Thursday, October 31, 2013

Notes from the Seattle Divestment Forum today and yesterday

I got my five minutes at the press conference, starting about 10 minutes into the video below:

(Link here for Oct. 17 video - no idea why the freeze frame is on my blathering mug instead the mayor's....)

The main takeaway from the conference - two thirds of fossil fuel reserves represented on world capital stock exchanges have to stay in the ground to stay within the 2C temp rise goal. The valuation of the rest is a carbon bubble.
     My note - I suppose it could be that the carbon returns to the ground instead of the fossil fuel stays, although CCS hasn't done well.

Seattle Mayor Mike McGinn:  we're the first generation to experience climate change, and the last to be able to stop it.
     My note - a bit of an overstatement and understatement - we can't stop it, and even a business as usual scenario for X years in the future would be disastrous but not a reason to do nothing starting X years in the future.

A contract-and-grow strategy works for fossil fuel companies - e.g., an oil company that stops throwing away profits on finding new fossil reserves and increases dividends instead will be worth more and serve its owners better than a typical oil company that spends money finding reserves it will never burn.

Lots of discussion on fiduciary duty, something used as an excuse to not divest. Bob Massie calls it a Harry Potter spell - "Fiduciarydutyparalyis!" Given the risks from companies that say they don't care about the future, the fiduciary duty could actually support divestment - what does that say about the quality of the management?

One speaker presented two portfolios, one with fossil fuel companies and one without. The one without had a larger carbon footprint. Climate divestment can get tricky.
       My note - I expect that most of the time, this would not be the usual outcome. Perfect v good issue.

Talking to financial people, it sounds like the recognition of financial exposure that you see in the insurance sector is starting to happen in the financial sector.

A number of professionals showed backcast simulations of divested portfolios v. typical portfolios. Overall it seemed to not diverge all that much.

One person asked a question I had - would recognizing the carbon bubble create a race by companies to get the fuel burnt first, before we hit the ceiling? Response said no, projects are currently being cancelled. YMMV.

Investor engagement/shareholder activism - speakers acknowledged this can be a viable alternative in some circumstances, but argued that if a problem with a business is its core business strategy, then shareholder activism won't work. One speaker made a slightly contrary argument - they're going to engage directly with fossil fuel companies to get them to drop the $100b most expensive new fossil fuel projects in planning stages, setting the stage for shareholder lawsuits if they don't drop them and then the projects crash and burn metaphorically.

Someone raised the slippery slope issue that climate divestment is only one issue and that it opens the door to still other ways to reduce the investment universe. I can understand the reasoning - I think a reasonable response might be that you can consider multiple causes, up to whatever line you choose to draw on restricting your investment universe. Then cage match the causes against each other. The speaker said you also have to look at the investor's mission and the cost of a screen - e.g., divesting from Russia-investing companies would be much more difficult than divesting from top 200 fossil fuels.

On a personal note, I ran into a guy who I used to work with on Burma human-rights issues 18 years ago, and saw him today for the first time since then. Small world.