A Beginner’s Guide to Divestment

Last week Ireland announced it would be divesting all money from the fossil fuel industry. It is a conscious decision to move €318 million of its investment portfolio out fossil fuels in a move that shows the country’s commitment to climate action.

This has been a huge announcement that has received a lot of attention from business and political leaders on a global scale, and in the days following it, there have been multiple announcements of divestment from several Universities and large companies and organisations. And it is not the first time they have acted as pioneers for the environment, they introduced the plastic bag levy in 2002. The percentage of single-use plastic in landfills in 2002 was 5%, now it is 0.14%. This was a massive victory that led to many others following suit. The precedent this divestment sets is an incredible one, the Emerald Isle will now be the case study that other nations look at when assessing the viability of divestment for themselves.

But what actually is divestment? And what does it mean?

Let’s get the simple explanation out of the way. Divestment means getting rid of any stocks, bonds or investment funds your company might have in a particular industry. It means cutting all ties, in this case with the fossil fuel sector, and taking money from their pockets and redistributing it somewhere else. It is the exact opposite of investing.

Great, but what does this actually mean for the market and the fossil fuel industry?

1 – For the government, they will want to re-invest the money and secure its financial interests. It is being theorised that Ireland will invest the money in renewable and sustainable energy. If this happens it will be a great show of support for the sector. And having a large stable body such as a national fund invest will be a great vote of confidence for the brand, giving others confidence in it and bringing in other investors. This large influx of capital can then be used by the company to research develop and otherwise improve their companies.

2 – For the fossil fuel industry, it will mean more cash flow and stability for the fossil fuel giants in the short term. They will be getting an influx of cash from the shares being sold. Long-term, however, it will have more negative effects as it is a vote of no confidence in the brand or their services. It will create more competition and instability in the market for them.

Recently energy giant Shell acknowledged the global divestment movement as a threat to the company in its annual report, stating “divestment and climate litigation as material risks to the company’s bottom line”. As a result of this divestment threat, they have been investing vast quantities of money in the renewable sector so they can improve their green energy infrastructure and reduce their own carbon footprint. In recent weeks, Shell has invested more than $400 million of its own money into solar power, electric vehicles and other investment designed to lead it beyond its oil and gas business. And yes, we said Weeks.

The threat of companies selling their stake with them is forcing large corporations to react and analyse the best case scenario for themselves. They are getting competitive and embracing new ways of energy creation and consumption. This new focus is driving progress.

And that is the power of the shareholder and consumer, that they can create change across the economic and political sphere with the relatively simple act of looking at where their money is being invested, and what companies they are supporting.

Divestment away from fossil fuels represents a sea change in how governments can use their power to improve the quality of life for their residents. To use the free market to combat climate change and address issues surrounding global warming. Hopefully it can improve the global conversation about sustainability and help develop new positive trends. One thing is for certain – divestment towards sustainability is something we are going to be hearing a lot more of.

Contact your senior management and ask about your company’s investment strategy, and contact us to find out more about how we can help your company’s environmental management strategy.

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