Investing in Climate Failure

The Ethics and Economics of Fossil Fuel Divestment

By Alex Lenferna - alexlenferna@gmail.com
University of Washington Philosophy Department 1
There is a concise article-length, more up-to-date version of this paper here: http://bit.ly/AMoralEndowment
Also this paper is gradually being expanded into a book length treatment which should be finished by mid-to-late
2015. The work in progress can be accessed at: http://bit.ly/investinginclimatefailure
I have also written a report on the financial case for divestment here: http://bit.ly/DivestSCERS
Please share and distribute freely.

In response to the unfurling crisis of anthropogenic climate change and/or global warming increasing
numbers of people are pushing institutions, such as universities, city governments and religious
institutions, to freeze any new investment in fossil-fuel companies, and divest from both direct
ownership and any commingled funds that include fossil-fuel public equities and corporate bonds. The
oft stated aim of doing so is to prevent continued participation in, profiting off, and implicit support of
the fossil fuel industry, which, the growing divestment movement argues, consists of many of the most
prominent and morally culpable actors driving the climate crisis. Increasingly the divestment movement
is also arguing that divestment from fossil fuels is not only morally laudable, but also a financially sound
investment decision. Through both arguments the fossil fuel divestment movement - the fastest growing
divestment movement in history 2 - has been shedding light on one of the most difficult contradictions of
our time, the contradiction between a business-as-usual trajectory and the changes to the global
economy required to keep global warming below the internationally agreed upon target of two degrees
Celsius above pre-industrial levels. Given that the contradiction between these two paths is so great,
and that the financial world has arguably not properly countenanced this, the world of global finance is
largely unaligned with a two degree world. It is this contrast between business as usual and climate
1

This paper is dedicated to all the brave youth who are fighting for a better future Mandelas great generation.
Special thanks to Ann Cudd, Stephen Gardiner, John Symons, members of KU Divest, Divest UW, and the Fossil Fuel
Divestment movement at large for very useful comments and discussions on this issue.
2
According to (Ansar et al., 2013) fossil fuel divestment has grown faster than any other divestment movement.
The movement currently stands at over 500 divestment groups at universities, cities, and religious institutions
across Europe, North America, Australia and New Zealand, with 11 cities already committed to divesting as well as
a number of universities and religious institution according to figures on gofossilfree.org and http://www.truthout.org/opinion/item/20092-in-the-wake-of-haiyan-we-must-divest-from-fossil-fuels

failure on one end of the spectrum, or climate victory and a revolution in our energy systems on the
other, that the divestment movement has shed light on and which it is asking its institutions to address
by bringing their finances more in line with what would be required to prevent runaway climate change.
Institutions considering whether to heed the divestment movements call and divest from fossil fuel
companies are faced with a seemingly complex moral and financial choice. In order to unpack the
elements of this choice this paper will explore the prospective decision of whether to divest, with
particular emphasis on the perspective of a university endowment fund. I draw substantially from the
growing financial literature on divestment and the carbon bubble, as well as on rational choice theory,
game theory and discussions of the tragedy of the commons, in order to provide both an ethical and
economic analysis of what divestment from fossil fuels entails. For the sake of context, moral urgency,
brevity, and for reasons I will delve into throughout the paper, I will use the North American coal
industry as a case study for divestment, although the arguments can be expanded and applied to
divestment from other regions and fossil fuel industries, albeit not as robustly in all cases. In order to
attempt to artificially separate the questions of ethics and economics, I provide two separate analyses of
the choice faced by universities considering whether to divest. One analysis shall be strictly economic
and shall assume that university endowment funds can be legitimately considered to be driven solely by
the pursuit of profit. I conclude that even on this limited analysis divestment from at least part of the
fossil fuel industry can be a financially sound investment decision. The second part of the analysis will
focus on the university endowment as an institution answerable to the dictates of morality, and will
argue that if we see an endowment as such that the university has a moral responsibility to divest in
order to ensure its integrity as an institution, show moral leadership, and prevent harm caused as a
result of its investment policies.
Having provided these two separate analyses I will then argue against the legitimacy of viewing a
university and its endowment according to the first analysis, as solely bound by the dictates of pursuing
profit. I will argue that the second way of viewing a university endowment as a morally bound institution
is the morally sound and socially acceptable way for a university to function. This argument is based on
two premises, the first being the profound role that a university and its financial institutions play in
broader society and, secondly, how their investment policies and the effects thereof cannot justifiably
be seen to be removed from the broader aims and goals of the university and as unanswerable to the
call of ethics and morality. Based on these premises I conclude that universities aiming to act with
integrity, leadership and moral fortitude should divest. The ethics argument may seem somewhat
2

superfluous given that according to my economic analysis universities aiming to act on economic
grounds alone should divest. However, the ethical argument may provide a case for a more aggressive
and robust form of divestment, one characterised by moral leadership rather than the more limited case
for divestment entailed by simply responding to the financial risks posed by the carbon bubble.
Divestment Nuances and King Coal
Many divestment groups are calling for divestment from the fossil fuel industry at large, with a focus on
the Top 200 Companies according to the amount of carbon reserves that they hold. While this way of
approaching the carbon bubble makes for simple definitions of targets for divestment, it only
distinguishes the quantity of the reserves, not the quality of those reserves. Distinguishing the quality of
reserves is arguably quite important, for not all fossil fuels are equal. Indeed, some fossil fuels, such as
coal and oils sands, are much more harmful and capital- and carbon-intensive than other forms of fossil
fuels. This has implications not only for the ethical problematicity of those fossil fuels, but furthermore
reflects how they will be affected by the carbon bubble. As Generation Foundation highlights, In the
hierarchy of fossil fuel asset stranding, it is reasonable to assume that in carbon-constrained scenarios,
the projects with the highest break even costs and emissions profile (e.g. oil sands and coal) will be
stranded first (Generation Foundation, 2013, p. 18). Consider, for instance, that the ratings agency
Standard and Poors recently concluded that the business models of tar and/or oil sands could be
invalidated in a world acting to constrain carbon (Redmond & Wilkins, 2013). 3 What is interesting
here, is that once we recognise these nuances the ethics and economics of the carbon bubble align to a
certain extent, insofar as the most damaging and capital intensive fossil fuels are those most at risk of
becoming stranded.
Reflecting this more nuanced approach, companies like AMP Capital are targeting companies that derive
more than 20 per cent of their earnings from thermal coal, coal-fired power generation, oil sands and
the conversion of coal to liquid fuels (Ker, 2014). The fossil fuel divestment campaign at the University of
Washington is pushing for divestment along the lines of AMP Capital, while also pushing the treasury to
screen out the broader portfolio using a carbon risk assessment tool. Similarly, in an attempt to pay
heed to these complexities, in this analysis I will take coal as the paradigmatic example of what we need
3

Interestingly a recent report by the Carbon Tracker Initiative, which highlights the importance of the Keystone XL
pipeline for the expansion of the tar sands industry, concludes that absent a material expansion in Albertas
export capacity over the rest of this decade the commercial viability not only of planned new oil- sands projects
but also of existing plays will become increasingly questionable, with most new projects simply unviable and
existing plays at risk of having to shut in a growing share of their production (Carbon Tracker Initiative, 2013a, p.
1).

to divest from, focusing particularly on the North American coal industry. 4 The choice is hardly an
arbitrary attack on a particular industry, but rather a choice shaped by the priorities created by the
climate predicament we are in, for as Oxford University Economics Professor Dieter Helm argues, given
that coal accounts for the majority of global greenhouse gas emissions and can emit three times more
greenhouse gas emissions than many other fossil fuel sources of energy, never mind renewables, the
overwhelmingly immediate question in climate change is how to stop and then reverse the dash-forcoal, and to do it quickly (Helm, 2012, p. 195). Furthermore, as a recent TEEB Report has shown, in
terms of natural capital impact, the North American coal industry, which possesses the largest share of
global coal reserves (28 percent), is the third most detrimental industry in the world, so much so that if
coal had to pay for its externalized costs (of $316.8 Billion) it would be financially unviable (Trucost,
2013). Confirming this, as I shall later show in more detail, even arguably conservative economics
analyses of coals costs show it as outweighing its benefits (Cf. Muller, Mendelsohn, & Nordhaus, 2011)
My focus on North American coal, however, does not deny the case for broader divestment, for the
arguments made here can be applied with similar fortitude to other geographical regions and other
similarly greenhouse-gas-intensive industries, especially unconventional carbon-intensive sources such
as tar and oil sands. Going beyond coal and oil sands, there also exists an increasingly strong case for
divestment from the broader oil industry, albeit not such a straightforward one as coal given that oil is
not as fungible or environmentally damaging (Cf. HSBC, 2013a; McGlade & Ekins, 2014; Morse et al.,
2013; Styles, 2013). Divestment from natural gas is a more tricky and controversial question due to its
controversial role as a potential bridge fuel - an issue I will not delve into here, but I and others have
addressed in part elsewhere (Cf. Jenner & Lamadrid, 2013; Lenferna, 2013b; Morse et al., 2013). 5 Thus
while divestment from broader fossil fuel industries is important to consider, coal (along with similarly
greenhouse-gas-intensive fuels such as oils sands), is arguably the most urgent and clear cut target for
divestment.

The Asian coal industry while more damaging than the North American coal industry (Cf. Trucost, 2013), is a more
complicated question which raises issues of development rights, which I shall avoid in order to limit the purview of
this paper. The insights from this paper could, however, be equally well applied to the Australian Coal Industry (Cf.
Carbon Tracker Initiative, 2013)
5
It is worth noting, as a recent report from CERES points out, that due to the very water intense nature of
hydraulic fracturing for natural gas it may face significant financial risks as its thirst for water may outpace water
availability (Freyman, 2014). Furthermore, while there may be some short-to-medium term booms in the natural
gas industry, for those investors, like universities, who have a long-term investment timeframes such fluctuations
may be inappropriate, as discussed later in the paper.

Coal and the Carbon Bubble

If a university endowments role is solely to pursue profitable investments that will ensure the long-term
vitality of a university endowment then it is becoming increasingly clear that coal may not be the place
to look for such investment potential. Increasing evidence is suggesting that the coal industry in
general, 6 and the North American coal industry in particular, 7 is becoming a very risky industry in which
to invest. In order to understand the true extent of the risks associated with investment in coal it is
important that we first understand the broader context within which the coal industry is operating by
examining the carbon bubble.
Pioneering work done by the Carbon Tracker Initiative and other institutes has identified what has come
to be referred to as the carbon bubble, a concept which refers to the fact that the listed reserves of
fossil fuels on the financial markets and those held by governments and companies are jointly much
greater than can be burnt if we as a global community are to stand a reasonable chance of restricting
global warming below two degrees Celsius above pre-industrial levels. 8 While dangerous climate change
will occur before reaching that point 9, as it already has, 10 nonetheless the two degree limit is the
6

(Cf. Carbon Tracker & Grantham Research Institute, 2013; Robins & Keen, 2012; Vorrath, 2013)
(Cf. Celebi, Graves, & Russell, 2012; Lowe & Sanzillo, 2011; Union of Concerned Scientists, 2010)
8
The global carbon budget refers to the amount of carbon we can burn to stand a chance of staying below two
degrees Celsius. The concept was introduced in a paper from (Meinshausen et al., 2009). The carbon budget was
also reconfirmed in the latest IPCC report which argued that humans would have to keep their cumulative
emissions to about 1000 billion tons (or gigatonnes) of carbon in total to have a 66% chance of 2 degrees.
However, if we factor in shorter-lived climate pollutants, such as nitrogen oxide and soot, doing so brings the
overall cumulative budget down from 1 trillion tonnes of carbon to 800 billion tonnes. With that in mind, the
remaining budget is even smaller, leaving just 269 billion tonnes of carbon left to be burnt before 2050. Even more
worrying news come from a recent study in Nature Climate Change (Frlicher, Winton, & Sarmiento, 2013) which
argues that the earths climate system is more sensitive to carbon dioxide than the conservative IPCC estimates
suggest because the ocean is not as capable of storing heat, such that rather than the IPCCs overall carbon budget
of 1000 gigatonnes the world is more likely to have a carbon budget of about 750 gigatonnes, which would limit
the remaining amount of carbon emissions to below 250 gigatonnes, less than half of what has already been burnt
this is without factoring in short-lived climate forcers (Cf. Science Daily, 2013). If this analysis holds true the
urgency of transitioning away from carbon intensive fuels such as coal and oil sands becomes even more
pronounced, as does the urgency of a broader transition away from fossil fuels. Indeed even the arguably
conservative IPCC analysis requires a peaking of emissions in 2020 followed by a sharp decline, if we are to stand
much of a change of staying below two degrees (Cf. Anderson, 2013). Putting a final nail in the coffin a recent
study form Nature (Shiogama & Ogura, 2013) showed that the IPCC underestimated the climate sensitivity because
of its limited understanding of how clouds would respond to global warming. Jointly these findings make it even
more likely that even less greenhouse gas emissions will be needed to push us past 2 degrees and onto an even
warmer world. Thus our carbon budget may be much smaller than is generally portrayed in the media and was
popularized by Bill McKibbens Rolling Stone Article Global Warmings Terrifying New Math (2012). Indeed, the
math is turning out to be more terrifying than McKibben had imagined.
9
Cf.http://grist.org/climate-energy/scientists-current-international-warming-target-isdisastrous/?utm_source=newsletter&utm_medium=email&utm_term=Daily%2520Dec%25205&utm_campaign=d
aily
7

political number towards which the international community is aspiring under the United Nations
Framework Convention on Climate Change. 11 However, despite the fact that if we burn all the listed
fossil fuel reserves we will drastically overshoot that target, the fossil fuel industry has nonetheless
incorporated the value of burning those carbon reserves into their financial valuations, which is
reflected in their company valuations on the stock market. Thus the perceived and listed value of such
fossil fuel companies is based on the assumption that those reserves will be burnt and we will breach
the two degree limit by a long shot. In other words, unwittingly or not, fossil fuel companies and those
invested in them are betting on climate failure, and the bet they are taking is not a small gamble. As the
following figure and quote from the Carbon Trackers Unburnable Carbon report shows the scale of the
financial risks associated with making that bet are potentially tremendous in scale and effect:

Figure 1 - Global Carbon Budget Plotted Against Fossil Fuel Reserves

Source: Unburnable Carbon Report

10

Cf. http://ipcc-wg2.gov/SREX/report/
Although as the 2013 UNEP Emission Gap Report points out current global greenhouse gas emission levels are
considerably higher than the levels in 2020 that are in line with meeting the 1.5 C or 2 C targets, and are still
increasing (2013, p. xi). Furthermore, as the report continues to argue, even if current international GHG emission
reduction pledges are fully met that still wont put us on a path to staying below two degrees, which shows there is
a significant gap between the politically stated goal of two degrees and the political commitments made.

