Rationale for Fossil Fuel Divestment
The global fossil fuel divestment movement is a response to the increasing threat of climate change, which is largely driven by burning fossil fuels. Choosing to finance the fossil fuel industry is to choose to continue to worsen climate change and the risks associated with it. Climate change has been identified as the greatest threat to health globally. Climate change worsens extreme weather such as heat waves and floods. It harms food and water security and has been identified by the US Department of Defense as a "threat multiplier", worsening threats to national security. In simple terms climate change kills. Cambridge is not exempt from these impacts, either directly, e.g. from heatwaves, or indirectly e.g. from impacts on food systems and global security.
Financial risk argument:
The majority of fossil fuels will have to stay in the ground if we are to have a "likely", chance of meeting the globally agreed target of 2 degrees global average temperature rise. Therefore, actions to avert catastrophic climate change will soon deem investments in fossil fuel reserves " stranded assets ",. This represents substantial risk for investors and pensioners. It is important to note there are likely to be sudden non linear chnages in both environmental and social systems which means that the value of fossil fuel stocks could change quickly. The Bank of England has recognised the risk of stranded assets. Disregarding this risk could worsen the already challenging financial situation local councils find themselves in.*
Many leading individuals and organisations globally have already supported divestment including:
Local authorities e.g. Oxford and Bristol City Councils
Health professionals e.g. British Medical Association
Global financial leaders e.g. Jim Yong Kim, head of the World Bank
Religious leaders e.g. former archbishop Desmond Tutu
Philanthropic organisations e.g. Rockerfeller Brothers Fund
Universities e.g. Warwick and Glasgow
Local understanding and support for action on climate change is growing. The University of Cambridge, following discussion with the Positive Investment Cambridge campaign, has established a group to review its investment policy including related to fossil fuels. Leadership on climate change is increasingly being recognised as being on the "right side of history", and so is an important issue for the reputation of the city of Cambridge.
Local economic advantage argument:
Alongside the reputational importance of climate leadership for the city, there is large potential local economic advantage to supporting companies and projects which hasten a transition to a zero carbon economy. In contrast to fossil fuel companies these will be well placed to thrive during the coming years. Both a strong reputation and a thriving "green ", local economy will allow Cambridge to continue to attract a highly skilled workforce and new companies.
But we are too small an investor to have an impact on the whole industry.
An Oxford University review of fossil free divestment found that stigmatisation due to divestment campaigns poses "the most far-reaching threat to fossil fuel companies.", They conclude that "any direct impacts pale in comparison.", Therefore impact is not primarily related to the size of stocks held but to the act of publically supporting divestment.
But what about ‘fiduciary duty’?
The Law Commission reviewed the meaning of fiduciary duty in 2014 and concluded that "Trustees may take account of any financial factor which is relevant to the performance of an investment. These include risks to a company’s long-term sustainability, such as environmental, social or governance factors (often referred to as “ESG” factors).", They concluded that " there is no impediment to trustees taking account of environmental, social or governance factors where they are, or may be, financially material.",