, and other ignominies (Sun, Louche, and P

erez 2011). As “environmental, social

and governance” (ESG) issues, to borrow investor parlance, have become reframed as

determinants of f‌inancial risks and returns, the strategic target of the SRI sector has

changed in the past two decades from ethical compulsion to f‌inancial self-interest (Ran-

some and Sampford 2011). In this guise, assessing inf‌luence requires looking beyond the

power of moral suasion to consider pragmatic legal and business criteria. The question of

inf‌luence is particularly germane to fossil fuels divestment because it aims to address driv-

ers of climate change while appealing to the self-interest of investors. The movement is

young, and solid empirical evidence is not yet (and may never be) available to determine

its impact; such evidence would require overcoming the formidable methodological chal-

lenge of correlating changes in the policies and practices of targeted companies with pres-

sure from climate-conscious investors. A recent study attempting to gauge the impact of

divestment on German energy producers identif‌ied this diff‌iculty in explaining a small

shift toward renewables due to the presence of numerous other potentially signif‌icant fac-

tors, including company ownership, government regulation, and domestic energy sources

and prices (Klyar and Wittnehen 2015).

This article contributes to these future enquiries by illuminating the road to inf‌luence

sought by the divestment movement. The article evaluates the principal rationales for fos-

sil fuel divestment in order to capture the diversity of legal, ethical, and economic varia-

bles that may shape its inf‌luence. From there we can make more comprehensive and

nuanced judgments about the movement’s impact, such as whether a decision by business

326 LAW & POLICY October 2017

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