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December 3, 2015

The Truth Behind the $3.4 trillion Divestment Claim

In one of 200 side events taking place at COP21, pro-divestment crusaders 350.org announced on Wednesday that institutions representing $3.4 trillion in assets have “made some form of divestment commitment” to date — 68 times more than was claimed 14 months ago. Journalists around the world swooned at the figure – it made for an easy headline to file and call it a day. But, given that this came from an organisation that counts institutions that have no fossil fuel assets as having “divested”, a fact check was in order.

Thankfully, 350 is fully transparent with its loose the numbers. Co-founder and executive director of 350.org, May Boeve, said the figure came about by considering that “typically, 3.7 per cent of a portfolio is invested directly in fossil-fuel stocks.” As The New York Times muses:

“Applying that share would suggest that $125.8 billion in fossil-fuel stocks have been sold, or are being sold. That is hardly a precise calculation.

But being precise has seemingly never been a problem for 350. As we reported back in September, when the divestment claim reached $2.6 trillion, it was discovered that the figure was simply an aggregation of the total value of the combined assets of each entity that divestment activists claim has pledged to divest at least something. The actual energy-related holdings of each of these entities may in fact be a very small fraction of these totals.

Even US-based blog Mother Jones, a notorious supporter of environmental movements, couldn’t trust the calculations by the consultants behind it, Arabella Advisors, and its celeb supporter, Leonardo DiCaprio.

“[T]he investment consultancy behind today’s report has no idea how much money the institutions surveyed have invested in fossil fuels, and thus how much they have pledged to divest.”

But of course those making proactive statements in favour of divesting make for more provocative headlines than those who have decided to maintain their status quo. Perhaps we need to remind those following this issue each step of the way that (for example):

  • The University of Oxford decided to preserve the 3% of its £3.3 billion endowment in energy.
  • The University of Edinburgh decided not to “withdraw investment without prior engagement.”
  • Heriot-Watt University decided to divest only of coal and oil sands assets, deciding that it new Centre for Doctoral Training (CDT) in Oil & Gas is a more worthwhile investment in the future.
  • The London Authority Pension Fund chose not to divest its £4.6 billion fund; Mayor Boris Johnson later called the divestment movement a “political gesture” and “window-dressing”.
  • The University of Bedfordshire divested of … well, it had no direct investments in fossil fuels, but felt it necessary to publically “formalise” its existing commitment anyway. While we’re at it, the University of Warwick and the University of Arts London are in that category too.

Bottom Line

Despite the headlines meant to convince those at the UN Climate Conference and beyond of the strength of the divestment movement, a bit of simple maths and logic has undermined the campaign. Those institutions that have carefully chosen not to divest are sending as compelling of a message to the market as these activists that merely dropping stock is not in the interests of all investors – and particularly those that are a bit savvier with a calculator.