The issue ignited in October by the Australian National University when it made the move to sell its shares in several resources companies has brought to the table two crucial questions about fossil fuel divestment.
Foremost among this is whether divestment is a wise move economically speaking. The next one is whether universities have certain attributes that can help enlighten their decision.
Fossil fuel divestment a good economic decision
Portfolio investments are essentially a gamble on the company’s prospects and in the industry it is investing on. For it to pay off, the organisation must perform well relative to competition and the industry should also be thriving.
So when an investor puts money in companies that specializes in fossil fuel reserves, they hope that those reserves will be sold at a price higher than the production costs.
Fossil fuel divestment for climate change
Extracting and burning coal, gas and oil reserves with the use of the current technologies have been predicted to cause devastating climate change with experts saying it will result of over $C of warming. Fossil fuel divestment, among others, could bring about such a catastrophic change that it would lead to massive extinction of certain species and destruction or transformation of our ecosystems.
Fossil fuel divestment has become a much stronger economic case today as investors are still willing to risk such likely outcomes in the hope that they can make money without suffering the consequences, or at the very least, delaying it beyond their lifetimes.
Now the second issue is, are universities taking a longer view? It would seem like the principles of investments that can be applicable to universities are somewhat similar to general investments. They prefer a diversified portfolio to somehow balance out the risks and rewards.
However, a university expects to last for a very long time and they include the study of the world as part of its core purpose. It would not be sensible for universities to bet on something that will only yield profits in the short term but could not last for a long time. Therefore, the best recourse is for the university to bet on sustainable options.
fossil fuel divestment and solar, wind and nuclear the way forward
A clear path to a future that is sustainable would be to transition to a system that uses non-carbon technologies including solar panels, wind and even nuclear energy.
Studies have found that this kind of transition can be completed by 2050 and in it, a large chunk of carbon will remain on the ground although it is estimated that under 500 billion tonnes of CO2 emissions will be burned.
Affordable and high quality fossil fuel reserves may still seem profitable at the onset but analyses have failed to consider the prices. If these assets are left in the ground, the price that will be paid needs to be lower than extraction costs. This can only mean that the price for used fossil fuel will be barely enough to cover extraction cost and no profit to be made at all.
Unless universities will decide to bet on the Earth’s destruction, fossil fuel divestment is their only option. And, smart investors ought to follow in the same path.
