Pat Miguel Tomaino
Director of Socially Responsible Investing
Download a PDF of this testimony.
Another year has begun with climate catastrophe bearing down on our civilization. Two years after historic bushfires, Australia is now facing the worst flooding in decades. NATO is warning about an intensification of climate change’s effects, which could “lead to more extreme weather, to droughts and to flooding, force people to move, to more fierce competition about scarce resources, water, land.” This is already obvious for poor and marginalized communities like the “climate migrants” facing human rights violations at the US-Mexico border.
There are bright spots. The United States re-entered the Paris Climate Agreement last month, and the Biden administration says it is willing to invest in cleaner energy and press the financial sector to face up to investments that harm the climate. Indeed, this moment of crisis might be a moment of opportunity. Even the big oil companies say they will cooperate with the new administration on addressing climate change. But that’s a typical post-election promise, and our economy is already weighed down by the harmful actions of those same oil companies — the actors that willfully wrecked the climate and then hid the scientific evidence of their actions.
© Richard Hurd, flickr
Investors can help disrupt fossil fuel companies’ unsustainable risk taking to create space for economic and policy alternatives aimed at averting a catastrophic 1.5-degree Celsius warming, the scientifically recognized red line of the Paris Agreement. We need to do two things. We must use shareholder advocacy in certain cases to push fossil fuel companies toward business-model change and accountability. But investors must also be prepared to divest from harmful business models in a wider effort to move capital toward a sustainable economy and de-legitimize the practices and actors that are destroying the climate.
That is why last month I submitted testimony to the University of Michigan Board of Regents supporting divestment from fossil fuels and other harmful industries. I was invited by advocates to share insights from Zevin Asset Management’s experience in responsible investing and our analysis of the relevant environmental and social investment risks. The headline of my testimony, shared below in its entirety, was:
…the University can and should divest from fossil fuels and other harmful sectors/activities in existing and future investments. You can do this as part of an overall effort to adopt and implement a thoughtful, principled responsible investment policy. It will be a process, but the University of Michigan can start now with purpose and transparency.
Last week, we got some good news: the University of Michigan will divest from fossil fuels and commit “to achieving net-zero emissions across our entire endowment by 2050…and shifting our natural resources investment focus toward renewable energy investments with an attractive risk-adjusted return profile.” The decision does not seem to include natural gas companies, and the timeline for divestment is still uncertain, but this is a major step toward addressing long-term climate risk and confronting the climate crisis. Advocates will keep pressing the university for accountability, and we are proud of the part we played in this change.
We strive to practice what we preach, and we work hard on behalf of our clients to amplify our positive impact. In our analysis (expanded in the testimony below), avoiding the fossil fuel sector is typically the best course for our socially responsible investment approach and for our clients’ long-term interests. In certain cases — when our clients inherit shares in major energy companies — we take the opportunity to press management of those companies for climate action. We have targeted Chevron with shareholder proposals highlighting the company’s human rights violations in Ecuador, we have helped climate scientists speak at the annual meetings of large oil companies, and we sponsored a victorious shareholder proposal that forced the pipeline company Kinder Morgan to publish a deep analysis of the viability of its business model in carbon-constrained future scenarios.
But we know the limits of shareholder engagement, especially in the fossil fuel sector. As I detail below:
The fossil fuel industry is not simply carrying on with business as usual. They are deepening harm by actively preventing positive change. According to a 2019 report, the largest five stock market listed oil and gas companies spend nearly $200m a year lobbying to delay, control or block policies to tackle climate change.[1] And much like the tobacco companies before them, the fossil fuel industry evidently went to great lengths to obscure the science of climate change and the threat we face. For the most part, current lobbying and public policy efforts by the fossil fuel industry only continue to obscure those dangers.[2]
…They would rather obfuscate and lobby policymakers to protect their harmful business models than meaningfully change that model for the sake of long-term risk management. For that reason, companies in these sectors are not good candidates for investor engagement. Rather, they are candidates for divestment.
We believe that divestment from fossil fuel companies and other harmful industries is a reasonable portfolio choice. It is a way to support positive social impact while avoiding the long-term risks of businesses that are destined for the ash heap of history. As such, we manage fossil free portfolios for our clients, and we routinely speak in support of divestment for asset owners and investment institutions grappling with the decision. In recent years, I have testified in support of divesting from fossil fuels and harmful industries in front of Harvard University’s top governing body, the University of Pittsburgh, the Massachusetts legislature, and Boston’s city council.
We are publishing the following excerpt from my recent University of Michigan testimony to shed light on our approach and the mutually reinforcing relationship between divestment and shareholder activism. We hope efforts like this also contribute to our shared understanding of the risks of harmful industries like the fossil fuel sector, the benefits and possibilities of thoughtful divestment, and the way forward for investors who want to help in this moment of crisis.
Thank you for reading and for contacting invest@zevin.com with any questions.
[1] “Top oil firms spending millions lobbying to block climate change policies, says report,” The Guardian, March 2019, https://www.theguardian.com/business/2019/mar/22/top-oil-firms-spending-millions-lobbying-to-block-climate-change-policies-says-report.
[2] “The Climate Accountability Scorecard (Updated), Insufficient Progress from Major Fossil Fuel Companies,” Union of Concerned Scientists, October 2018, https://www.ucsusa.org/resources/climate-accountability-scorecard-0.