Monday, February 3, 2014

Notes from the Seattle Divestment Forum today and yesterday

(Yet another cross-post from Rabett Run.)

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.

We did our divestment

(Another cross-post from Rabett Run in August.)

The Water District board voted 7-0 last night to enact our climate divestment policy - no new investments in the top 200 fossil fuel companies, get rid of what we currently have by 2016, and send letters to the state agency managing our pension funds, a state water agency association, and our local government counterparts encouraging them to do the same. Also yesterday, we cut our own compensation by just under 10%, reverting it back to what the board received in 2008.

There was some reasonable discussion of whether we should distinguish the best fossil fuel companies from the rest. We decided to go ahead with the simple divestment from all of them, and consider at a future time whether we should amend the policy in favor of the better companies.

Like I said earlier, this should make us the first water district and third government agency of any kind to complete this step. has a press release here. The San Jose Mercury News published an article, and to make it interesting I'll just copy below mostly just the critical parts:

In the 1980s, hundreds of American cities, states and universities sold their investments in South African companies as part of a protest against that country's former apartheid government.

Now, environmental groups are trying to duplicate that effort, but with global warming polluters in the role of villain. And, just as with South African divestment a generation ago, the Bay Area is at the head of the parade again, prompting cheers from environmentalists and jeers from skeptics who say the whole effort amounts to little more than empty symbolism.... 
"It is unfortunate some people seem to feel supplying consumers with reliable and affordable energy is somehow comparable to apartheid," said Tupper Hull, a spokesman for the Western States Petroleum Association, in Sacramento.

"Petroleum energy provides billions of people worldwide with mobility, comfort, security and economic prosperity, he said."

Hull said that many oil companies "understand the desire to develop new alternative energy sources and reduce our collective carbon footprint" and that many fossil fuel companies are working on renewable energy projects.

Jeremy Carl, an energy expert and research fellow at Stanford's Hoover Institution who has been critical of the tactics of the environmental movement, said that climate change is occurring and is a problem. But rather than divestment, activists should work with companies and governments to promote issues like tax credits to encourage renewable energy research, or a carbon tax that would be offset by tax refunds to the public.

"We've seen people saying the fossil fuel companies are awful, and then driving home in their car and turning on their natural gas-powered electricity," he said. "I find it totally a distasteful and hypocritical way of looking at a serious situation. It trivializes an important issue."

I don't find that very persuasive, somehow. I have no interest in the flack from WSPA but I wonder if it's worth talking to Jeremy Carl, who's only a 15 minute drive away from me in my fossil-fueled car.

Per my previous post, I think the primary effect of these actions are cultural/political and not directly economic. OTOH, there's an economic cost to cultural disfavor - I bet tobacco companies have to pay a premium to hire and retain employees who might otherwise prefer to not kill people for a living. Could work the same way here as another form of cultural tax on carbon.

Video below of every fascinating moment of the discussion, assuming the video works (discussion begins about a minute into the video). It's Item 9.1 if you want to read it as well.

Good chance we'll be the first water district in the country to divest from fossil fuels, starting August 27th

(Cross-posted from Rabett Run post in August.)

I'm guessing we're first on the planet too, but who knows. I previously wrote a memo suggesting we drop investments in fossil fuel companies (the big push by, and we directed staff to return to us with a proposal. It's now available (to RTFD, click here for the policy and scroll to Attachment 5 to get to the memo and discussion). It's pretty simple - no investments in the top 200 fossil fuel companies, relying primarily but not exclusively on third-party documentation of what constitutes the top 200 companies. Our district doesn't control pension funds, so I'll ask that we also include a letter to the state CalPERS board urging them to take the same step that we're doing.

Along with being the first water district in the solar system to have a climate divestment policy after the August 27 meeting (assuming I'm not counting my chickens too early), I think we might also be the third government agency to do it. Reading through the list of twenty cities, Seattle and Santa Monica are the only cities with a controlling policy in place. A handful of others have passed advisory measures but don't mandate the change, some aren't currently invested in fossil fuel companies but don't have a policy, and the rest are still investigating the idea.

I think there are a fair number of water districts like ours with significant climate awareness and political responsiveness, so I hope this will spread. As for its actual impact on those companies, even if it spreads widely, that's less clear. The pool of money available to be invested in those companies would have to shrink a lot before the companies are forced to pay a premium in dividends or interest rates in order to get investments. I suppose it could happen, but I think the primary effect is cultural, creating an awareness that they are basically little different from tobacco companies and the apartheid-era South African investments.

There is a difference from South Africa in that it wouldn't be good if we halted all fossil fuel use immediately, but somehow I'm not too worried about that outcome.