Next in the line of fire: fossil fuel divestment

The fossil fuel divestment movement is going mainstream and food companies could become high-profile targets writes Nick Hughes.

When a cause unites a group as diverse as the Norwegian parliament, the former chairman of Royal Dutch Shell and one of the world’s leading environmentalists you know it’s time to sit up and take notice.

The divestment movement, through which institutions are encouraged to sell their investments in the top 200 fossil fuel companies, has become a cause célèbre among environmental campaigners frustrated at a perceived lack of action on climate change by governments and businesses.

The movement has achieved a great deal in a relatively short space of time (see boxout), persuading public and increasingly private institutions to divest from fossil fuel companies. To date the focus has been on the coal, oil and gas companies directly responsible for extracting non-renewable resources, but what if it goes further?

Movements by their nature are dynamic and once goals have been achieved they recalibrate and seek new targets. If the divestment movement were to extend beyond the major fossil fuel companies to businesses that are heavy users of extractives in their supply chains the food industry could find itself firmly in the line of fire.

“People’s attention is currently fairly and squarely on the fossil fuel industry because they are at the root of the problem,” says Danielle Paffard, UK divestment campaigner at 350.org, the organisation behind the global climate movement. “Food is safe for the moment but it might not always be that way and as we win against these barriers I can see us moving on to the next target.”

At the heart of the divestment movement is a perceived lack of global action to seriously address climate change coupled with a reluctance to challenge the unsustainable business models of multinational fossil fuel companies. A recent report from Canada’s Pacific Institute for Climate Solutions on the subject of fossil fuel divestment noted that if countries implemented climate policies consistent with the science of limiting global average surface temperature warming to 2 ̊C, the current business models of conventional energy companies would face deep structural changes.

The divestment movement originated in the US, where campaigners targeted US-based investors and public organisations, and has since gathered global momentum moving on to targets such as universities with large endowments.

Its primary aims, according to a 2013 report by Oxford University’s Smith School entitled Stranded Assets and the Fossil Fuel Divestment Campaign, are to force fossil fuel companies to undergo transformative change and put pressure on governments to enact legislation that requires fossil fuels to be left below ground.

Writing in the Guardian in 2013, Bill McKibben, the US environmental activist who is widely considered the godfather of the divestment movement, explained the rationale thus: “The idea is not that we can bankrupt these companies; they’re the richest enterprises in history. But we can give them a black eye, and begin to undermine their political power.”

As McKibben suggests, the risks posed to those targeted are likely to be more reputational than financial. The risk of stranded assets – where environmentally unsustainable assets suffer from unanticipated or premature writeoffs and downward revaluations or are converted to liabilities – is real. However, the Smith School report concluded that the direct effects of fossil fuel divestment on equity or debt are likely to be limited since divested holdings are likely to find their way quickly to neutral investors.

The Pacific Institute report went a step further, arguing that the most likely recipients of divested funds will be banks and financial institutions, as they output a low amount of carbon per dollar of investor earnings. In this case, at least a portion of the divested funds would then be reinvested in projects that perpetuate fossil fuel use, through less direct means.

But even if divestment does not hit businesses directly in the pocket, the reputational damage to a company targeted by a divestment campaign can be costly and lasting. The “stigmatisation process”, as the Smith School report terms it, means that any direct impact pales in comparison, as a bad image scares away potential suppliers, subcontractors, employees and customers.

Attention is unlikely to be spread evenly between businesses, and certain companies may become scapegoats – particularly those which fail to reinvent or whose rhetoric is perceived to be inconsistent with their actions.

But how is all this relevant to food companies? After all, the fossil fuel divestment campaign has thus far shown no sign of extending to companies whose business models, while heavily reliant on extractives, are not physically responsible for taking oil and coal out of the ground.

The point is that the fossil fuel divestment movement is just one example of a legitimate strategy that campaigners across many sectors have been using for years. As the Smith School report notes, companies involved in gaming, munitions and the provision of adult services have all been subject to divestment campaigns in the 20th century.

The tobacco industry found itself targeted after public health organisations including the American Public Health Association, American Cancer Society, and World Health Organisation found tobacco products to be contrary to their missions and therefore divested.