11

If listed fossil fuel companies have a pro-rata allocation of the global carbon budget, this
would amount to around 125 - 275GtCO2, or 20 - 40% of the 762GtCO2 currently booked
as reserves. The scale of this carbon budget deficit poses a major risk for investors. They
need to understand that 60 - 80% of coal, oil and gas reserves of listed firms are
unburnable [if we are to adhere to the 2 degree target]. (Carbon Tracker & Grantham
Research Institute, 2013, p. 4)
The unburnable assets described by Carbon Tracker
are currently being termed potentially stranded high
carbon assets 12; a name derived from the fact that if
we do indeed act on our two degree target then the
value of those assets will be lost, based as it is on the
premise that the reserves will be burnt.

13

Indeed (as

figure 1 on the previous page visually demonstrates)

the contradiction between what governments have
agreed upon and the growth assumptions made by
the fossil fuel industry is so large it represents a
systemic global financial risk, which dwarfs previous
bubbles (Gilding, 2013a). According to John Fullerton,
the current market value of the fossil fuel reserves
that stand to be potentially stranded represents a $22
trillion bubble, as illustrated in the adjacent
diagram. 14 For comparison, the debt overhang from the recent housing bubble has been estimated to be
around $4 trillion and the effects thereof were devastating in both their scope and their impact. 15

12

According to Oxford Universitys Stranded Assets Programme, Stranded assets are assets that have suffered
from unanticipated or premature write-downs, devaluations or conversion to liabilities. They can be caused by a
range of environment-related risks and these risks are poorly understood and regularly mispriced, which has
resulted in a significant over-exposure to environmentally unsustainable assets throughout our financial and
economic systems. Current and emerging risks related to the environment represent a major discontinuity, able to
profoundly alter asset values across a wide range of sectors. (Caldecott, Tilbury, & Ma, 2013, p. 2).
13
For an interactive infographic explaining the carbon budget relative to the reserves available visit the following
link from The Guardian: http://www.theguardian.com/environment/interactive/2013/nov/26/why-fossil-fuelreserves-growing-oil-carbon
14
Diagram taken from (Brad Johnson, 2012)
15
http://www.russellsage.org/research/chartbook/great-recession

The size of the carbon bubble is worrying, to say the least, but not only are fossil fuel companies valued
based on their current reserves which may not all be burnable according to the logic of the carbon
bubble, furthermore they are expending great amounts of capital, approximately 1% of global GDP 16, on
developing new reserves ironically the same percentage of global GDP the Stern Report (2007)
concluded was required to invest in the clean economy in order to avoid the worst effects of climate
change. If the fossil fuel industry continues as such, and if the assumption of stranded assets holds true,
then through investing in capital expenditure for new reserves over $6 trillion could be wasted on new
potentially stranded fossil fuel investments over the next decade alone, with around $670 billion being
spent to develop new yet potentially unburnable reserves in just the last year, according to the Carbon
Tracker Initiative (2013). Putting aside for now that in a world of limited resources this capital could be
spent in much more climate-friendly and beneficial ways, this poses a substantial risk to investors. In
response some have taken to lobbying the fossil fuel industry, arguing that fossil fuel companies should
move away from capital expenditure on new reserves and should rather return that capital to
shareholders or diversify their businesses in other ways, so

Not only are fossil fuel companies

valued based on their current
reserves which may not all be
burnable, according to the logic of
the carbon bubble. Furthermore,
they are expending great amounts
of capital, approximately 1% of
global GDP, on developing new
reserves ironically the same
percentage of global GDP the Stern
Report (2007) concluded was
required to invest in the clean

as to stop inflating the already over-inflated carbon

bubble.

17

As former US Securities and Exchange

Commissioner Bevis Longstreth argues, if governments act

in ways that reflect that we live in a carbon-constrained
world, which they are increasingly doing, then CAPEX
constitutes corporate waste, plain and simple. Indeed, a
situation ripe for stockholder lawsuits (Longstreth, 2013).
Given this growing carbon bubble the question for an
endowment fund manager considering whether to divest
from the coal and other fossil fuel industries, is what risk
does this pose to them, and how does one quantify this
risk, especially given the uncertainty both as to how
governments and broader society will respond to climate

economy in order to avoid the

change and whether and how fossil fuel companies will

worst effects of climate change.

respond to the carbon bubble. As the Economist (2013)

16

http://www.worldwiseinvestor.com/blogs/articles/519/main/green-and-ethical-investment/Are-FinancialAdvisers-Lemmings?-A-Stern-warning-to-Investors---passive-or-active
17
Cf. http://www.abc.net.au/lateline/content/2013/s3889681.htm

pointed out, at the moment neither public policies nor markets [adequately] reflect the risks of a
warmer world, so what is an endowment manager to do? Understanding the risks involved is crucial
both to understanding the economic and the moral argument for divestment, and so drawing on the
work of far more financially sophisticated minds than my own I will attempt to outline the risks that the
carbon bubble and associated concerns pose to the North American coal industry in particular, after
which I shall examine the risks associated with divestment.

An Industry in Decline
In 2009, coal accounted for 44.5% of [United States] electricity generation and 93% of
domestic coal was consumed by U.S. power plants. But the nations aging coal fleet, 60%
of which is over 40 years old, needs to be modernized. In the past five years, plans for
153 new coal plants have been cancelled and there is consensus among analysts that a
significant portion, possibly 20% or more, of U.S. coal-burning generation could be
retired in the very near future. Replacement resources are likely to come from natural
gas, solar, wind, and energy efficiency, not new coal. In addition to the risk posed by
natural gas, a shifting array of risks related to construction prices, regulatory risks, and
policy choices individually diminish coals usefulness as a fuel source for electric
generation These factors combine to make current and future investments in coaldependent utilities and coal mining companies exceedingly risky. (Lowe & Sanzillo, 2011)
To confirm the realization of the trends outlined in the above prescient quote from 2011, a look at the
Dow Jones U.S. coal index will tell you a story of plummeting coal industry stock prices with a 70%
decline in value over the past 30 months as of November 2013, a trend which many predict will continue
and possibly rapidly accelerate. 18 Reflecting on recent coal performance, globally, share prices of
thermal coal producers have slid over the past two years on declining demand for the fuel and fears of
oversupply. [US-based] Patriot Coal filed for bankruptcy last year while fellow United States producer
Arch Coal has dropped 71 per cent and Peabody 44 per cent (Bloomberg London, 2013). At the core of
these devaluations is the idea that, as The Economist (2013) points out, fossil-fuel firms live and die by
the reserve replacement ratio, which measures the amount of proven reserves added to a company's
18

https://www.google.com/finance/historical?cid=4931635&startdate=Dec+1%2C+2011&enddate=May+15%2C+2
013&num=30&ei=q5GTUfiZFIyWkQPn1wE Thanks to Gary Horvitz for this point.

reserve base during the year relative to the amount of coal produced. For a number of related reasons
coals reserve replacement ratio and profitability is falling and looking highly likely to continue to fall.
One of the most prominent reasons going forward, as UN Climate Chief Christina Figueres (2013) points
out, is that most of the remaining coal reserves must remain in the ground if the world is to avoid the
worst of climate change. Indeed, as a recent report by the far from climate-activist minded Goldman
Sachs highlights, the window for profitable investments in coal is closing, and rather quickly, especially
in the U.S. (Lelong, Currie, Dart, & Koenig, 2014).
That the U.S. coal bubble will continue to shrink, especially in light of climate change concerns, becomes
even clearer when we consider that the US does not yet have comprehensive climate legislation in place
to regulate or penalize greenhouse gas emissions from coal (i.e. when coal is burnt it uses the
atmosphere as a free sink). 19 That, however, is likely to change in the near future as it seems highly likely
that, among other climate change responses, the U.S. will be implementing EPA greenhouse gas
regulations for stationary sources such as coal power plants through the expansion of the Clean Air Act.
Already in September 2013 the EPA announced new limits on the amount of CO2 future gas and coal
power plants could emit 20, and on the state level there is a slew of new legislation being put into place
(Cf. Center for Climate and Energy Solutions, 2013). Furthermore, The Presidents Climate Action Plan
arguably leaves little room for coal in the future (Executive Office of the President, 2013). Because of
these actual and potential legislative developments the risks to the U.S. coal industry depend less on
whether there will be a globally binding agreement or global carbon price which holds us to the two
degree target and more on whether the U.S. will implement climate legislation. The closing of coals
profitability is further enforced by other related developments such as a shifting socio-political
landscape and a changing energy market characterized by the rapidly declining costs of renewables
accompanied with a natural gas boom (Cf. Generation Foundation, 2013; HSBC, 2013b). 21

19

Some might argue that clean coal or something along those lines will come to the rescue of the industry.
However, the potential for clean coal, even if carbon capture and storage was technologically feasible, which it
currently isnt, is highly limited as the ability to pursue carbon capture and storage is rather small compared to
what would be required to make coal a prominent feature in a clean energy economy, feasible (Carbon Tracker &
Grantham Research Institute, 2013). Furthermore, as the Wall Street Journal reported in January 2014, the costs of
attempting to create clean coal have proved to be so exorbitantly expensive that they do not seem to be financially
feasible, such that the unfolding regulations on mercury and carbon emissions are likely to choke the coal
industry (Smith & Miller, 2014).
20
http://www.washingtonpost.com/national/health-science/epa-moves-to-limit-emissions-of-future-coal--and-gasfired-power-plants/2013/09/19/e71728bc-2139-11e3-a358-1144dee636dd_story.html
21
One could argue that this does not take into account the ability to export coal to other countries. However,
relying on such exports seems a risky proposition given that: a) as both Goldman Sachs (Lelong et al., 2014) and

10

Compounding the above issues, the introduction of potential greenhouse gas regulations poses risks for
a financial market which has historically failed to integrate considerations of regulation into its financial
valuations. 22 As the Unburnable Carbon report points out, In the first half of 2012, US coal demand was
at its lowest for 25 years. Cheap gas prices were compounded by the US EPAs introduction of mercury
emissions regulation which the market clearly did not believe would happen. As a result US coal mining
companies saw downgrades (Carbon Tracker & Grantham Research Institute, 2013, p. 30). Indeed, with
increasing U.S. climate legislation almost inevitable and the coal industry unlikely to properly
countenance it, the risks of sustaining losses through continued investments in coal seem quite high.
Furthermore, coming late to divestment from coal may be an increasingly risky strategy, for as Oxford
Universitys Stranded Assets Programme has argued, divestment will have a greater direct effect on coal
valuations, relative to other industries, due to coals relatively high fungibility, poor environmental
performance and high emissions profile, among other factors (Ansar, Caldecott, & Tilbury, 2013). Thus,
with the likelihood of the coal bubble bursting, so to speak, or, less dramatically, the industry devaluing
significantly, it might seem a good time to get out of coal. 23

