Divesting from Big Oil Is an Empty Gesture

Eleven years ago, the prominent climate activist Bill McKibben wrote an article for Rolling Stone magazine in which he acknowledged that decades of effort to slow global warming had been largely ineffective, and proposed a new tactic: divestment.

Taking his inspiration from the divestment campaign that preceded the abolition of apartheid in South Africa, McKibben called on institutions that managed money to sell their shares in fossil fuel companies. He quoted Bob Massie, an investor who had been active in the anti-apartheid campaign, as saying, “Given the severity of the climate crisis, a comparable demand that our institutions dump stock from companies that are destroying the planet would not only be appropriate but effective.” McKibben soon founded a grassroots organization, 350.org, that made fossil fuel divestment one of its primary goals.

Spoiler alert: the intervening years have proven Massie—and McKibben—wrong. Fossil fuel divestment is surely one of most useless climate change tactics ever invented. It has had no effect on the companies, or more importantly, the climate. And it never will.

Which, of course, hasn’t stopped right-thinking environmentalists from embracing divestment. By now, nearly 1,600 institutions have shed their holdings in companies that produce coal, oil, and natural gas. The divestors include universities, foundations, pension funds, and the heirs to John D. Rockefeller, whose enduring fortune is predicated on the old man having essentially started the fossil fuel industry.

And now, the divestors may soon include California. Two weeks ago, the California State Senate, on a 23–10 vote, passed a bill that would require the state’s two huge pension funds, the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) to stop making new investments in fossil fuel companies beginning next year, and to divest their fossil fuel holdings by 2031. The bill has been sent to the California Assembly, which is expected to pass it in relatively short order.

In his original article, McKibben made a variety of arguments that divestment advocates still repeat: if institutions stopped investing in Big Oil and Big Coal, the affected companies would become less powerful, and less able to obstruct climate change legislation. Since fossil fuels are eventually going to become obsolete thanks to renewable energy, getting rid of the stocks now would save investors from absorbing future losses. And a widespread divestment movement, driven by “moral outrage,” might shame the companies into changing their ways—just as the divestment movement 40-plus years ago resulted in (at least according to McKibben) the end of apartheid in South Africa.

When I spoke to Miriam Eide, the coordinating director of Fossil Free California, which has been out front in pushing the divestment bill, she had a few additional rationales. “Divestment is an important tool to take the social license away from fossil fuel companies,” she said. “If we continue to invest in fossil fuels, we will be delaying working towards safer fuels. We are empowering workers to have a just transition as the industry declines, and to have a voice.”

It requires some serious self-delusion—or a deep misunderstanding of how the world works—to believe that divestment can accomplish any of these things. It can’t. Let’s start with a few numbers. CalPERS’s biggest energy holding is ExxonMobil. As of March 2023, the giant pension fund held 8.4 million shares of the company, representing 0.8 percent of its $440 billion portfolio. In the three years since the arrival of the pandemic hammered the stock market, ExxonMobil’s shares have more than tripled. Had CalPERS been forced to sell its stake, ExxonMobil wouldn’t have been hurt; other investors, unhindered by divestment rules, would have happily snapped up those shares. Rather, it’s CalPERS beneficiaries—the state’s public employees—who would have taken the hit.

We know this because, well, 1,600 institutions have already divested from ExxonMobil and other fossil fuel companies, and it’s had zero effect on the sector. Their stocks rise and fall depending on the price of oil, demand for gasoline, the weather, war, the mood of the Saudis, and other global factors—just as they always have.

Nor has divestment diminished the power or the profitability of fossil fuel companies. I’ve seen some advocates make the silly claim that divestment deprives companies of money to drill for oil and gas. Not exactly. ExxonMobil plans to spend between $23 billion and $25 billion on capital projects in 2023. (For what it’s worth, the company also says its oil production operations will emit 40 to 50 percent fewer greenhouse gases by 2030.)

The divestment advocates I spoke to scoff at the idea that Big Oil will ever seriously invest in renewable energy projects. “I don’t see any evidence that they are shifting their business,” says May Boeve, the executive director of 350.org. (McKibben is now an emeritus board member.) Yet ExxonMobil says it will spend $17 billion over the next five years on lower emissions projects. That’s not nothing. Most of the major oil companies have rolled out similar efforts. What is driving them, however, is not “shame” brought on by the divestment movement, but an understanding that this is what the world wants. They can see that eventually, renewables will dominate—and that their profits depend on their ability to transition. The demands of the marketplace are forcing the hands of the oil companies—not investors threatening to divest.

Both CalPERS and CalSTRS oppose the divestment bill. They argue that it is unwise for big investors like themselves to be forced to shed stocks in an important, multitrillion-dollar sector. They argue that it would be a mistake to walk away from energy companies “that are going to figure this out over time,” as CalPERS CEO Marcie Frost put it at a recent conference. They say they can do more to sway companies as shareholders than as outsiders. And they argue that they have a fiduciary responsibility to their beneficiaries that transcends any question of whether fossil fuel companies are good guys or bad guys. Weeding out profitable companies for nonfinancial reasons, they say, is not their role in society. Which is true.

At that same conference, Frost let investors in on a little secret: even if the bill becomes law, it still won’t mean that CalPERS or CalSTRS has to divest. “There is language in this bill that basically puts a caveat that the boards of CalPERS and CalSTRS do not have to divest from these assets if it is against their fiduciary duty,” she said. What’s more, the California constitution explicitly mandates that the pension funds put their fiduciary duty to pensioners above all other considerations—meaning that any law telling them to do otherwise is unconstitutional.

In other words, in California, a state that claims to care passionately about climate change, the bill calling for CalPERS and CalSTRS to divest isn’t just useless. It’s a sham. Legislators know they can vote for it without ever having to worry about the consequences. They can pretend they’re doing something about climate change without actually doing anything about climate change.

The real crime here is that there’s no place in the country that is experiencing the damaging consequences of climate change as much as California. Chronic wildfire, terrible flooding—it’s gotten so bad that State Farm, the largest insurer of homeowners in the state, announced in May that it would stop selling coverage. “Rapidly growing catastrophe exposure”—propelled by climate change—was the reason it gave.

When I spoke with Boeve, she pointed out that the divestment movement has bred a generation of climate change activists—former university students who had confronted their school president and other administrators to argue for divestment. Those confrontations had offered valuable lessons in advocacy, and helped turn these students into lifelong climate activists, she added. I agree that that’s useful—but only if they can find ways to advance the cause that, unlike divestment, might actually make a difference.

When McKibben likened fossil fuel divestment to the apartheid movement of the 1980s, he missed something important. Universities dumping stock is not what caused South Africa to change. Rather, it was countries around the world imposing economic sanctions. It was South African athletes banned from international competition. It was trade embargoes. And it was multinational companies pulling out of South Africa because of its apartheid policies. Yes, divestment gave the anti-apartheid movement visibility, but that was the easy part. These other measures, the ones that forced South Africa’s hand, were hard.

California is the richest and most technologically advanced state in the country, but far too often, its leaders seem to spend taxpayer dollars on crazy schemes that do nothing to improve society. What the state needs is better infrastructure to deal with climate change. You’d think a state rife with mudslides and wildfires and drought would make that its No. 1 priority, but no. Legislators would rather vote for a pointless divestment bill.