Unlike tobacco, food is essential to human life; yet the negative societal effects of certain foods and production practices are becoming increasingly well known. The effect of intensive food production, particularly of meat and dairy, on climate change is proved to be substantial, while processed foods high in sugar, salt and saturated fat are consistently cited as major contributors to obesity and other cardiovascular-related diseases.

As companies in all sectors face growing demands for transparency, food companies should be under no illusions that they are safe from public and investor scrutiny.

“Increasingly active ownership from investors will put pressure on laggards and company management should expect this to become more forceful over time. Divestment is one option should investee companies persistently ignore their investors,” says Ben Caldecott, the director of the stranded assets programme at the Smith School.

Paffard adds that until campaigners succeed in radically changing the system and levelling the playing field, the coal, oil and gas industry will remain the focus of the fossil fuel divestment movement but in the longer term that could change. “I think where we might see divestment movements move to high-carbon users is as it grows people will see it’s an effective tactic at affecting change, and there’s every reason that people will adopt tactics that have been successful in the past.”

If the food industry does find itself in the spotlight then which companies are most at risk?

Caldecott notes that campaigners pick companies for all sorts of reasons, but those that are in the public eye are more at risk than those that are unknown or have a low public profile. “That is definitely not always the case, and unknown companies can suddenly become the focus of large campaigns, but I think the risks of being a target are probably much higher if you are a well-known brand.”

The horse-meat scandal is a case in point. Tesco was one of a number of businesses found to be selling products containing horse meat, but its status as market leader, coupled with a simmering public discontent with some of its business practices, made it the focal point for public opprobrium.

If divestment campaigns are to focus on the food sector, Shane Tomlinson, a senior research fellow for energy, environment and resources at the Chatham House think-tank, believes they are likely to be directed towards high-carbon-producing sectors such as meat and dairy. “There’s currently an awareness gap of the impact [of food production on the environment] but if we are going to deliver a low-carbon world we are absolutely going to have to tackle the issue of meat and dairy,” he says.

But why stop at carbon? Malcolm Clark, who as coordinator of Sustain’s Children’s Food Campaign has campaigned on issues such as better school food and clear labelling, says the organisation has not so far considered divestment, but “there does seem to be some legitimacy in looking at that as something that will help push firms to act more positively, such as signing up to public health responsibility deals”.

Could it be that future divestment campaigns will target food companies which fail to sign up to voluntary accords on healthy food or whose products are classified as “junk” by nutrient profiling models? And could we see businesses themselves divesting assets that are deemed environmentally unsustainable or socially unacceptable, just as the major oil and gas companies divested from coal in the 1990s?

For the moment food businesses are safe from the divestment campaigners’ gaze, but the public won’t tolerate inaction forever. The grassroots campaign to hold climate change contributors to account is gathering pace. You have been warned.

Fossil fuel divestment: The story so far

Though many have dismissed the tangible impact of the fossil fuel divestment movement as negligible, the reality is that since 2012 investors around the globe managing nearly $50bn (£32bn) in combined assets have committed to divest or are starting to review their options for removing their holdings in fossil fuel companies, according to a report from Canada’s Pacific Institute for Climate Solutions.

The movement started in the US by targeting core groups such as religious groups or industry-related public organisations and has moved on to other progressive institutions such as universities before going global and targeting large pension funds.

In October 2014, Glasgow University was the first academic institution in Europe to announce it would divest from the fossil fuel industry over the next 10 years, and Warwick University recently followed suit.

The movement is becoming mainstream as it gains the recognition of private institutions. In June this year, the former chairman of Royal Dutch Shell Mark Moody-Stuart said selling oil stocks was a “rational” response to the failure of the oil industry to take meaningful action on climate change.

In May, the insurance company Axa said it would remove €500m (£350m) of coal investments from its portfolio and triple its investment in green technologies and services to more than €3bn by 2020. “Divesting from coal contributes both to de-risking our investment portfolios and to building better alignment with Axa’s corporate responsibility strategy to build a stronger, safer and more sustainable society,” said Henri de Castries, the company’s chairman and CEO.

Also in May, the finance committee of the Norwegian parliament issued a unanimous recommendation to divest the country’s sovereign wealth fund, one of the largest in the world, from the coal industry. The result will probably be that many billions of euros are withdrawn from the coal sector.

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