Close the coalhouse door

The US campus movement for university divestment from fossil fuels has claimed its first big scalp. From Climate Progress:

Stanford University announced Tuesday it would divest from the coal industry, making it the first major university to do so. ..
“Stanford has a responsibility as a global citizen to promote sustainability for our planet, and we work intensively to do so through our research, our educational programs and our campus operations,” said Stanford President John Hennessy. “Moving away from coal in the investment context is a small, but constructive, step while work continues, at Stanford and elsewhere, to develop broadly viable sustainable energy solutions for the future.”

Stanford is keeping oil and gas shares in its $18.7bn endowment, but the policy is under review. Deborah DeCotis, the chairwoman of the Stanford board’s special committee on investment responsibility:

Don’t interpret this as a pass on other things.

I reckon the oil and gas portfolio is now untenable and will be sold in the next 18 months.

The divestment movement launched by is well-aimed. The endowments of American universities (over $400 billion in all) come from gifts they received as noble and altruistic causes. They can’t with a straight face apply the investment standards of Gordon Gekko. Once they allow an ethical wedge, it is bound to split away climate-destroying investments.

Second, these endowments are very large, and divestment will make waves. More than lowering share prices by the selloff, it will lead other investors, including amoral ones, to treat fossil fuel companies as less reputable, riskier and more vulnerable to adverse policy shocks. Their cost of capital will rise, reducing their capex and eventually production. “Stranded asset” has entered the Wall Street vocabulary.

The Seven Sisters are already in decline as oil producers. They are being forced by nervous stockholders to cut back on their increasingly expensive investments. None of them bid for Brazil’s last deep offshore leases, which went to the Chinese.

Harvard next.

* * * * * *
Alec Glasgow singing the eponymous song of my headline. It’s about the past human costs of coal, but can also stand for the future ones.


  1. name99 says


    Relevant to this, it's not as easy as one might hope to just invest in Ethical Funds and hope they'll do the vetting.
    I was very disappointed a few years ago to see that the Ethical Fund in which I had invested was doing what they promised in terms of no tobacco, alcohol or guns. (I can't remember the stance on fossil fuels.) But a consequence of this was that they owned a huge amount of financial organizations (of the large bribe congress variety), which didn't strike me a great improvement in terms of making the world a better place.

    If this is something important to one, one does have to look at the fine print to see exactly what's in there and what is not (and how it may change each year) which is more work than one would like, but c'est la vie.

  2. J_Michael_Neal says


    None of them bid for Brazil’s last deep offshore leases, which went to the Chinese.

    The subordinate clause is the critical one. This may be the right thing to do but it won't lead to any change in the amount of fossil fuels actually recovered and burned, because someone will be willing to do it.

    • JamesWimberley says


      It wasn't an ethical decision. The Chinese state firms are talking on a very large risk. The article I linked to claimed it was just Brazil's protectionist conditions, but my feeling is that the majors also reassessed the costs and benefits from such deep water fields.

      • J_Michael_Neal says


        This pretty much reinforces my main claim: the divestment from fossil fuel companies by universities won't have any significant effect on the amount of fossil fuels that are actually produced and burned. If companies are deciding not to drill because they are worried about the chances that a company will nationalize their operations or because the oil is too expensive to extract, that has exactly zero to do with university divestment.

  3. Hiro_Protagonist says


    Color me entirely unpersuaded. Investment in an established and profitable company should be an entirely amoral process, any opinion to the contrary is simply uninformed. The only time sell pressure has any chance of limiting the activities of a company is when they are actively seeking to raise money by floating shares in order to expand their operations. With the oil majors, the exact opposite conditions obtain; they all (or almost all) buy back shares aggressively. From Ycharts:

    Xom's total float on Dec 31, 2006 was 6.22 billion. Today it is 4.31 billion.

    Chevron's total float was 2.23 billion. Today it is 1.9 billion.

    Even B fracking P has managed to decrease its float in that same period, from 3.58 billion to 3.4 billion (and going back in time from 12/31/06 it explodes upwards… 12/31/06 is basically the worst date you could choose for BP (at around the 10 year past mark) to support my argument, and it STILL works).