Caldecott, Tilbury & Ma of Oxford University's Stranded Assets Programme (2013) show, reliance on China and
other export markets may itself lead to further stranded assets as there are a number of factors at play such that,
among other things, China, the main determiner of international coal prices, is likely to reduce its demand below
levels currently expected by market participants; b) as a recent International Energy Report highlights actions by
environmental and anti-coal groups will also hamper the growth of US coal exports, despite the existence of
promising low-cost production areas (International Energy Agency, 2013a, p. 12); and c) investment banks such
the European Bank for Reconstruction and Development, World Bank, European Investment Bank and US ExportImport Bank have all recently restricted coal financing to rare and exceptional circumstances.
Indeed, testament to the increasingly unprofitable nature of coal exports, Cloud Peak Energy, which is one of the
best situated coal companies for export, according to Clark Williams-Derry (2013), reported that it is now losing
money selling its coal to Asia. Confirming this, In June, Bernstein Research, a top Wall Street analytical firm,
privately circulated a report titled, Asian Coal & Power: Less, Less, Less The Beginning of the End of Coal
According to sources who had read the 140-page report, Bernstein predicted an end to Chinese coal imports in
2015 and an absolute decline in Chinese coal demand by 2016 (Nace, 2013). A recent move by Goldman and
Sachs to pull out of a coal export project on similar grounds serves as further evidence to confirm this prognosis
(Upton, 2014)
22
Consider, as Joe Romm (2013) points out, that when Shell began to incorporate just a conservative carbon price
in how it considers its investments such a practice had a huge impact on the feasibility of coal as an investment
and if applied on a broader scale would significantly drop coal use. Furthermore, as a Carbon Disclosure Project
report (2013) outlines, more and more US fossil fuel companies 29 at present according to the December 2013
report - are adopting an internal carbon price so that they invest as if there was a price on carbon. This further
complicates the case for divesting from oil and gas companies, for while a shadow carbon price might exclude coal
and other carbon-intensive industries it seems as if some oil and gas is feasible with a carbon price in place,
although, that being said, the shadow price of the fossil fuel companies is far from what the social cost of carbon
might more accurately be estimated as (Cf. L. Johnson & Hope, 2012), and as a result would likely lead to a rather
large overshoot of the carbon budget.
23
As Erica Martinson (2013) rather comprehensively reports in Politico coal-fired plants are shutting their doors at
record pace, and with the introduction of EPA Regulations and lesser demand for energy in the States it seems

11

Of course, there are certain sectors of the fossil fuel industry in the U.S. that are doing their best to fight
off both EPA regulation (Cf. Koronowski, 2013) and a price on carbon (Cf. Lenferna, 2013b) and thus
uncertainty does exist as to whether either will be put in place. However, much evidence suggests that
betting on climate failure (or more accurately investing in climate failure) 24 may not be the soundest
financial move to make. Indeed, as the HSBC (2013b) Peak Planet report details, the tides seem to be
turning in favour of climate action across the globe and especially in the U.S. due to the combination of
five factors: increasing impacts of climate change; changing public opinion;

economic alignment

towards cleaner energy; the development of cheaper alternate technology; and the end to policy
stagnation. Of course there is great uncertainty in such estimations, and how we act in the United States
and globally will determine whether the tides do indeed turn in favour of climate action a topic I will
return to later on. What is clear, however, is that there is great risk for the coal industry in the United
States at the moment, and thus much grounds for divesting straight away, and if not at least monitoring
the situation very carefully (see following footnote for some important ways to do so) 25.
Despite this growing evidence pointing to the risk of continued investment in coal and fossil fuels more
broadly, most funds and analysts are (perhaps inadvertently) betting against climate action that is,
they're tipping we'll exceed the budget and press on to a hotter world (Green, 2013). Furthermore,
many who do perceive the risks seem content to ride the bubble while it is afloat. Indeed, as James
Leaton points out, "analysts say you should ride the train until just before it goes off the cliff. Each thinks
likely that this trend will continue and hasten with an additional 56 to 60 gigawatts of coal-fired power likely to be
shut down by 2020, according to an SNL Energy Report (2013).
24
Thanks to Bryce Bartl-Geller for insisting that what institutions investing are doing is not as passive as betting,
but is rather an active investment in climate failure.
25
In order to track the risk posed by the carbon bubble there are an increasing amount of tools available. Here is an
overview of just some. Most recently there is the newly created Bloomberg Carbon Risk Valuation Tool (Cf.
Douglass, 2013). One could also go through the process of carbon footprinting ones investments as highlighted by
the UNEP Finance Initiative (2013) who also recommend decarbonizing investments through the reallocation of
capital, i.e. divestment and reinvestment. Similarly the Sustainability Accounting Standards Board (SASB) was
founded to identify the material sustainability risks and opportunities facing companies, on an industry-by-industry
basis, so that investors can more easily understand, use and compare key sustainability performance indicators on
sustainability issues. The Carbon Disclosure Project (CDP), an international not-for-profit organisation, has also
made significant contributions to improving corporate disclosure practices. CDP has built a global system for
companies to measure, disclose, manage, and share key environmental data. CDP has compiled the largest selfreporting climate change, water, and forest-risk dataset, and has made these key environmental metrics available
to the investor community. Additionally, the International Integrated Reporting Committee has created an
important framework for connecting these sustainability metrics to traditional financial data. In the US, the
Securities and Exchange Commission has issued guidance on climate related disclosure, however it has not been
expanded to include stranded carbon asset risk.
Much of the information in this footnote comes from (Generation Foundation, 2013). Similarly (HIP Investor, 2013)
and (IMPAX Asset Management, 2013) offer important advice on how investors can respond to the carbon bubble.

12

they are smart enough to get off in time, but not everyone can get out of the door at the same time.
That is why you get bubbles and crashes". 26 Compounding the issue, when it comes to the coal industry
such a strategy seems particularly unwise, for in the somewhat poetic words of former SEC
Commissioner Bevis Longstreth, the canary in the coal mine for the carbon bubble is the coal industry
itself And many financial analysts and institutions are beginning to act, as they detect the canarys
weakness. As Bloomberg has reported, coal is increasingly being seen as the New Tobacco and is
sparking the beginnings of an investor backlash with significant investors beginning to divest from coal.
For instance, Storebrand ASA which manages $74 billion sold out of 24 coal and oil-sands companies.
Similarly Scottish Widows Investment Partnership divested from pure-play coal producers and Norways
opposition Labour Party proposed to ban the countys $800 billion sovereign wealth fund from coal
investments (Riseborough & Biesheuvel, 2013). Jeremy Grantham, a billionaire fund manager who
oversees $106bn of assets and who has made his fortunes predicting financial crises, has said that his
company is on the verge of pulling out of all coal and unconventional fossil fuels, stating that the
probability of them running into trouble is too high for me to take that risk as an investor (Carrington,
2013). Similarly, billionaire asset manager Tom Steyer has directed his investment team to divest from
coal (Steyer, 2013) and famed short-seller Jim Chanos of Kynikos Associates shorted all but one coal
producer in the US due to his belief that they are and will continue to be unattractive investments
(Scheyder, 2013).
On a broader level the perception around investments in fossil fuel stocks in the U.S. is starting to shift.
First Affirmative Financial Network surveyed 500 industry professionals, and the findings of the survey
showed that 77% see growing risks associated with fossil-fuel company holdings and 67% think this year
is the time for investors to reconsider investing in traditional energy companies (Financial Advisor Staff,
2013). Likewise Mercer conducted a survey of the investment practices of 37 asset owners and 47 asset
managers which found that 53% of asset managers have decided to divest or not invest based on
climate change concerns. 83% say they consider the extent to which their managers integrate climate
risks into investments, with 69% saying it influences their decision making, a figure which is up 26% from
the previous year. Furthermore 25% are making changes to their investment strategy based on climate
risk analysis (Mercer, 2013). Considering these trends and given that in climate terms coal is among the
worst of the worst of fossil fuels with regards to its contribution to climate change, it seems likely that as
public opinion becomes more aware of this issue coal will be particularly subject to scrutiny, such that
26

(in Carrington, 2013)

13

the realization of a bubble combined with the role of public opinion and emotion could very well affect
the coal industrys value in a dramatically negative way.
As Paul Gilding points out, even with the modest goal of giving us just a 50 per cent chance of not
crossing the agreed 2C threshold, two-thirds of proven reserves of coal, oil and gas can never be burnt,
with the loss of income for the coal industry estimated at around $1 trillion per year by 2030. 27 The
above evidence seems to suggest that the coal industry is well on the path to taking on those losses, a
fact which some analysts are keying in on, marking possibly the beginning of the burst or rapid deflation
of the U.S. Coal Bubble. Thus the question we should be asking ourselves is how much longer can
universities and other endowments afford to ride the coal bubble? Even if there is a small window of
profitability remaining it is important that endowment managers consider that there investments have a
long term horizon and thus playing the markets until just before the bubble bursts or starts to rapidly
shrink is an increasingly irresponsible long-term strategy. To emphasize this point it is worth quoting
Bevis Longstreth (2013) at length:
As long term investors, fiduciaries of endowments need not worry unduly about short-term
results. Anticipatory divestment should be viewed as having unknown short-term consequences
for the portfolio, which could involve loss as well as gain. In the long run, those short-term results
are unimportant. The financial case advanced above rests on the claim that fossil fuel companies
will prove to be bad investments over the long term and, therefore, with foresight that anticipates
this result, should be removed from the long-term holdings of an endowment before the
strengthening likelihood of this result becomes commonplace in the market.
Bubbles are in the Eyes of the Beholders
As Generation Foundation points out, the presence of a bubble is often not recognized by the market
due to classic behavioural finance decision-making biases, such as endowment bias and system
justification theory (Generation Foundation, 2013, p. 2). Indeed, how markets and their bubbles
perform is not based solely on rationality and information, but largely on perception, psychology,
emotion and fear, especially in times of uncertainty (Cf. Ackert, Church, & Deaves, 2003; Baker &
Wurgler, 2007; Lerner, Small, & Loewenstein, 2004). Furthermore, in the case of the carbon bubble and
action on climate change much uncertainty abounds, and it seems likely that the formation of
probability estimates will differ widely as to whether and when the carbon bubble will burst or as to
27

http://reneweconomy.com.au/2013/whats-driving-climate-action-its-the-market-stupid-24040

14

how it will shrink. To illustrate that point, consider that Paul Gilding (2013a) wrote an article claiming
that victory for the climate movement, broadly speaking, was close at hand. In response to the article
Gilding received a flood of feedback. What struck Gilding most about such responses was how
differently people interpreted the same signals, suggesting widely varying views on how [and when] the
shift to a carbon-free energy system would occur (Gilding, 2013b). What this points to is partly that
certain questions are so complex that they lie outside the domain of the determinate operation of our
rules of inference, and thus require a form of creative judgment in order to develop any form of
probability estimate as to what the outcome might be (Cf. Heap & Varoufakis, 2004, p. 64). 28
Indeed, if any question was too complex to figure out it seems the question of victory for the climate
movement is one. 29 Whether we will in fact keep the world to the two degree target is a question
plagued with uncertainty. However, while highly certain probability estimates of the overall chances of
achieving the two degree target may be nigh on impossible to attain in a world as complex as ours, if we
focus in on the narrower question of whether the coal industry will continue to perform well, it seems
by my survey of the economics and related literature that the probability estimates begin to narrow in
on the conclusion that the bubble underpinning the coal industrys current value is about to either burst
or will continue to rapidly shrink. Many analysts, however, are failing to see this as their financial
valuation models are premised on historical trends, which are arguably no longer applicable to the
rapidly shifting energy and environmental landscape we are entering. As the Carbon Tracker team points
out, In the context of a declining carbon budget, [current] valuation models provide an inadequate
guide for investors and need to be recalibrated [as] the markets appear unable to factor in the longterm shift to a low carbon economy into valuations and capital allocation(Carbon Tracker & Grantham
Research Institute, 2013, p. 5). Furthermore, as Generation Foundation points out, although we cannot,
and should not, abandon the worlds current energy infrastructure overnight, investors who equate the
transition with drawn-out, incremental change do so at their own peril as the stranding of carbon assets
may occur at unforeseen rates and at an unpredictable scale(Generation Foundation, 2013, p. 20).

28

It is precisely in such conditions, that I would argue that leadership plays an important role (which in game
theoretic terms may be understood as a form of signaling or forward induction) a topic I will return to later in this
paper.
29
Indeed, for the case of climate change the idea of prior probability or the use of relative frequency view of
probabilities both seem either completely inadequate or extremely limited, especially as the climate case have
very little by way of precedent or analogue, as Is evidenced by Stephen Gardiners (2011a) characterization of
climate change as the perfect moral storm, a notion I expand on later in the paper.

15

Despite this, many investors remain sceptical about the impacts that sustainability considerations play
on the performance of their portfolio, a scepticism that in many cases has blinded them to the risks
they presently face by investing in stranded assets and the unsustainable companies that maintain
them (Generation Investment Management, 2012, p. 14). As the Asset Owners Disclosure Projects
Global Climate Index Report illustrates, just under 80% of asset-owners are failing to properly manage
climate risks, making them vulnerable to the risks of the carbon bubble, which are estimated to amount
to losses of up to US$8 trillion for investment funds by 2030, according to scenario analysis done by
Mercers responsible investment team (Mercer, 2011). Given both the size of this risk and that the tides
of public opinion are beginning to shift, opinion which plays a major role in driving markets, the question
of how long we can afford to ride the bubble is an increasingly important question for all investors to be
asking themselves.

Why not just divest?

Given that the growing divestment movement is exposing the carbon bubble to sunlight sunlight, of
course, has the tendency to burst bubbles and that there is such great risk involved in the U.S. coal
industry in particular, a question should naturally arise in the minds of endowment managers. That
question is, hopefully, why not just divest and avoid the risk of being caught in the bubble? The usual
response is that the bubble will not collapse for some years to come, if at all, and in the meantime the
coal industry is profitable, so pulling our investments will remove a substantial source of revenue for the
endowment and thus the university. The same concern, framed slightly differently, is that screening a
portfolio for such investments increases the risk to the overall portfolio.

