Just a couple days ago, Bevis Longstreth, former Securities and Exchange Commissioner under President Reagan, posted a bombshell report on why it’s a financial imperative to divest from fossil fuels. Among the key findings are that:
- Governments are regulating carbon and other pollutants, making fossil fuels expensive to produce.
- The rise of alternative and clean energy technology is lowering demand for coal, oil and gas.
- Rising grassroots and public opposition to fossil fuel companies are stigmatizing them, and that’s making their stocks less valuable.
- Fossil fuel companies are becoming pariahs, which has bad implications for hiring, employee morale and motivation, stockholder satisfaction and equity valuations.
- 60-80% of the coal, oil and gas reserves underground are stranded assets, meaning that they can’t be burned without raising temperatures beyond the exceedingly dangerous 2 degree C threshold, and will at some point in the near future lose their entire value.
- A sophisticated reading of fiduciary duty allows endowment and pension fund managers to divest from fossil fuel stocks without risking liability.
- In the context of pensions and endowments, focusing on short-term returns is not useful, and divesting from fossil fuel companies will likely be the right decision.
He goes on to summarize his main point on the financial case:
Recognizing climate change as an existential threat to the planet, unique in human history, and both the compelling need to limit carbon emissions and the confidence we place in global leaders to achieve the necessary limits, the largest 200 fossil fuel companies are vastly overvalued in their trading markets and, therefore, continuing to hold investments in any of them exposes our endowment to material loss.