    These guys don't rely on the price of their shares to raise money, they use the money they make to take shares off of the market. If you could somehow engineer a share price calamity you might manage to get some corporate officers replaced, but you aren't going to destroy the company or get them out of the oil business. If you could somehow drive the market capitalization of Chevron to $1 (and prevent me from killing everyone that stood between me and buying it for $1) guess what? They still make an unimaginable ###load of money every quarter. What have you accomplished? All you have prevented is a move to raise money by floating more shares, which no shareholder wants them to do anyway. The divestment idea is the opposite of well-aimed. It demonstrates a fundamental lack of understanding concerning equities and the structure / position of large oil companies.

    I have an alternative recommendation for you and anyone else who bothers to think about such things. Buy CVX, use the cap gain and divvies to buy solar panels, electric cars, and to make donations to environment-friendly candidates. There is the truly well-aimed strategy; use their immense profitability to undermine the basis of their business.

    Anyway, I sincerely hope you are right and there is a wave of misplaced ethics-driven selling of these companies… so that I can back up the truck. And believe me, I won't be alone.

    • JamesWimberley says


      You don't address the specific mechanisms I suggested for divestment making oil companies less profitable: reputation, perceived risk, policy vulnerability..

      "Investment in an established and profitable company should be an entirely amoral process, any opinion to the contrary is simply uninformed." Your leap from an "Is" to an"Ought not" is in the dark, or into it. What sort of human being are you to ignore ethics in anything you do? Every conceivable action is either good, bad or indifferent. There may be a counter-intuitive ethical case to be made that locally amoral investment decisions (say gun shops in Soweto) will overall have better results than conscious ethical filters. You don't try to make it.

      • Hiro_Protagonist says


        My response was aimed at the one direct financial mechanism you put forward, namely increasing the cost of capital. I realize now I should have gone a step further on that score. The oil majors buy back more shares than they issue, and thus an effective disinvestment campaign (where effective is defined as lowering the share price) would actually result in an INCREASE in their profitability. I note that this is one of the pitfalls one can fall into when they attempt to apply ethics to a situation in which ethics are actually not at play… which is something I should have been more clear about before. Ethics are simply not a factor in stocks (unless you design some extremely narrow situation in which they company needs to acquire money NOW in order to mess up the world, and the world cannot be messed up in this way unless that specific company gets the money at a specific time etc. etc., which is not at all the case here, as I have proven). To take a position in a stock is to play a game against your counterparty and / or some future counterparty. There is as much room for ethical analysis in the stock market as there is in a game of poker. If you aren't cheating, you have crossed the ethical finish line.

        I am trying to point out that your view of this situation is fundamentally unrealistic. If you did manage to actually exert some downward pressure on the shares, people (including me) would step up and buy them, and so your downward pressure would reverse itself. Even if it somehow didn't and we all joined in a worldwide-smart-money-turns-dumb-collective-unconscious explosion, those companies would be perfectly healthy, and the oil would continue to flow. I am not sure how you imagine endowment funds selling oil companies is going to damage their reputation, increase their perceived risk, or make them more vulnerable to policy changes. It really just doesn't make any sense. They will still be able to afford the lobbyists and campaign contributions and air time, because you have done nothing to their income other than perhaps increase it. Speaking as someone who spends at least 4 hours everyday performing financial research and actually moving real money in real-world equity markets, I have to say it just makes absolutely no sense at all. None of this will work.

        I am familiar with your background to some extent and have read and appreciated many of your posts. You are clearly the more intelligent and educated person between the two of us, and yet I cannot escape the feeling that you don't really follow equity markets closely, that you haven't really thought this out. I think your passion concerning climate change and ethical behavior, while entirely laudable, is leading you into a trap based on a series of unrealistic assumptions about the nature of equities markets and their participants. Or maybe I am, as you imply, an unethical person and so am simply failing to see the light. Either way, best of luck to the people of Bangladesh, and to the rest of us.

      • JamesWimberley says


        Hiro: I'm surprised by your apparent position that share prices are irrelevant to cost of capital, and/or that the investments of oil companies are determined by cash flow without regard to prospective returns. If that's so, better get out now on Gordon Gekko grounds, However, what they are actually doing is responding to shareholder concerns about returns and cutting back capex, as Kopits' presentation documents. They are accepting the price of shrinking the business – and shrinking the business means reducing emissions.
        I did not mean to suggest you were a bad person. Myopic, yes. We all are in our different ways.

  4. Barry_D says


    "Harvard next."

    Nope. Whatsherface (the President of Harvard) already spoke. What was hysterical was that she couldn't even space her contradictory statements apart (you don't put them sequentially).

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