30

However, if the research

above is anything to go by, it is important to question the assumption that divesting from the coal
industry will cause a substantial increase in risk or potential loss to endowments, as in doing so we will
have examined both sides of the risk equation, namely the risk posed by staying invested and the risk
posed by divesting.

30

I grant that the answer may be more complicated than this given the nature of commingled funds and the
restraints placed on endowment managers although see Humphreys & Electris (2013) for a practical outline of
various different institutional pathways for divestment but for the purpose of this paper I assume that
endowment managers have control over their investments in coal and other fossil fuel industries and can pull
them at will. Humphreys & Electris work emphasizes many of the same points made in the following section but
also includes practical guidance on various different strategies that can be employed when divesting and
(re)investing. I would highly recommend their paper for those interested in the practical work of divesting and
moving towards a more sustainable portfolio.

16

Fortunately, the work of working out the risks posed by divestment has, to a certain extent, already
been done. The Aperio Investment Group released a widely cited report entitled Do the Investment
Math (Geddes, 2013), which debunked the idea that divestment would cause substantial risks to an
endowments portfolio. The report examined the
difference between the ordinary risk an investor faces in

A study done by Standard &

the stock market and the risk an investor runs if it

Poors showed that if a

excludes the publically traded stock of the 13 most coal

university with a $1 billion

intensive US industries, which make up part of the socalled Filthy Fifteen. 31 The report also analyzed the risks

endowment had divested 10

when excluding all fossil-fuel companies altogether. For

years ago their endowment

the Filthy Fifteen the report concluded that the additional

would have grown by an

absolute risk to investors as factored into ordinary

market risk rose by 0.0006%, which the Aperio Group

extra $0.12 billion when

states is statistically irrelevant or, in other words, has no

compared to an endowment

real impact on risk (Geddes, 2013, p. 3). The risk from

that had not divested

broader divestment of the fossil fuel industry worked out

(Begos & Loviglio, 2013).

to be 0.0101%. Statistically, that figure is basically

noise, according Patrick Geddes, the Aperio Group chief investment officer (Gardner, 2013).
Skeptics could point out that even for such trivial amounts of increased risk investors are technically
bearing additional risk for which they are not compensated. Indeed, as the Aperio report points out, if
the [excluded] industry outperforms the overall stock market, a portfolio with these exclusions will
perform worse (Geddes, 2013, p. 4). 32 However, as I have hopefully illustrated throughout this paper,
that if, when it comes to the future of the U.S. coal industry, is a very big if indeed, and it seems much
more likely that, thanks at least partly to carbon bubble concerns, the coal industry, which has already
faced downgrading, will continue to underperform against the broader stock market, with an arguably
non-negligible risk of the U.S. coal carbon bubble bursting or significantly shrinking. Indeed, given that
an endowment is meant to focus on long-term investment periods, on such time-scales the risks of the

31

The Filthy Fifteen is a selection of companies that are involved in either coal mining or burning coal to generate
electricity that were so named because U.S. companies As You Sow and the Responsible Endowment Coalition
judged them as the most harmful based both on the amount of coal they mined and burned, and other
environmental and social metrics
32
My emphasis

17

carbon bubble taking hold seem to significantly outweigh the risks posed by divestment, especially if
done smartly.
Consider furthermore that a recent study by Eccles, Ioannou, and Serafeim indicates that sustainable
companies outperform a matched group of firms in the long term The study found that US$1 invested
in a value-weighted portfolio of sustainable firms at the beginning of 1993 would have grown to US$22.6
by the end of 2010. In contrast, US$1 invested in a value-weighted portfolio of unsustainable firms at
the beginning of 1993 would have grown to US$15.4 by the end of 2010 (Generation Investment
Management, 2012, p. 10). Similarly, a study done by Standard & Poors showed that if a university with
a $1 billion endowment had divested 10 years ago their endowment would have grown by an extra
$0.12 billion when compared to an endowment that had not divested (Begos & Loviglio, 2013). 33
Providing a more comprehensive analysis of the potential benefits from divestment, IMPAX Asset
Management conducted an analysis to determine how a fiduciary should compare the risks to portfolios
presented by stricter carbon regulations (IMPAX Asset Management, 2013). IMPAX compared four
different investment strategies with varying aggressiveness towards reducing carbon risk, using the
MSCI index from 2008-2013. The study concluded that each of the fossil-free strategies offered equal if
not slightly better returns than a portfolio which did not screen out carbon risk.

33

As Joshua Humphreys of the Teller Institute pointse out, To make their case, some endowment managers and
studies commissioned by the American Petroleum Institute, the oil and gas industrys main lobby have cited the
relative, historical outperformance of the energy sector when compared to broad stock market indices or to other
asset classes commonly found in a diversified endowment portfolio (2013, p. 2). As Humphreys highlights and I
have emphasized throughout this paper, such a challenge is flawed, firstly, on empirical grounds as the studies
cited above show that endowments that had divested would have outperformed relative to those that hadnt, and,
relatedly, because the carbon bubble challenges exactly the proposition that the API cites in their favour, that we
can base future performance of fossil fuel stocks on past performance. With the restraints from the carbon bubble
in place we are entering a radically different investing environment and thus we cannot rely on historical trends as
reliable indicators of future performance. In the words of Humphreys analysts and investors are beginning to
grapple with the prospect that the historical outperformance of fossil-fuel companies may be as illusory as the
tech boom of the 1990s and the housing bubble at the beginning of this century (Humphreys & Electris, 2013, p.
3).

18

The examples highlighted above represent a growing body of evidence that divestment from fossil fuels
is not the financially harmful practice that it has often been painted to be, but rather should be seen as
an important step for an endowment to fulfil its fiduciary duty by not taking on unnecessary risks. These
studies were done, furthermore, in a time when the carbon bubble is a concept that is only just coming
to the fore, and the implications of which are only beginning to ripple through the financial industry. In
the long-term, however, the likelihood of the carbon bubble causing significant revaluations of fossil fuel
assets poses considerable risks to those who continue to
invest in the fossil fuel industry, especially in those
industries that are most capital- and carbon-intensive.
Indeed, in the long-term it seems highly likely that as
broader recognition of the risks posed by the carbon
bubble plays out through the market and broader society
responds to climate change that many fossil fuel assets
will become stranded. Thus, recalling again that, given
their investment horizons, endowment managers are
meant to think about these issues in the long-term, it
seems that divestment may increasingly be considered
proper fulfilment of an endowment managers fiduciary duty.
As Longstreth points out, fiduciaries of endowments are charged with a duty of care, which is outlined in
the American Law Institute's 1991 Restatement of Trusts, Third, Section 227 as such: "This standard
requires the exercise of reasonable care, skill and caution, and is applied to investments not in isolation
but in the context of the ...portfolio and as a part of an overall investment strategy, which should
incorporate risk and return objectives reasonably suitable to the [purposes of the endowment]"
(Longstreth, 2013). Granted, I am a philosopher not a financial analyst (although I would welcome
collaboration with one), nonetheless by drawing on the extensive work of financial analysts the
economic case for divesting from coal (and much of the broader fossil fuel industry) seems pretty
strong, and rather than it being a political or symbolic act, if I were an endowment manager I would see
it as a fulfillment of my duty of care. Indeed, as Longstreth went on to argue betting against the
stranding risk materializing is arguably an irresponsible, hard-to-defend, position for a fiduciary, who will
have to demonstrate a sound basis for doing so, something that seems hard to do (2013). Thus
divestment from coal, and other similarly carbon-intensive industries and to a lesser extent the broader
fossil fuel industry, can increasingly be seen to simply be the fulfillment of an endowments fiduciary
19

duties and not in itself a political act. Perhaps in the hands of the divestment movement it can be turned
into and used as a political, ethical and symbolic act, but by itself it does not have to be.
This unfurling reality perhaps marks an important strategic point for the divestment movement, who
can pressure their endowments through drawing on the financial case and the language and
responsibilities of fiduciary duty and the accompanying duty of care. Then, if successful, the divestment
movement can use the fulfillment of those duties by their endowments as political, symbolic and ethical
victories which mark the recognition of the carbon bubble. Doing so avoids endowment managers
having to use their endowments as political tools, while allowing the divestment movement to politicize
the fulfillment of fiduciary duty, a seeming win-win for both, although not so much for the fossil fuel
industry if it continues to employ business models not compatible with a carbon-constrained world.
For those not convinced by my financial and economic analysis and who believe instead that there is still
profit to be made by riding the coal and broader carbon bubble while it is still afloat, more convincing
might be needed. On the other end of the spectrum, some within the divestment movement might
argue that a cautionary approach to fiduciary duty is not enough and that universities and other
endowment should be using their endowments in more powerful and progressive ways to lead the way
forward to a more environmentally and social responsibly investing paradigm. In order to answer both
ends of the spectrum although in different ways, it is at this point, having gotten at least some handle on
the risks involved on both sides of divestment, that I would like to turn to the second half of my analysis,
which takes into account moral considerations. I hope to show that when the moral implications of
divestment are included, the case for divestment is made.
Moving Beyond Complicity
34

If its wrong to wreck the climate then its wrong to profit from that wreckage Bill McKibben.

The quote above is the oft repeated maxim used in the divestment movement, which attempts to
underline what is morally wrong with the fossil fuel industry. While the maxim may seem strong in its
simplicity, it is necessary that we dig deeper than this maxim if we are to truly understand the
complexities of the moral case behind divestment. The major problematic issue with the maxim, as the
critical reader will hopefully have identified, is that it implicates pretty much everyone in the United
States as having committed moral wrongdoings. Indeed, not only is pretty much everyone in the United
34

Since the initial publication of this paper online, a coalition of environmental groups at Yale University has
produced a somewhat similar ethical analysis using the Kew Gardens Principle for ethical investing (Bullock et al.,
2013). I would highly recommend their paper.

20

States (and most members of the developed and the majority in the developing world) currently
profiting or benefitting 35 in some way from fossil fuels. Furthermore, even the most eco-friendly
individuals are implicit to some extent in wrecking the climate through the greenhouse gas emissions
they are responsible for, unless they were born and lived in a greenhouse gas neutral or negative
manner, which while possible for some people, for instance, in the Amazon rainforest, is pretty much
impossible for most, especially those living in the developed world given its thorough reliance on fossil
fuels. It seems then that if we are to morally condemn the coal and fossil fuel industry as the divestment
movement has done, that we are going to have to point out why the industry is particularly morally
culpable and why this calls for divestment. Where then does one turn?
The first step in answering this is to show that complicity in a fossil fuel heavy infrastructure does not
entail that one cannot consistently condemn and push for changes to that same infrastructure upon
which one relies. Both Harvard and Brown Universitys presidents, among many others, have responded
to calls for divestment by citing their own reliance on fossil fuel infrastructure as a reason for not being
able to divest (Cf. Paxson, 2013). Their reasoning suggests that there is a form of hypocrisy involved in
condemning the very thing one is reliant upon. However, while this objection might seem to have force
at first, its strength is misleading for a number of reasons. Firstly, for the most part it is not the case that
our universities and other institutions are directly responsible for the infrastructure that surrounds
them. Rather their reliance on fossil fuels is largely a relic of the infrastructure created around them,
which was propped up through past subsidies and investments they had very little to do with. 36 If the
same institutional activities were embedded in a society that had developed an alternative less carbon
intensive infrastructure then they would not be as harmful. What this points to is that the problem of
fossil fuel dependence is largely a systemic one. Furthermore, it seems quite consistent for an individual
embedded within such a system to condemn that system and push for (and invest in) an alternative. Just
because one is embedded in a system does not mean that one cannot consistently condemn aspects of
that system without invoking hypocrisy. The systems we are reliant on were largely not chosen by us,
and those who did make the choices that built up the systems upon which we now rely did so often
within a radically different context to the one we now face.

35

Some have objected that the difference is that the industries profit off the burning of fossil fuels, whereas the
average person might only benefit off them. However, I do not believe that this distinction holds much moral
weight, and I am yet to encounter a strong enough argument for believing that it does.
36
Thanks to Clara Vondrich for bringing up this objection in discussions on this issue.

21

To see further why complicity within these systems is not an excuse for inaction, consider, for instance,
the example of institutions embedded in societies reliant on slavery. Just because they may at the time
have been reliant on the practice of slavery does not mean that they could not consistently condemn it
and push for change. As Christopher Bangs points out, 37 abolitionists had both an individual and a
systemic responsibility to respond to slavery. Individually they could end, to the extent possible, their
own personal involvement, and systemically they had a responsibility to push for broader change.
Indeed it was only through actors and institutions doing just that that we were able to bring about
change to that horrific system.

