Is it time to start thinking about divesting fossil fuel companies from your client portfolios? Not on moral grounds, but to avoid being caught in a ‘Carbon Bubble’ – the idea that if governments take meaningful action on climate change, then fossil fuel companies share prices will plummet.
The ‘Carbon Bubble’ theory was brought to prominence by US environmentalist Bill McKibben. If the global warming is to be kept to less than 2 degrees Celsius – the level that nearly all governments globally agree we must stay within to avoid the catastrophic effects of climate change – then the maximum amount of greenhouse gas emissions by 2050, is 565 gigatons of carbon dioxide.
The problem is that the amount of fossil fuel currently ‘in reserve’ and ‘owned’ by fossil fuel companies is 2,795 gigatons. This means – if the math is correct – fossil fuel companies are currently planning to pump about five times more greenhouse gases into the atmosphere than the maximum it can take. In other words, fossil fuel companies carrying out their business plans and governments taking meaningful action on climate change are mutually exclusive.
So far, the fossil-fuel industry has successfully lobbied governments into delaying meaningful action. But for how long? US president Barack Obama’s sentiment towards fossil fuel companies has been becoming increasingly negative. As far back as January 2012, he said: “We have subsidised oil companies for a century. That’s long enough. It’s time to end the taxpayer giveaways to an industry that’s rarely been more profitable, and double-down on a clean energy industry that’s never been more promising.”
In the US, universities, city governments, religious institutions as well as individuals have divested from fossil fuels. Moreover, the movement is quickly gaining momentum in Australia.
MarketForces, an independent lobby group, recently commissioned a survey of Australian super fund members (conducted by The Australia Institute), that found a quarter of surveyed members would be willing to switch super funds if their current fund was found to be investing in coal mining and coal seam gas.
For financial planners, this has major implications as increasing numbers of clients would prefer that their investment portfolio reflects not only financial considerations, but also their values.
Ethical investment is not just about where your money isn’t. It presents an opportunity to make a difference by being intentional about where your money is.
Adam Kirk is the General Manager of Business Development and Client Relations at Australian Ethical. He has extensive experience in leading business development and client relationship teams in superannuation and retail funds management.
