Divestment: The Uprising of Fossil Fuel Free Investing

Last month I had the chance to be at the forefront of a myth buster. In fact, I busted the myth myself as I was standing on stage presenting on Fossil Free Investing and the Divestment Movement.

If unfamiliar with the divestment movement myth, it is the misconception of the movement is solely pushed by students only because it started on university campuses around the world as well as the rise in popularity of 350.org which has been initially founded by students. However, the divestment movement is much broader and wide spread amongst different demographics especially with women, millennials and pension funds.

Before getting deeper into the topic, I’d’ like to explain what is the divestment movement as not everyone is familiar with it. The movement targets the fossil fuels industry. The idea is to pull invested money out of companies operating in the fossil fuels industry limiting their ability to fund new exploration projects and other necessary investments growing profits and/or assets. Like everything else, there is a push back. Opinions supporting that if one person or group of people divest, others will buy the shares or private bonds offsetting the initial action. However true, it is important not to underestimate the power of the collective. As multiple organizations begin to divest, such as universities, pension funds, unions, institutions and so on, rapidly the demand will also drop and will ultimately affect the shares’ prices making the stock less attractive for all investors.

This isn’t the only reason, people want to invest with their values. As individuals are investing their money in mutual funds which are comprised of many public companies in various sectors, it is nearly impossible to really know which companies your money is going to be invested in or which projects your money will be directly funding. The average person would go to the bank and look for investment options where they would receive a few options detailed on a pie chart dividing the diversified industries of the portfolio: i.e. energy, food, manufacture, goods, services, etc. Unfortunately, that average person will not ask additional questions regarding the investment portfolio. Asking for a list of all companies included in the fund that investors are about to invest in should be step one before making the final decision on making money. Frankly, I have done it once at my local bank branch and they couldn’t give me the information after an hour of research. That was the day I made the move to a credit union.

Back to the main topic. The world of responsible investment (RI) can be quite confusing for a lot of people. Don’t worry, you are not alone. It also took me a little while to clearly understand the four different categories of RI.

  1. Regular Investing
  • The essence of the regular investment is to trade stocks and bonds based on financial aspects only such as profits, balance sheets, revenue, debt ratio, etc. This type of investment is offered everywhere by any financial institutions or investment firms.

       2. Responsible Investing

  • This category of investments is very much like the regular investments with the exception that the portfolio manager will be considering the environmental, social and governance (ESG) impact of a company before selecting it. It does not prevent from investing in an oil company if the company is working on improving their environmental impact and provide an annual corporate social responsibility report (CSR). This type of investment is not offered by all financial institutions or investment firms but most.

        3. Socially Responsible Investing (SRI)

  • This category highly differs from the first two. It includes an exclusion process avoiding all companies related to the fossil fuel industry (oil, natural gas, & coal). Depending on the portfolio manager, it is also possible to see firms excluding conflict industries such as tobacco, weapons and adult entertainment. Additionally, ESG performance will be heavily taken into consideration within the stock selection process avoiding non-sustainable organizations. This type of investments can be found in very few financial institutions and investment firms.

         4. Mission-Based Investing

  • Mission investments are focused on the social impact of the investment itself This type of investments can be found in very few financial institutions and investment firms.. There are three sub categories to mission investment:

      - Sustainable Thematic

          - Investor are looking a theme company working on a global / local environmental or social             issue(s).

      - Impact Focus

          - The investment is made towards a program, company or project improving the social                      and/or environmental greater good.

       - Venture Philanthropic

           - These investments do no generate returns and in some cases, investors are donating the                money and do not require the money back. They are giving their money to money                          managers trusting that the money will be invested in projects with high social and                          environmental impact.

  

Responsible Investments Type

After speaking at many events across Canada, it is clear the divestment movement has grown outside of university boundaries. From coast to coast individuals are looking to invest according to their values as the option becomes more available to them. Citizens no longer want to fund projects contributing to climate change making them search for alternatives. The increase in shifting demographics such as millennials entering the investment space as well as pension funds making the transition to RI clearly support the phenomenal annual growth of 24% in RI mutual funds in only 2 years as shown on picture below provided by RIA Canada.

 
RIA Canada Stats Responsible Investments
 

Since not everyone has an investment portfolio, especially millennials starting in life, there is an alternative. Doing research on your current financial institution and see if they are investing in any projects that you do not personally support. If so, transferring money from a bank to a credit union account will avoid a checking or saving account to contribute directly or indirectly to such projects as financial institutions are required to only keep 10.5% in liquidity. The impact might not be as significant, but the message is clear and it allows everyone to redirect their money according to their values without thousands of dollars in investments.


LeadingAhead provides sustainability consulting services using the Sustainable Strategy System approach. We also facilitate workshops and offer speaking services on corporate sustainability and responsible investments.

Our firm supports and provides fossil fuel investing options through a third party.

If you'd like to learn more about these services, do not hesitate to contact us @ maxcharron(@)leadingahead.com