Likewise, it is only through recognizing and responding to the

problematic nature of the carbon-intensive system upon which we rely that one can move beyond it.
Thus, complicity in a problematic system, if anything, comes with a responsibility to push for a broader
change, rather than as an excuse for inaction, a responsibility I shall outline in greater details throughout
this paper.
The second and related reason why the complicity response is problematic is that divestment and
investment is an arguably forward-looking practice insofar as how we invest determines the future that
we will create. Thus while we may currently be reliant and complicit in carbon-intensive infrastructure, it
is precisely because of that fact that the divestment movement is calling for a shift in our investments in
order to respond, both passively and actively, to the need to create an alternative future in which our
practices are no longer embedded within a system that brings about significant harm through the
almost unavoidable emissions associated with doing business or simply living within a system reliant on
carbon-intensive infrastructure. Thus divestment (and relatedly reinvestment) can be seen as a strategy
not only to reallocate ones investments so that they are more profitable, through aligning ones
investments with the possible changes to our energy infrastructure which a less carbon-intensive future
would bring about. Furthermore, it is a strategy which aims to propel that shift forward, an active
strategy to bring about change.
Another objection which is often implicit within the complicity objection is that we shouldnt divest
because not only are we currently complicit through our reliance on fossil fuel infrastructure but
furthermore we cannot really change that anytime soon and so it would be inconsistent for us to divest
given our need to continue to rely on such a system. To unpack the logic behind this objection, consider
the principle of ought implies can. The idea behind the principle, as John Kekes explains, is that a
person is morally obliged to do something only if it is in his power to do it or not to do it (Kekes, 1984,
37

Point raised in personal correspondence.

22

p. 459). Thus ought, the idea that we are morally obliged to do something, implies that we can, or are
able to do it, according to the principle. In response to divestment many are indeed invoking just such a
line of thought: We cannot transition away from the fossil fuel heavy infrastructure, and thus one
cannot say that we ought to do so. Such a statement, however, relies on an empirical claim about the
possibility of a clean energy future, which can be challenged and indeed has been multiple times.
Nicolas Stern, Amory Lovins, Jacobson & Delucchi and most recently the IPCC AR5 WG III Report have all
provided studies which have shown not only that it is quite feasible for us to transition to a clean energy
alternative, but furthermore that it is in our collective interests to do so (Cf. Jacobson & Delucchi, 2011;
Jenner & Lamadrid, 2013; Lenferna, 2013a, 2013b; Lovins, 2011; Stern, 2007). Even if we cannot
transition on a dime, it is important to remember that a university endowment has a long-term
investment horizon, and while a clean energy future is by no means a guaranteed outcome, it is partly
because of that uncertainty that it is morally problematic for a university to hide behind complicity as an
excuse to abdicate their role in promoting a clean future through their investments (as I shall elaborate
on later on in this essay). However, before doing so, having now pushed at least partly past the
complicity excuse, it is important that we address the question of why the fossil fuel industry is
particularly morally culpable when it comes to climate change and why this calls for divestment, for not
everyone agrees that fossil fuels are morally problematic (Cf. Epstein, 2013). 38
Moral Harms, Fossil Fuel Benefits and a Cleaner Future
Many divestment activists when attempting to draw out the morally problematic nature of the fossil fuel
industry have referred to how it has: lobbied governments and supported inaction on climate change;
corrupted the democratic process more broadly; funded climate misinformation; supported dictators;
degraded the broader environment; and displaced indigenous peoples. 39,40 These are all contributing
factors as to why certain companies can be seen to be morally reprehensible but its not clear that we
can fairly generalize all of these negative trends to the broader industry and give them as a blanket
reason why we should divest from the fossil fuel industry altogether, as some of the companies within
38

Espteins paper is a deeply problematic piece and I am hesitant to cite it. However, I do so because it succinctly
represents the radical opposition view and because I believe I successfully refute it in this paper, albeit indirectly.
When I have more time I would enjoy directly refuting it point-by-point. To be charitable it does make at least one
valid point that the fossil fuel industry is beneficial insofar as it has brought us significant amounts of energy, which
has unlocked our ability to do vast amounts in society. While this is true we do now have alternatives which we can
employ to unlock energy for us, sources of energy which are significantly less harmful and will not condemn our
planet to a climate crisis, a point which Epstein seems to greatly overlook in his rather brazen fossil-fuel industry
sponsored ode to the fossil industry.
39
(Cf. First Peoples Worldwide, 2013)
40
http://campaigns.gofossilfree.org/efforts/fossil-fuel-divestment-colleges-universities

23

the industry may not fulfil any or all of these conditions. However, in order to find consistent moral
grounds for divestment, we need to find something which applies to all companies we aim to divest
from, or show why each company is deserving of divestment. While this has been done for a limited
amount of companies, such as Swathmore Mountain Justices critique of the so-called Sordid Sixteen
(Swathmore Mountain Justice, 2014), consistent moral grounds for divesting from the broader industry
is arguably necessary for developing a moral case for divestment from the broader industry. 41
One practice that a significant amount of the fossil fuel industry is involved in is lobbying and
influencing the democratic process, but lobbying (rather unfortunately) is so ingrained into the workings
of the modern American democratic system that to single out the fossil fuel industry for its complicity
in the process would be not only to incorporate another more controversial political issue into the
divestment fray, but would also involve questioning the very nature of the democratic process in the
United States, which while arguably merited, would complicate the divestment picture significantly and
politicize it in ways that people, such as Harvard and Brown Universitys Presidents, might justifiably see
as outside of the scope/mandate of university endowments to change. Indeed, if one were to
consistently apply the idea of divesting from companies because of lobbying this would likely lead to
divesting from most corporations in America, including parts of the renewable energy sector. This, of
course, is not to deny that the extent of lobbying is deeply problematic, it is (Cf. Conway & Oreskes,
2010), and indeed all of the factors listed above are highly important moral considerations which
bolster the moral case for divestment. However, they do not seem to provide consistent grounds for
divesting from the industry at large, so what then does?
In order to answer this question I aim to show that a number of rather widely agreed upon and
somewhat uncontroversial moral principles support the idea that continued reliance on and investments
in coal in particular - along with other similarly harmful fossil fuels, especially those at the top of the
hierarchy of potentially stranded high carbon assets - is morally problematic. In doing so I aim to show
that if one wants to deny that our continued reliance on coal is morally problematic one would have to
41

Similarly, as Gary Horowitz has pointed out, there are further messages related to the campaign that are not
explicit, but which are adopted, articulated, augmented in ad hoc fashion by activists operating in diverse
circumstances. These implicit votes cast by deliberate divestment include: 1) to reduce the costs of climate
change, 2) to reallocate capital to renewable energy development, 3) reduce portfolio risk by reducing holdings in
carbon intensive industries, 4) to develop distributed energy networks for greater energy security, 5) for economic
stability by getting off the oil price merry-go-round, 6) reduce international conflict over scarce resources, 7)
increase economic justice by promoting energy self- sufficiency (Horvitz, 2013, p. 2) Similarly, while all of these
factors augment the case for divestment, its not clear that they can serve as a consistent underpinning principle
behind divestment.

24

deny the moral principles upon which my arguments are based, or alternatively show that my
arguments are flawed, neither of which I believe can be done in ways which would be able to
significantly alter the conclusion that we ought not continue investing in coal (and the broader fossil
fuel) industry, and should rather divest and reinvest. In order to explore the moral complexity of the
question at hand, I want to start off by turning to an argument for why we are morally obliged to divest
which was put forward by Katie Ullmann, co-founder of Reinvest Vanderbilt, Vanderbilt Universitys
divestment campaign. Ullmann (2013) adapted a seminal moral argument from Peter Singers Famine,
Affluence and Morality (1972) in order to develop what she referred to as a simple moral argument for
divestment, which I quote in full:
1. Things that cause an increase in human suffering and death are bad.
2. Resource scarcity, pollution and natural disasters cause human suffering and death.
3. The burning of fossil fuels cause resource scarcity, pollution and natural disasters.
4. The burning of fossil fuels cause human suffering and death.
5. The burning of fossil fuels is bad.
6. If it is in our power to prevent something bad from happening, without thereby sacrificing
anything of moral importance, we ought, morally, to do it.
7. We can prevent something bad from happening by divesting from fossil fuels.
8. Divesting from fossil fuels and reinvesting in high-returns clean energy investments does not
sacrifice anything of moral importance.
9. In the case of divesting from fossil fuels, we can prevent something bad from happening
without sacrificing anything of moral importance.
10. We ought, morally, to divest from fossil fuels. (Ullmann, 2013)
I thank Ullmann for her thoughtful contribution, and while she asks that those who do not agree with
her premises should not reply, for the sake of advancing the moral argument further I apologise for not
complying with her request. I do this not just to do as philosophers are oft wont to do, murky the waters
and argue for arguments sake, but rather to sharpen our intuitions and strengthen the moral case for
divestment. Having spent some time analysing Singers work myself (Cf. Lenferna, 2010), I have come to
25

recognize that his moral argument is not as simple as Ullmann would like. This is especially the case
when it comes to one premise in particular, Ullmanns premise number 6, which states that If it is in
our power to prevent something bad from happening, without thereby sacrificing anything of moral
importance, we ought, morally, to do it.

Ullmann in using this premise chose the broader of two principles which Singer had proposed in his
paper. The narrower principle, which she doesnt mention and which I shall hereafter referred to as
Singers Principle of Comparability, states that if it is in our power to prevent something bad from
happening, without thereby sacrificing anything of comparable moral importance, we ought, morally, to
do it (Singer, 1972, p. 231) 42. The difference between the two principles is the word comparable, in
that Ullmanns selected principle involves sacrificing anything of moral importance whatsoever,
whereas Singers Principle of Comparability involves sacrificing anything of comparable moral
importance. By without sacrificing anything of comparable moral importance Singer means without
causing anything else comparably bad to happen, or doing something that is wrong in itself, or failing to
promote some moral good, comparable in significance to the bad thing that we can prevent. 43
The importance of this distinction becomes apparent when we consider that despite much of the
climate movements current vilification of the fossil fuel industry, for some, indeed many, the coal
industry may be of moral importance through the contribution it makes to their livelihoods and the vast
amount of energy that it does in fact provide (Cf. Epstein, 2013). Thus if we grant that the coal industry
does have some moral importance on those grounds, and if we were to use Ullmanns argument then
we might have reason not to divest, as it relies on the claim that the fossil fuel industry does not have
any moral significance whatsoever. However, if we use the principle of comparable moral importance on
the other hand, then the case for divestment becomes stronger, for while the American coal industry
does play a morally significant role in many peoples lives, if we consider its negative effects and
compare it to alternatives, then it seems quite clear that by divesting from the coal industry we will not
be sacrificing something of comparable moral importance. As I pointed out earlier, if we incorporate
externalities by including natural capital impact, the coal industry turns out to cause more damage than
good. 44 Indeed, in the long run the North American coal industry is the third most detrimental industry

42

My emphasis.
Ibid
44
By turning to Cost-Benefit Analyses (CBAs) as provided by (Muller et al., 2011) and (Trucost, 2013), in order to
justify this argument, I am admittedly introducing somewhat of a controversial heuristic into my analysis, for there
are a number of problems regarding the use of CBAs, especially when it comes to questions of climate change.
43

26

in the world, so much so that if coal had to pay for its externalized costs it would be financially unviable
as its costs outweigh its benefits (Cf. Muller et al., 2011; Trucost, 2013). 45 If we then consider that by
phasing out coal we could potentially create an energy system which creates an economy with more
jobs and a smaller environmental impact (Cf. Jacobson & Delucchi, 2011; Jenner & Lamadrid, 2013;
Lenferna, 2013a, 2013b; Lovins, 2011) then it becomes clear that divesting, according to Singers
Principle of Comparability, is the right thing to do. 46 If one is unconvinced, then fortunately Singers
principle does not stand alone in supporting divestment and we can turn to other broadly accepted
moral principles to justify the case for divestment.
Consider a broadly accepted moral principle, the no-harm principle. In its most uncontroversial form,
as stated by Elizabeth Cripps, the principle goes as follows: An individual (moral agent) has a moral duty
to avoid inflicting serious harm on another human being or human beings at least if she can avoid
doing so without suffering comparable harm herself (Cripps, 2013, p. 11). Consider, furthermore, that
financial institutions contribute to climate change [and its harms] through their financed emissions. 47

Indeed, as Stephen Gardiner (2011b) points out, opponents of CBA often oppose CBAs because they cannot
adequately account for issues such as individual rights, procedural and distributive justice, and the value of nature,
all of which are central concerns for climate change considerations. Furthermore, CBAs are often too conservative
and do not adequately capture the costs associated with climate change. Most egregious among the problems
with CBAs is that through the use of the discount rate they often unfairly discount the interests of future
generations. Indeed, the DICE Model used by William Nordhaus to estimate the effects of climate change has been
criticized on just such grounds (Cf. Gardiner, 2011b). Nordhaus model employs a discount rate of 5.5%, which
discounts future value at a 0.5% higher rate than the average of 5%. This is a difficult rate to justify from both an
economic and ethical standpoint given that when using a 5% discount rate, the present value of the [entire]
Earths aggregate output discounted 200 years from now is [just] a few hundred thousand dollars. [Such that] a
simple computation shows that if one tried to decide how much it is worth investing in preventing the destruction
of the earth 200 years from now on the basis of measuring the value of foregone output, the answer would be no
more than one is willing to invest in an apartment (Chichilnisky, 1996, p. 235)!
Nordhaus, rather surprisingly, is one of the co-authors of one of the studies that claims that coals negative effects
outweigh its positive effects (Muller et al., 2011). This is despite the fact that their study uses the DICE model and
its problematic assumptions about the costs and social discount rate associated with climate change. What this
shows is that the moral case I am trying to point out may be significantly stronger than my reliance on CBAs
suggests. This is even further the case given that CBAs do not properly countenance issues such as the value of
nature, human rights and justice.
For a more comprehensive treatment of the issues associated with using cost-benefit analysis of climate change I
would recommend reading chapter 8 of Stephen Gardiners (2011a) A Perfect Moral Storm.
45
Consider furthermore that according to calculations by John Nolt the average American is responsible through
her greenhouse gas emissions for the suffering and/or deaths of one or two future people (Nolt, 2011, p. 3). That
being so, the toll of the coal industry at large is more than I would care to calculate at present.
46
Those familiar with the philosophical literature will know that Singer himself admitted that his Principle of
Comparability, or Strong Beneficence, may be too demanding for some, and indeed many have argued that since.
This would seem to be even more likely so for an endowment fund. Thus, it is important that the ethical case for
divestment does not rely solely on his principle, thus I go on to identify other supporting principles.
47
Taken from a Boston Common Asset Managements Shareholder resolution:

