Wednesday, September 21, 2016

Is This the First Crack in Fossil Fuel's Dike?

The Amalgamated Bank of America is divesting its fossil fuel holdings.  It's not a big deal, just 4-billion dollars, but it's the bank's reasoning that could spark seismic change.

The decision to divest its $4 billion USD commercial assets from fossil fuel holdings is supported by new legal research presented on Wednesday by global investment consultant Mercer and the Center for International Environmental Law (CIEL). Their research bolsters the recent decision by leading Canadian foundations to drop high-risk fossil fuel holdings and decarbonise their investment portfolios.

Mercer’s analysis of fiduciary duty suggests that pension trustees should now be factoring in climate change and energy transition risks into their decision-making process.

According to new legal analysis, investment fiduciaries who overlook the implications of the transition to clean energy and the wind-down of fossil fuels now underway could face legal challenges. With the world expecting Canada to ratify the Paris Agreement any day, Canadian institutions and philanthropic investors are only just coming to grips with the investment risks and opportunities linked to the low carbon energy transition.

...From the world’s largest asset manager BlackRock to the Amalgamated Bank, global leaders agree that the transformation of our energy system is both urgent and a great investment opportunity. According to Ed Waitzer, Professor at the Osgoode Hall Law School at York University, “trustees are increasingly expected to look beyond portfolio performance to the intentional management of systemic risks and rewards, reflecting the longer term interests of their beneficiaries. Over time, this will likely become an enforceable obligation.”

While modern portfolio theory and related standards of fiduciary prudence require maximum diversification to spread financial risk, this does not have application to a dying industry like the fossil fuel sector. "The structural shift away from fossil fuel assets is a real phenomenon. This makes climate changeand the Divest-Invest movement an inextricable part of the dialogue for institutional investors who have a fiduciary duty to maximize returns for investors over a long-term horizon," said Wayne Wachell, the CEO and chief investment officer of Genus Capital Management. "Our recent research substantiates that divesting from fossil fuels doesn't entail sacrificing returns or taking on undue risk, even in a resource-based market like Canada."

Clara Vondrich, Global Director of Divest-Invest Philanthropy stressed that “old guard investment managers claim divestment violates fiduciary duty because it constrains diversification. But independent analyses from prominent legal scholars in the United States, United Kingdom and Canada flips this idea on its head. Today, at this brink of climate chaos, it is a nonprofit [i.e. pension fund] fiduciary’s duty to divest from fossil fuels and sidestep the carbon bubble.”


Toby said...

One can imagine a situation wherein the government gets sued for not protecting people from the effects of carbon pollution and also is sued by the industry under ISDS agreements for attempts to limit carbon pollution.

The Mound of Sound said...

Intriguing idea, Toby. Inspirational.

Anonymous said...

Anyong...Your blog is good news in the ruff at this point. Was able to find a copy of the book you recommended.

The Mound of Sound said...

I'm trying to recall which book, Anyong. Was it "The Upside of Down"?

Anonymous said...

Anyong: "The Upside of Down"...yes thanks.

The Mound of Sound said...

Let me know how you like it. With the pace of change that's on us today it can be interesting to read a book published a decade earlier. Subsequent events reinforce some of the author's previous conclusions while you can also see where he was off the mark, perhaps unable to contemplate what was coming.