Does Emphasizing Financial Risk of Fossil Fuel Investments Undermine Climate Justice or Bolster the Need for Change?

As the urgency for climate action continues to grow, the age-old tactic of voting with one’s dollar has re-emerged in an arguably counterproductive wave of greenwashing. Companies boast their environmental sustainability and frame their practices as sustainable to appeal to the consumer, even when their actions may actually be detrimental to the environment. Joining these corporations, the University of California school system has long prided itself as a world leader in sustainability and environmentalism, while behind-the-scenes being billions of dollars invested in fossil fuel industries. That is, until last month.

Seven years ago, students throughout the University of California system began organizing to pressure the institution to divest its assets from fossil fuels. With 280,000 students and over 227,000 faculty and staff, the UC is the largest employer in California--the world’s fifth-largest economy - giving it massive market power. And as a leading educational institution, it has a weighty influence over public opinion. In 2011, the Fossil Free UC coalition (FFUC) was established and today has contacts and teams working across all ten UC campuses that have been calling for the divestment of commingled and direct holdings in the 200 fossil fuel companies with the largest reserves of carbon. “The UC has such a prominent standing in the world and likes to promote itself as this elitist institution, so when you have the position of such a world leader you have the responsibility to make good decisions, especially with climate change,” said Tess Gauthier, a Community Organizer at Fossil Free Cal. “With its financial standing, the UC has a lot of opportunities to change the system or make ripple effects, and not doing so inhibits change.” 

On September 17th, 2019, in the days just before the international climate strikes and walkouts as a part of Fridays for Future, the UC announced its commitment to divest from fossil fuel industries. The UC Regents decision passed with 77% approval, and 80% on the Berkeley campus, an astonishingly high approval rate for these votes. The UC went above and beyond the student and the faculty demands, and agreed to full divestment. Now, the institution’s $13.4 billion Endowment is entirely fossil-free, since the start of October, and its $70 billion Retirement portfolio is pledged to “soon be that way as well,” according to the public divestment announcement, which was released as an op-ed to LA Times. This includes stocks, bonds for new oil and gas reserve explorations, and includes any small businesses to mega-corporations that focus on extraction, transportation, and combustion of fossil fuels. “We believe hanging on to fossil fuel assets is a financial risk,” the announcement said. “They posed a long-term risk to generating strong returns for UC’s diversified portfolios.” 

This news comes as a huge victory to FFUC. “Student activism was really key, I can’t tell you how important the student movement has been over the last seven years,” said Professor Clair Brown, an economics professor at UC Berkeley and member of Fossil Free California and 350 Bay Area. For years leading up to this major success, the FFUC coalition has been hard at work. While their 2014 demands to divest were rejected by the UC Regents, their work led to divestment of coal and tar sands stocks in 2015, as well as a $150 million divestment in 2017 from projects with ties to the Dakota Access Pipeline. On Berkeley’s Campus, Fossil Free Cal has been organizing student protests, letter-writing campaigns, and attending Regents Meetings to offer public comment. Last semester, Fossil Free Cal hosted a panel focused on systemic change, and hosted professors and community organizers from the Bay Area to talk about their work regarding fossil fuels. They also hosted a demonstration on Sproul Plaza, where the group put out 150 pounds of coal, the equivalent amount that the Berkeley campus cogeneration natural gas plant burns every minute of everyday. This past summer, the UC Academic Senate was formed, which was a key step in increasing communication across campuses and uniting the goal of divestment.

Image courtesy of Fossil Free Cal.

And the FFUC coalition is not alone in calling for divestment--smaller schools such as Middlebury, Hampshire, Brevard, and the New School have already made commitments to divest, and similar student-driven campaigns exist across the country. Despite the 2010 American College and University Presidents Climate Commitment, that over 600 schools in the US alone signed onto, only 150 schools worldwide have actually divested their assets from fossil fuel industries. In response to the UC’s decision, Bill McKibben, author, environmentalist, and founder of 350.org, tweeted, “You know who's not enjoying that news? The presidents of Harvard, Yale, Stanford, UMich, and the many many many other schools that have refused to divest. If the biggest system in the country has decided it must sell its oil stock, the pressure on these guys will go way up.” That sentiment is echoed by Professor Clair Brown, who teaches Economics at UC Berkeley, “It’s having a worldwide repercussion, because the UC is so big and important. We’ve been hearing from Harvard, from Oxford, really from all over people are asking me, ‘How did you do it?’, ‘What happened, can you help us?’” 