27

If we then take it as established that reductions in greenhouse gas emissions will equal a reduction in
climate harms (Cf. Caney, 2009; Nolt, 2011) and that divestment can reduce emissions, as I shall show
later in this paper, then if we consider as was established in the economic analysis, that the costs of
divestment are likely beneficial, we can then say that by the no-harm principle the university
endowment has the responsibility to avoid inflicting or contributing to serious harm through its financed
emissions. Given coals responsibility for much harm, including deaths in the past present and future,
divestment from it and industries like it may be, for universities at least, not only about fulfilling ones
fiduciary duties, but also about the idea that no one should have to die [or be harmed] for us to fund
our education (Brown, 2013).
Likewise a similar argument can be made by starting with the weak principle of beneficence, which is a
widely held principle of beneficence that states that an individual (moral agent) has a moral duty to
prevent the serious suffering (deprivation of fundamental interests) of some other human being or
human beings if she can do so at minimal cost to herself (Cripps, 2013). Based on the evidence given
above it once again seems clear that this principle would point in the direction of divestment. The
difference in using this principle, however, is that it allows for the fact that the institution does not itself
have to be the one directly causing harm, but that if it nonetheless has the power to prevent harm
through the changes it makes then it has moral responsibility. This may be an important principle to use
if one thinks that endowments are not themselves directly causing the harm, but are only indirectly
doing so through their choice of investments.
If we consider, furthermore, that a university that divests would not be doing any harm to itself by
divesting, if my economic analysis is sound, then we could restate the principle of beneficence in this
case to be the principle of mutual beneficence, which argues that an individual moral agent has a moral
duty to prevent the serious suffering (deprivation of fundamental interests) of some other human being
or human beings if she can do so at a benefit to herself. This incredibly morally lax principle of mutual
beneficence would arguably call for a more limited form of divestment than the ones above, as it would
only call for divestment if one could show that it was benefitting oneself, as I have aimed to show. The
other principles may be more demanding insofar as they call for divestment not only when it can be
shown to be in your own benefit. However, given that divestment from the coal industry is actually
profitable, if my economic analysis is correct, then it seems as if all of the principles, except for
Ullmanns, jointly support the case for divesting. Thus at this point we have four independent moral
http://www.bostoncommonasset.com/documents/SECPNCFinal2013-02-19.pdf

28

principles by which to justify divestment. Again, having so many separate principles is not a mere act of
superfluousness but rather aims to show that if one wants to debate the morality of divestment then it
is not sufficient to refute just one of the principles rather one must refute all of them. It also aims to
show that those who do not accept my economic analysis that divesting from coal is profitable would
still have a moral responsibility based on the Principle of Comparability, the No-Harm Principle and the
Weak Principle of Beneficence. The moral case for divestment, in other words, is rather sound.
Before moving on to discuss potential objection to this view I want to briefly motivate and partly defend
my choice to choose the controversial heuristic of cost-benefit analyses to provide this moral analysis.
For indeed, by turning to Cost-Benefit Analyses (CBAs) as provided by (Muller et al., 2011) and (Trucost,
2013), I am admittedly introducing somewhat of a controversial heuristic into my analysis, for there are
a number of problems regarding the use of CBAs, especially when it comes to questions of climate
change. Indeed, as Stephen Gardiner (2011b) points out, opponents of CBA often oppose CBAs because
they cannot adequately account for issues such as individual rights, procedural and distributive justice,
and the value of nature, all of which are central concerns for climate change considerations.
Furthermore, CBAs are often too conservative and do not adequately capture the costs associated with
climate change.
Most egregious among the problems with CBAs is that through the use of the discount rate they often
unfairly discount the interests of future generations. Indeed, the DICE Model used by William Nordhaus
to estimate the effects of climate change has been criticized on just such grounds (Cf. Gardiner, 2011b).
Nordhaus model employs a discount rate of 5.5. This is a difficult rate to justify from both an economic
and ethical standpoint given that when using even a 5% discount rate, the present value of the [entire]
Earths aggregate output discounted 200 years from now is [just] a few hundred thousand dollars. [Such
that] a simple computation shows that if one tried to decide how much it is worth investing in
preventing the destruction of the earth 200 years from now on the basis of measuring the value of
foregone output, the answer would be no more than one is willing to invest in an apartment
(Chichilnisky, 1996, p. 235)!
Despite this Nordhaus, rather surprisingly, is one of the co-authors of one of the studies that claims that
coals negative effects outweigh its positive effects (Muller et al., 2011). This is despite the fact that their
study uses the DICE model and its arguably problematic assumptions about the costs and social discount
rate associated with climate change. What this shows is that the moral case I am trying to point out may
be significantly stronger than my reliance on CBAs suggests. This is even further the case given that CBAs
29

do not properly countenance issues such as the value of nature, human rights and justice. (For a more
comprehensive treatment of the issues associated with using cost-benefit analysis of climate change I
would recommend reading chapter 8 of Stephen Gardiners (2011a) A Perfect Moral Storm). However,
for now I believe it is sufficient for the purposes of this analysis to recognize the limits and problematic
nature of CBAs, but admit them into this analysis in order to provide consistent grounds for divestment
from the coal industry, which can be extended to similarly harmful fossil fuel industries.

Common(s) Responsibility in a Perfect Moral Storm

There are, however, two related objections which if true would seemingly refute the moral case for
divestment. The first objection argued by many opponents of divestment states that divesting will not
actually have a positive effect on climate change. The second objection states that in tragedies of the
commons 48, of which climate change is a particularly vicious example, there is no reasonable
expectation that individual voluntary action will succeed. [Thus] our obligation is not fruitlessly to
reduce individual use [or in this case to divest], but [rather we should] support collective agreement to
act on climate change (Baylor Johnson, 2003, p. 271). 49 The two objections are clearly related and as I
shall show the rebuttal of the second objection fortunately entails a rebuttal of the first. However, if you
are not convinced by the second objection regarding the need for individual action in the tragedy of the
commons you can safely skip over this section. However in order to engage those who support such
objections I believe it is important to lay out my response in full.
In order to come to grips with the objection it will be useful to briefly elucidate a debate in the climate
ethics literature between Marion Hourdequin and Baylor Johnson (Cf. Hourdequin, 2010, 2011; Johnson,
2003, 2011). Johnson in his 2003 article initially articulated an objection very similar to the one we are
dealing with, which held that in addressing commons problems, such as climate change, unilateral,
voluntary actions typically have no reasonable chance of achieving their object[ive] (Baylor Johnson,
2003, p. 272). From this starting point Johnson goes on to state that if he is correct that unilateral action
predictably has no reasonable expectation of success, then no one has a direct moral obligation to
restrict use of the commons to sustainable levels by unilateral action. [Rather] since collective,

48

A tragedy of the commons can be defined at base by an instance of a common pool resource where an individual
gains more from exploiting the resource than he does by conserving it, and thus if everyone acts in their short term
interests the common pool resource will be depleted (Cf. Hardin, 1968).
49
This objection was put forward to the KU Divest team by the University of Kansas Endowment.

30

coordinated action faces no similar, systematic obstacle, and so has a greater chance of protecting the
commons, one's moral obligation is to work for and adhere to a collective scheme to protect the
commons (Baylor Johnson, 2003, p. 272). Johnsons argument might seem a bit backward and
outdated, especially for those who are doing their bit to reduce their greenhouse gas emissions despite
the fact that neither current global and US climate agreements are arguably collectively sufficient to
prevent dangerous climate change (Cf. Lenferna, 2011). However, let us not dismiss Johnsons objection
too readily as it still holds sway for many and its logic has often been applied when endowments and
similar institutions argue that divestment as a unilateral strategy will be ineffective as it is not part of a
broader systemic or collective scheme to deal with the issues that underpin divestment. Indeed many
university administrations have argued we should be pushing for broader systemic change and/or
reducing our own consumption rather than divesting. This objection, however, is flawed on a number of
grounds and delving further into the Hourdequin-Johnson debate will help us to understand why.
The first problem with this objection is that it ignores the fact that divestment is not something that an
institution undertakes as an isolated action removed from the actions of other institutions or society at
large. Rather it is part of a much broader divestment movement, and an increasingly systemic response
to the carbon bubble, a point I will expand on later. Another flaw in this objection is that it represents
somewhat of a false dichotomy insofar as it sees action on divestment and broader action on climate
change as mutually exclusive options, which they are arguably not. 50 Rather they can be seen to be
jointly complimentary strategies with divestment informing, responding to, and supporting broader
action on climate change. 51 The importance of such a multi-tiered approach to climate change, as Nobel
50

Hourdequin makes a similar point in response to Johnson, although they, of course, are not talking about
divestment but climate action more broadly speaking.
51
For those interested in the deeper philosophical debate between Hourdequin and Johnson, I would argue that
their disagreement (at least in the discussion after Johnsons initial article) is not predominately one of principle,
but is rather a debate as to what the most effective strategy to address climate change is. Johnson claims that
unilateral actions should be held to be secondary because they are not as effective as cooperative schemes,
whereas Hourdequin argues that the two are both important complimentary strategies. One principled difference
between their two positions is that although both Johnson and Hourdequin acknowledge a responsibility to tackle
climate change, for Johnson the duty to tackle climate change outside of agreed collective action is an imperfect
Kantian duty whereas within one it is a perfect Kantian agreement. Perhaps in order to rebut Johnsons claim we
might point out that in a sense there is a tacit agreement in place albeit not a very strong one, namely, to stay
below the two degree goal as enshrined in the Copenhagen Accords, and thus our duties in climate change are
close on perfect Kantian ones. Furthermore, I would argue that given the intergenerational aspects of climate
change Johnsons (2003, 2011) overemphasis on agreement between the current generation fails to take into
account obligations we would have to future generations even in the absence of such an agreement. In other
words, Johnsons narrow analysis leads him to overemphasizes intragenerational fairness at the expense of
intergenerational fairness. This is not too surprising given that Johnson analyzes climate change as a simple
tragedy of the commons, which mischaracterizes the nature of the moral problem that is climate change. As

31

Prize winning economist Elinor Ostrom argues, is that when tackling climate change - a particularly
vicious form of the tragedy of the commons - a polycentric approach is the most effective way to
engage with such complex commons problems (2010). Or, in the more poetic words of David Orr, what
is required is not a silver bullet, but rather silver buckshot. Highlighting the mutually reinforcing nature
of divestment and broader climate action, Ansar et al. point out that one of the most important
contributions the divestment movement can make is to create the expectation that government might
legislate to levy a carbon tax or other climate legislation (Ansar et al., 2013, p. 67). Thus divestment can
be not only part of a necessarily multi-tiered approach to climate change, but furthermore it can be a
highly complementary part of that poly-centric approach as I shall go on to elucidate.
Before doing so it is important to point out that climate change is no ordinary tragedy of the commons.
Rather it is a much more vicious and intractable problem than a typical tragedy of the commons, insofar
as it has much stronger intergenerational, global and theoretical difficulties than an average tragedy of
the commons; difficulties which make it even more difficult to resolve (Cf. Gardiner, 2011a; Nichols &
Intriago, 2013). Indeed, as both Nichols & Intriago and Gardiner point out, climate change is much more
vicious than a traditional tragedy of the commons and deserves to be understood as such for otherwise
we run the risk of underestimating the scale of the problem and not responding appropriately as a
result. What this points to is the need for an even stronger and more aggressive polycentric approach to
tackle climate change, as the sort of polycentric approach which might be capable of resolving a typical
tragedy of the commons may not be adequate for resolving the perfect moral storm which is climate
change. Thus to abandon divestment as a strategy in the face of the perfect moral storm may be to
throw out one of the much needed tools to guide us through the storm when we are arguably already
significantly overwhelmed by the strength thereof (Cf. 400ppm). Indeed given the complexity and scale
of the climate crisis we arguably need almost every tool at our disposal to weather this storm and to
dismiss divestment because one is using a few other tools available is arguably to underestimate the
scale and nature of the problem we face, and what is required to solve it.
If we grant that climate change requires a deep, multi-faceted and strong polycentric, then it is
important to remember that despite divestments potentially complimentary contribution to broader
climate change efforts there is arguably significant value to the divestment movement making a more
Intriago & Nichols (2013) point out in more detail, we should rather conceive of climate change as a perfect moral
storm involving complex intergenerational, theoretic and global issues, for we will find that viewing it using the
traditional tragedy of the commons lens is a misguided moral heuristic, which skews the moral questions at
stake.

