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January 27, 2016

Boycotts: More Smoke Than Fire

Since the fossil fuel movement began in earnest in early 2015, pro-divestment activists have fervently compared their withholding support for fossil fuel stocks to famous boycotts in history – from the Montgomery Bus Boycott during the US civil rights movement to the global boycott of companies with interests in South Africa during Apartheid. Such campaigns became famous thanks to the easy headlines journalists generated, but how effective were they in actually making a difference?

Helpfully, the experts behind the Freakonomics franchise (authors of multiple worldwide best-selling books) this past week looked at this very issue in the latest episode of their top 20 podcast of the same name. Their conclusion, after consulting with no fewer than three academics from leading American universities, is that “the typical boycott is more smoke than fire.”

Few are denying the level of awareness such campaigns have garnered; One report out of Oxford University ventured to say that current efforts have developed into the fastest growing divestment campaign in history. Even our Freakonomics friends acknowledge,they’re a good, easy, spicy story for journalists to cover…”

But they go on to explain that although boycotts create a lot of noise, they also give “the impression that the outrage is larger than it really is.” The same goes for the Oxford report, which concluded that the fossil fuel divestment movement in particular has little hope of directly impacting the future cash flows of fossil fuel companies.

A number of boycotts were referenced in the Freakonomics piece, which we’ve summarised below using statements from academics and news outlets that have studied these movements much more than we have (and we reckon more than the activists who claim to have followed in their footsteps).

Example 1: Apartheid in South Africa

What was it? A movement in the 1980s to divest of holdings and partnerships with South Africa due to the government’s regime which institutionalised racism. Tactics used globally included campus sit-ins, divestment of pension holdings and the creation of new bank requirements and tax laws. Sound familiar?

According to Prof Ivo Welch, professor of economics and finance at the Anderson School at the University of California – Los Angeles (UCLA):

“[U]nfortunately, when we started measuring [the effect of the boycott], we found that it had  no impact whatsoever […] It was relatively easy to get gold and various other items out of South Africa, sell them within Africa and then sell them further on. So in the end, there were just a lot of different ways to escape the boycott.”

“ [I]f you think about somebody who holds stock of a South African company, if they decide to sell their shares, it will take about a microsecond before there’s another buyer to be found in the public markets. So it’s very, very easy — the demand, supply of shares in the stock market is extremely elastic. And your decision to boycott — that is, to divest yourself of the shares — isn’t going to make a difference.

Example 2: American Response to French Opposition to the Iraq War

What was it? The French openly opposed the U.S. invasion of Iraq in 2003, and Americans responded by boycotting…well, anything that sounded even remotely related to France, like French restaurants and wine.

From the blog:

“According to three economists who later analyzed the data [on the alleged wine boycott]: ‘we show that there actually was no boycott effect.’ So why is there often no boycott effect? One reason may be that boycotts get a lot of attention […] which gives the impression that the outrage is larger than it really is.”

Example 3: Declared ‘No Petrol’ Days

What is it? This concept is more of an American one, but every now and again, people who are upset over the price of petrol will boycott it for a day. It’s usually a viral campaign claiming to make a dent in multi-billion dollar companies by not going to the pump.

From the blog:

“So, what’s the problem with a boycott like this? Even if everyone in the U.S. didn’t buy gas for one day — today, let’s say — they’re still going to buy the gas tomorrow that they used today. So if you have a ‘No Driving Day’ boycott, that might accomplish something. But a “No Buying Gas Day” wouldn’t hurt the oil companies at all — and would just make long lines for everyone at the gas pumps the next day.”

With this in mind, will dropping fossil fuel stock actually impact the day-to-day operations of a company, or result in a new solution to climate challenges? All indicators above point to ‘no’, along with the numerous other studies we’ve presented that make the same case. Our efforts are better served elsewhere – whether it be through engaging with companies on how best to operate in a low carbon environment or simply holding on to an array of energy stocks to avoid being persuaded by fruitless activist campaigns. As Freakanomics co-author Stephen Dubner says, “One more reason a certain type of consumer boycott doesn’t work: because they are sometimes just … stupid.”