Image courtesy of Fossil Free Cal.

The op-ed that unveiled the decision was co-written by Jagdeep Singh Bachher, the UC’s chief investment officer, and Richard Sherman, the chairman of the UC Board of Regents’ Investments Committee. The statement repeatedly insists that the decision was purely based on financial risk. In addition to not crediting the sustained organizing and campaigning from FFUC, the announcement rejects moral obligation to discontinue support for one of the largest drivers of climate change as a reason for the decision. “While our rationale may not be the moral imperative that many activists embrace, our investment decision-making process leads us to the same result. We’re in the business of helping to ensure the financial viability of a great university whose stakeholders frequently come at an issue — even one as terrifyingly consequential as climate change — from different perspectives.”

Interestingly enough, this omission of environmental and ethical implications has multiple sides and effects. 

First of all, it is critical to understand that the detriments of climate change, mass extinctions, sea-level rise, record-setting heatwaves and droughts, are not just about biodiversity and conservation, but also about human rights and equity. The displaced consequences of climate change as a result of emissions fall most severely on communities of color and on developing nations where the impacts will be the most catastrophic. “I think that op-ed made it clear that the UC still doesn’t grasp that, and still isn’t comfortable publicly admitting that,” said Gauthier. The UC system has seen divestment campaigns before. In the 1980s, UC Berkeley was the home of a major divestment campaign calling out against the University for its investments in apartheid South Africa, with protests that ranked on Nelson Mandela’s map of international struggles for justice. At the time, the UC Regents had invested $4.6 billion in South Africa, contributing to supporting the nation’s status quo. After two years of protests, over 150 arrests, and 10,000 boycotted classes, the Regents finally approved a divestment vote to divest $3.1 billion from businesses collaborating with the apartheid government. Today’s campaign for divestment from fossil fuels rides in part on criticism of the University for hypocritical behavior and on the moral imperative to change their practices. “I feel strongly about this,” Gauthier said. “I think that the UC fails in its mission if its actions as a system contradict the values of its students. That’s something I always thought coming to the Regents meetings, all of these actions completely go against the community.”

But this is not to say that the Regents are incorrect in referencing the bad investment of fossil fuels. In fact, highlighting the risk of these investments was a strategy that FFUC also referenced in its campaigning. Professor Brown pointed out that recent studies show that funds which are divested actually make more money than business as usual. Moreover, there may also be positive ramifications of the insistence from Baccher and Sherman that the decision is purely based on financial risk. “Actually, I’m really pleased, as an economist,” acknowledged Professor Brown. “I thought it was good that they said it wasn’t for moral or social reasons, but for financial reasons. Because when they say that, all these other investment groups don’t have a leg to stand on.” She explained that emphasizing divestment for the purpose of bolstering returns, rather than for the environmental impacts, actually undercuts the arguments of other investors that continue to say they prioritize finances. “If you look to any of the experts,” Brown said, “they all say that investing in fossil fuels is highly risky and the return is really low, and that there are better investments we can make in alternative energy.” The UC currently has $126 billion total investments, $1 billion of which are in clean energy, a number that is predicted to grow under the new investment directions. 

Image courtesy of Fossil Free Cal.

“Even though divestment is over, the environmental issues that caused FFUC to form in the first place are still here,” Gauthier said. On Berkeley’s campus, Fossil Free Cal will continue to focus on issues of environmental justice, and on getting fossil fuel money out of independent groups supporting the school, such as the Berkeley Foundation, a private funding group for the campus which is still invested in the fossil fuel industry. While there is still more work for Fossil Free Cal and the FFUC as a whole, this decision is ultimately a huge victory for their efforts and will be influential in signaling to the rest of the world.