32

coordinated poly-centric approach by more explicitly connecting the divestment movement to broader
policy initiatives such as pricing carbon, direct action, and removing fossil fuel subsidies(Cf. Horvitz,
2013). But admitting so is not the same as admitting that divestment itself is ineffective. Of course there
is a sense in which climate activists have limited resources and can only focus on so much, and it is
important that divestment activists involved do not forget the larger picture, especially considering as
Ansar et al. points out (2013, p. 72), that while divestment in the long run is likely to hurt the fossil fuel
industry and possibly cost it billions, it is unlikely by itself to threaten the industrys survival. This is an
important point, but from my experience, however, I am not sure how many divestment activists believe
otherwise. And, again, recognizing the limitations of divestment is not equivalent to saying that
divestment activists should not focus on divestment as many claim, for this makes an implicit (and oft
explicit and arguably mistaken) assumption that divestment is not sufficiently important to invest time
in because it will not have significant effects on climate change and is thus not a legitimate part of that
broader polycentric strategy. Thus, remembering that we are attempting to dismiss the objection that
divestment is not an effective strategy to deal with climate change, allow me now to explain just how
divestment may be an effective part of a broader polycentric approach.
Deflating the Bubble
In the past I have seen the economic analysis of the carbon bubble as painting a rather stark dilemma.
Either we burn the listed fossil fuel reserves and far overshoot the 2 degree target causing untold misery
through the negative effects of climate change. Alternatively we burst the bubble and cause massive
devaluation on the markets which leads to trillions of dollars of losses. But divestment can be seen in a
different light, as a reallocation of value away from industries that are unprofitable in a carbon
constrained world towards a cleaner economy. Thus (real) value is not entirely lost but largely
reallocated and possibly even increased, although the value of companies whose profitability is based
on unburnable carbon will, of course, decline. In this light the divestment and complimentary
reinvestment movement is potentially playing an incredibly important role in deflating the bubble,
recreating value and easing our way out of the dilemma we are in. 52

52

When thinking about divestment, it is worth considering that divestment is only one side of the response to the
carbon bubble, the other equally if not more important side is reinvestment (Cf. Apfel, 2013; Steiner & Gorte,
2013). As Achim Steiner and Julie Gorte (Steiner & Gorte, 2013) argue, if institutional investors do not
systematically reallocate capital from high-carbon to low-carbon investments, particularly in corporate equity and
debt, a transition to a low-carbon economy will be virtually impossible, as we simply will not have the financial
wherewithal to fund the transition. Of course sufficient funds for a global transition wont be provided solely by
universities, but consider that if US Universities alone redirected 5% of their investments into clean energies then

33

One of the major roles that the divestment movement is playing is to wake people up to the reality of
the situation we face. Indeed, if the opinion poll numbers I quoted earlier are anything to go by both
investors and the public are slowly starting to wake up to the risks that fossil fuel investments have.
Some might say it is wrong for universities to divest as it might trigger the bubble. However, such a
response is the equivalent to sticking our heads in the sand, which is a decidedly foolish strategy to
employ if previous financial bubbles are anything to go by. Indeed, as the Carbon Tracker report points
out, the problem is only likely to get worse if current investment trends continue (Carbon Tracker &
Grantham Research Institute, 2013, p. 4). Thus the divestment movement should be commended, for by
presciently raising awareness about the risks of the bubble they may facilitate a more gradual deflation
from the bubble and reallocation of capital towards a more sane growth trajectory, provided, that is,
that institutions wake up to the reality they face. Relatedly by getting their institutions to divest, or at
least to begin to incorporate carbon risk into their investment strategies, divestment campaigns may
help to shield their respective institutions from unnecessary risk and losses associated with the carbon
bubble.
The role of the divestment movement is much bigger than that though, for as I have argued, markets are
driven very much by our perception of them and the divestment movement is significantly shifting that
perception. Consider, for instance, the following quote from Duke Energys Tom Williams. 53 When
questioned about divestment Williams said that people consider the brand of Duke as an asset, and I
would agree with that completely. And if people see that the brand is somehow eroded in a meaningful
way, that definitely can impact our stock. 54 Some might argue that if divestment is eroding the value of
such stock that it is problematic, however, divestistas (as they have come to be called) are not unfairly
detracting from the value of the stock, but exposing the true value of the stock in a carbon constrained
world. As Robert Costanza points out, the financial world is, in essence, a set of markers for goods,
services, and risks in the real world and when those markers are allowed to deviate too far from reality
as is evident in our case, adjustments must ultimately follow (2010, p. 138). Thus, by exposing the
potentially erroneous foundations upon which the value of the U.S. coal industry and other fossil fuels
that would equal an investment of approximately $20 billion, one of the biggest investments in the green economy
to date, and a much needed one given that the International Energy Agency forecasts that additional investments
of USD 1 trillion per year are needed in energy technologies to achieve an 80% chance of limiting long-term global
temperature increase to 2C (International Energy Agency, 2013b). Furthermore, 5% reinvestment represents only
one of the weaker feasible pathways to divestment and reinvestment (Cf. Humphreys & Electris, 2013).
53
Duke Energy is one of the largest U.S. coal burning utilities.
54
http://www.npr.org/2013/05/10/182599588/college-divestment-campaigns-creating-passionateenvironmentalists

34

are based on, divestistas are correcting arguably false perceptions about the value of such stock and in
doing so are redirecting investments to other more benign and profitable industries, which align better
with a carbon-constrained world. How much impact they are having is hard to quantify, but evidence
suggests it is far from negligible and continually growing indeed considering the shift in public opinion
around the wisdom associated with investing in fossil fuels and that 11 U.S cities and a growing number
of other institutions have already committed to divesting, the movement seems to have significant
influence. 55
Disentangling the Shareholder Advocacy v Divestment Debate
Others have argued that divestment entails giving up our ability to influence companies whereas
shareholder resolutions, they argue, are a more effective way for an institution to use their power to
influence the fossil fuel industry, and thus the more effective way forward (Cf. Billenness, 2013; Welsh &
Passoff, 2013). Thus shareholder resolution proponents often argue that divestment should be
abandoned as a strategy or used as a means of last resort (Cf. Ansar et al., 2013). In response it is worth
surveying some evidence of the effectiveness of shareholder resolutions as provided by Nguyen and
Rissman (2013):
In May 2008, 73 of 78 descendants of Exxon Mobil founder John D. Rockefeller, Sr., filed
a resolution suggesting Exxon pursue cleaner energy alternatives. Their resolution failed
89.6 percent to 10.4 percent. In 2010, the California Public Employees Retirement
System with an endowment almost nine times that of Yale filed a resolution only
asking BP to draft reports on the risks of its oil sands projects. It failed 85 percent to 15
percent. These cases are not isolated incidents.
While not all companies may be as obstinate as BP and Exxon, and it may be easier to shift smaller
companies through the use of shareholder advocacy, nonetheless it is important to remember, as Bill
McKibben repeatedly points out, that the business model of much of the fossil fuel industry is based on
the burning and exploitation of fossil fuels, and for this reason it is unlikely that for many such industries
a shareholder resolution will suffice to deviate them from their core business activity. Furthermore, the
SEC restricts shareholders from engaging with firms on operational issues and limits shareholder
engagement to requesting information and attempting to engender change in corporate policies on

55

http://www.prwatch.org/news/2013/04/12080/madison-joins-fossil-free-divestment-effort

35

related issues, but does not allow shareholders to modify the business model or to engage with firms
directly on the problem of keeping oil reserves in the ground (Goodridge & Jantz, 2013, p. 5).
For those who are resolute about maintaining their ability to engage in shareholder advocacy it may be
worthwhile pointing out that they could retain the $2,000 of stock that enables them to introduce
resolutions, as Greenpeace and the Institute for Policy Studies do (Collins, 2013). This may be
important, for as Billenness (2013) points out there have been some victories on the shareholder
advocacy front, even in the halls of Exxon which has, partly as a result of shareholder advocacy, agreed
to take global warming seriously, promoted a carbon tax, and agreed to (at least publically) stop funding
fossil fuel denial (although it may have been doing so secretly any way (Cf. Greere, 2013)). However,
those small victories may not be enough in the face of the carbon bubble, for recall, as Bill McKibben
points out, that the big fossil fuel companies have five times as much carbon in their reserves as any 56
scientist says it would be safe to burn, and yet their business plan calls for them to burn it" (Gram,
2013). And, as McKibben went on to say, "there's been no sign, over the last twenty five years, of them
bending from this path, despite lots of appeals from [shareholder advocates]. Given this one may be
inclined to agree with the McKibben and organizations like the Christian charity Operation Noah who
have argued that the window of opportunity to engage with such firms to get them to improve their
environmental and social performance has passed (Cf. Revell, 2013). Indeed, as Green Century Funds
has pointed out, In the decades that some socially responsible investors have held coal, oil, and gas
companies, no significant direct reductions in the production of fossil fuels have been achieved through
shareholder advocacy. (Green Century Funds, 2013).
However, despite this evidence, I do not think that is it is reasonable to make a blanket generalization
that shareholder advocacy is completely inefficacious in the face of the carbon bubble, especially given
that as of late (at least partly spurned on by the divestment movement) there has been an
unprecedented scale of shareholder activism aimed at getting fossil fuel companies to analyse and
report the risks posed by climate change and the carbon bubble (Simpson, 2013, p. Cf.; Cf. Welsh &
Passoff, 2013). For instance, the Carbon Disclosure Project announced that a record number of 722
investors, which make up around a third of the worlds invested capital, demanded that listed
companies disclose their emissions and climate change strategies (Saxon, 2013). Similarly, a group of
70 global investors managing more than $3 trillion of collective assets have launched the first-ever
coordinated effort to spur the worlds 45 top oil and gas, coal and electric power companies to assess
56

Excuse McKibbens hyperbole.

36

the financial risks that changes in demand and price pose to their business plans (Leaton & Pickering,
2013). Given this unprecedented level of shareholder advocacy and the fact that the direct impact of
divestment may be quite limited (Cf. Ansar et al., 2013), there is certainly a case to be made for
maintaining investments in certain companies in order to be able to engage with them as shareholders.
Another important point that seems to have been rather largely overlooked is that although shareholder
advocates are not allowed to engage directly with businesses on their business models, corporations do
have a responsibility to return profit to shareholders (Cf. Bainbridge, 2012). Thus if shareholders can
show that a corporation is not fulfilling this task through negligence, then they can potentially656 launch
a lawsuit to ensure that corporations do actually do what is most profitable. Consider, again, the
practice of investing huge amounts of capital on CAPEX when we already have five times more reserves
than we can afford to burn. Recall also, as Bevis Longstreth argues, that if governments act in ways that
reflect that we live in a carbon-constrained world, which they are increasingly doing, then CAPEX
constitutes corporate waste, plain and simple. Indeed, a situation ripe for stockholder lawsuits
(Longstreth, 2013).
However, despite the growing potential and actual avenues for shareholder engagement, considering, a)
that shareholder advocacy can be quite ineffective; b) the combined direct and indirect impact of
divestment, which I shall explore later; and c) the financial risks associated with continued investments
in certain fossil fuel companies; then it seems that divestment may be the more efficacious strategy to
employ in certain circumstances, especially when it comes to industries such as the tar-sands, oil-sands
and coal industry whose business models could be invalidated in a world acting to constrain carbon, to
recall the words, not of a radical climate activist, but of Standard & Poor (Redmond & Wilkins, 2013).
Furthermore, as has been suggested, 57 divestment may bolster remaining shareholder advocates by the
boldness of divestment highlighting the seriousness of the issue and lending strength to a shareholders
plea. Thus divestment and shareholder advocacy can perhaps be seen as complimentary strategies.
Indeed, as Simon Billenness has pointed out, both divestment and shareholder advocacy should be used
as complimentary tools with the long-term aim of not only getting the broader market to realize that
these assets are over-valued, but also to eventually get the SEC to regulate that companies down-value
their assets to be consistent with their actual value in a carbon-constrained world.

58

In agreement with

Billenness I would argue that divestment and shareholder advocacy should be seen as highly
57
58

http://www.asyousow.org/health_safety/carbon-divestment.shtml
Simon made this point in a workshop hosted by the University of Washington.

37

complementary tools necessary to respond to the carbon bubbles risks and to attempt to deflate those
risks in the long run, while emphasizing the important role that divestment has not only in protecting
institutions from the financial losses associated with the carbon bubble, but in actively tackling the
bubble too.
University endowment managers who have agreed with me up to this point might argue that although
all I have said is all good and well, in the bigger scheme of things universities are just too small to make a
difference. However, as I have already touched on, this is arguably an erroneous assumption which
needs to be challenged for universities that think their individual commitments wont make a difference
are giving in to the same type of thinking that has led us into the climate crisis in the first place and
which underlies most tragedies of the commons. For, in the words of Martin Bunzl, the Tragedy of the
Commons invites the idea that unilateral action is an act of folly. Butwe should be wary not to be
seduced by its logic. For to do so may hobble our idea of what is possible and thereby end up creating a
self-fulfilling prophesy (Bunzl, 2009, p. 64). The need to not succumb to this logic is particularly
important given that, as we have pointed out, climate change is no ordinary tragedy of the commons,
and also because contrary to the claim that universities are just too small to make a difference by
divesting, the case for divestment is particularly pertinent when done by influential institutions such as
universities.
Of course, as shown by analysis from both Ritchie and Dowlatabadi (2013) and Ansar et al (2013), and as
many divestment activists realize, the direct emissions reduced through divestment are relatively small
however, arguably not negligible. More importantly, however, are many of the indirect impacts. As
Oxford Universitys Stranded Assets Programme argues in more detail, when thinking about the impacts
of divestment the outcome of the stigmatisation process, which the fossil fuel divestment campaign
has now triggered, poses the most far-reaching threat to fossil fuel companies and the vast energy value
chain (Ansar et al., 2013, p. 13). Indeed, part of the problem with many of the arguments that claim
that a university endowment is too small to make a difference is that they focus solely on the direct
impacts of divestment and think that the effects of a university endowments actions are limited to
merely the financial transactions it makes. This narrow perspective paints a rather limited picture of the
universitys broader role in society, and arguably one which does not match up with the more noble
ideals upon which most universities were built upon.

38

A Nobler Ivory Tower

The characterization of universities as ivory towers, while not completely baseless, is perhaps a
misleading characterization which often allows universities to hide behind a veil of seeming neutrality
rather than to accept the role that they play as leaders within society. Contrary to the idea of a neutral
ivory tower it was universities that first brought awareness of the climate crisis to the forefront, who
have taken a stand and led on so many important issues and who continue to play an important role in
understanding and responding to the civilisation challenging threat that is climate change. Indeed, even
university endowment funds have often been mobilized to respond to grievous moral situations.
Consider that when Nelson Mandela was released from prison in the build-up to the downfall of South
African Apartheid, the first place that he visited in the United States was not the White House but rather
UC Berkeley in order to thank them and other U.S. universities for the work they had done in divesting
from Apartheid and through doing so helping to bring the issue to the forefront of the international
communities minds. Mandela whose diplomacy played a central role in dismantling Apartheid was a
man who knew that public perception was a powerful force in influencing morally-complex issues such
as Apartheid. Of course, most people are not suggesting that divestment ended Apartheid nor are they
making similar claims that fossil fuel divestment will by itself end climate change. Indeed like the climate
struggle the struggle to end Apartheid was a long and protracted one, certainly involving a deep
polycentric approach. Nonetheless the role that divestment played in Apartheid was far from a
negligible one (Cf. Counts, 2013), and in the case of climate change and the carbon bubble the role of
perception is arguably even more pertinent.
Recall that the question as to whether we will succeed on the climate issue is so complex that it arguably
lies outside the domain of the determinate operation of our rules of inference, and thus require a form
of creative judgment in order to develop any form of probability estimate as to whether we will truly
succeed (Heap & Varoufakis, 2004, p. 64). 59 As Cheryl Frank (2010) points out, like the French Revolution
and the demise of the Soviet Union, whether we will overcome the challenge of climate change is a truly
novel question with inherent unpredictability and uncertainty. 60 Given this uncertainty, it is precisely our
59

It is precisely in such conditions, that I would argue that leadership plays an important role (which in game
theoretic terms may be understood as a form of signaling or forward induction) a topic I will return to later in this
paper.
60
In the more jargon-laden terms of Frank, emergent social imaginaries always have an element of novelty and
unpredictability. Big events such as revolutions cannot be predicted by social science in any specificity for good
reasons they occur in open systems characterized by emergent qualities and human creativity. This means that
there is always possibility and novelty for effective international action and hope that global warming can be
ameliorated (Frank, 2010, p. 111).

39

actions and especially those of influential institutions such as universities, which will determine whether
or not others will perceive and respond to the risks of climate change and the carbon bubble, especially
when it comes to financial markets, based as they largely are in perception. 61 It is precisely in these
situations of uncertainty that the role of moral leadership is most required, for while it is easy to stand
on the right side of history when the battle is already won, it takes true leadership to take a stand and
shift the tides of uncertainty. Indeed as Marion Hourdequin points out, how individuals perceive
themselves and develop morally involves the support and instantiation of social institutions that make
possible social transformations [Furthermore] part of what makes personal choices effective and
morally important is that personal choices have a communicative and social function (Hourdequin,
2010, p. 458). In a time where moral leadership is increasingly vacuous the last thing we need is for our
institutions of higher education, which play such an important communicative and social function, to
declare that when it comes to their finances morality is out of the question. 62 Thus divestment
campaigns are asking universities to recognize the important communicative and social function that
they play in society as potential moral leaders, and to use that to influence broader societys response to
the carbon bubble and the underlying crisis it represents.
Reinforcing this point, while in the section on a moral endowment I argued only for more limited moral
duties based on moral principles which deal only with a universitys responsibility not to contribute to
harm, what a universitys role as a leader in society entails is arguably not only the responsibility of
reducing ones own emissions and ones negative impacts, of which the negative impacts of ones
investments are arguably a part. What is needed beyond that is what Elizabeth Cripps refers to as
promotional duties, which are duties to try and bring about collective action (Cripps, 2013, p. 23).
Some might object that it is not a universitys place to take a stand on such issues, but what such an
objection fails to see is that by doing nothing universities have already taken a stand, they have bet on
climate failure
To paraphrase Paulo Freire (1996), there is no such thing as neutrality, only support of the status quo.
The status quo, however, is fast leading us down a disastrous path, and so students, faculty members
and society at large are asking universities to step down from behind the false veil of neutrality and to

61

In game theoretical terms this could arguably be seen as a form of signaling or forward induction under
uncertainty.
62
Indeed as Heap and Varoufakis point out, "the recognition of altruistic preferences transforms what appears to
be a prisoners dilemma when cast solely in terms of selfish preferences into another kind of game. (Heap &
Varoufakis, 2004, p. 186)

40

do the right thing. Indeed, if our universities which represent our students voice are betting on climate
failure, what does that tell the rest of the world? Perhaps it tells fossil fuel companies that they can
afford to be sanguine in their assumption that their assets will not be stranded, that betting on climate
failure is the best bet to make and, furthermore, that expending 1% of the worlds GDP into developing
new fossil fuel reserves rather than deflating the carbon bubble is not a bad business choice as even the
supposed leaders within our society are betting on the fact that it is a good choice to make. Indeed,
universities not divesting may provide the support of the status quo needed to help ensure that we are
locked onto our current path of

blowing through the carbon budget by

2034 (Cf.

PricewaterhouseCoopers, 2013). Alternatively universities can help us to achieve the rather radical
emission reductions we need to avert climate catastrophe (Cf. Anderson, 2013). However, in order to do
so, universities need to act fast, for the window to keep the world below two degrees is rapidly closing,
if it has not closed already.
Furthermore, an investment clearly acts as a positive endorsement of what one invests in. The idea that
an investment somehow is a neutral act seems to rest on a perverse notion that somehow how we
mobilize the resources available to us has nothing to with values. Indeed, not only are universities
betting on climate failure, rather they are investing in it.
As Ansar et al. surmise (2013), the limited available research into past divestment movements suggests
divestment comes in three waves. In the first only small universities and institutions divest, yet even in
this first wave, where divestment outflows are relatively meager, research suggests that divestment can
nonetheless significantly and permanently depress the stock price of a target firm by potentially
triggering a change in market norms (Cf. Ansar et al., 2013; Hong & Kacperczyk, 2009). Now, given that a
number of small universities and institutions have already divested, we are arguably moving into the
second wave of divestment where larger universities such as Harvard and Columbia divest. As Ansar et
al point out, large and influential universities such as these divesting has generally marked a tipping
point which paves the way for the broader public and rest of the globe to divest, which represents the
third wave of divestment. The effects of these latter waves of divestment, furthermore, are potentially
much larger and more diffuse, such as influencing market norms, decreasing finance and debt flows to
fossil fuel companies, decreasing their intrinsic value and reputation, and even spurring on restrictive
legislation all of which is comprehensively outlined in Ansar et al (2013), who also recognized that
divestment would be more effective against coal and tar- and oil-sands and less so against the broader
gas and oil industries.
41

Thus, although divestment movements are not well understood given their relative infrequency and the
complexity of the different issues they pertain to, it seems that the role of universities in determining
social and market norms and the future of our planet through divestment is potentially great, as is the
responsibility that comes with yielding such influence. The question now is whether universities will
continue to hide behind the false veil of neutrality or whether they will recognize and respond to the
responsibility that comes with their great influence on broader society.
Why Not Just Let The Bubble Float?
Before ending this piece it is worth briefly reflecting on the gravity of the climate crisis in order to
emphasize that the proper response to this stark reality is not to let the carbon bubble go unchecked
and ensure the fossil fuel industrys continued profitability, but rather it is to act and to deflate the
bubble as best as we can and reallocate capital to a cleaner economy. Of course, deflating the bubble
will be no easy task, but the consequences if we do not do so are grave very grave indeed:
Using the results from formal economic models, the [Stern Review on the Economics of
Climate Change] estimates that if we dont act, the overall costs and risks of climate
change will be equivalent to losing at least 5% of global GDP each year, now and forever.
If a wider range of risks and impacts is taken into account, the estimates for damage
could rise to 20% of GDP or more. In contrast, the cost of action reducing greenhouse
gas emissions to avoid the worst impacts of climate change can be limited to around 1%
of global GDP each year. (Stern, 2007)
What is worse is that Stern has subsequently revised his estimates suggesting that he had grossly
underestimated the impacts of climate change and that they were likely 50% or more than his previous
highest estimate (McCarthy, 2009). The effects felt, furthermore, are more severe than the dry
economic language of percentage global GDP can arguably reveal. Consider, firstly, the projections of
the Intergovernmental Panel on Climate Changes AR4 report:
The health status of millions of people are projected to be affected through, for
example, increases in malnutrition; increased deaths and diseases due to extreme
weather events; increased burden of diarrhoeal diseases; increased frequency of cardiorespiratory diseases due to higher concentrations of ground-level ozone due to climate
change; and the altered spatial distribution of some infectious diseases (IPCC, 2007).

42

This quote, furthermore, does not take into account that climate change through exacerbating scarcity
of resources could lead to increased conflicts and wars over scarce resources. Consider, for instance,
that in Darfur recurrent drought, increasing demographic pressures, and political marginalisation are
among the forces that have pushed the region into a spiral of lawlessness and violence that has led to
300,000 deaths and the displacement of more than two million people since 2003 (United Nations
Environmental Programme, 2009, p. 9). Darfur, furthermore, provides a portent omen, for as Michael
Klare points out, no one can predict how much food, land, water and energy will be lost as a result of
the onslaught [of climate change] but the cumulative effect will undoubtedly be staggering (Klare,
2013). As the Stern Report further points out, Climate change threatens the basic elements of life for
people around the world - access to water, food production, health, and use of land and the
environment (Stern, 2007, p. vi). Indeed, according to the (2013) UN Human Development Report,
climate change and other environmental disasters could put 3.1 billion people into extreme poverty by
2050 if no significant steps are taken to prevent it and that is only the beginnings of its effects as the toll
of climate change could play out even more dramatically for generations to come if we do not
adequately stem rising levels of greenhouse gas emissions. As Professor Kevin Anderson, the Deputy
Director of the Tyndall Centre for Climate Change Research warns, the current 4 degree Celsius above
industrial temperatures we are headed for by 2100 is incompatible with an organized global
community, is likely to be beyond adaptation, is devastating to the majority of ecosystems, and has a
high probability of not being stable. 63
From the brief bleak synopsis provided above it seems clear that the benefits of leaving the carbon
bubble untouched are far outweighed by the benefits to be gained by rapidly trying to deflate it,
although perhaps not, at least in the short term, for the fossil fuel industry and those who currently
benefit most from it, such as governments in bed with the industry. Of course many of the benefits from
action on climate change will be accrued both in the future and by people across the globe, making
action on it a deeply ethical issue (Cf. Gardiner, 2004). It is the ethical nature of climate change which
calls out for an ethical response to the issue, which transcends the limited real-politik of self-interest
and the limited social imaginaries tying us into a future defined by climate chaos. Indeed, given the
63

Quote taken from Aaron Karps (2013) Overwhelming Case for Divestment which provides a more
comprehensive case for why our current trajectory is incompatible with much life on Earth as we currently know it.
For more details see the World Bank Report Turn Down the Heat: Why a Four Degree Celsius World Must Be
Avoided rather strong language for a conservative institution like the World Bank (Potsdam Institute for Climate
Impact Research and Climate Analytics, 2012).

43

deeply ethical challenge climate change poses and the potentially disastrous effects it is set to wreak on
the world and especially on the poor and future generations, it is apropos, I believe, to end this paper by
revisiting Nelson Mandela, arguably one of the greatest moral leaders of our time.

Mandelas Great Generation

At the 2005 Make Poverty History fundraiser concert, Mandela took the stage to give a rallying cry to
make poverty history. According to Mandela like slavery and apartheid, poverty is not natural. It is
man-made and it can be overcome and eradicated by the actions of human beings. Mandela went on
to say that overcoming poverty is not a gesture of charity. It is an act of justice. It is the protection of a
fundamental human right, the right to dignity and a decent life. While poverty persists, there is no true
freedom (2005). Although Mandela did not explicitly state it, the statement he made has particular
pertinence to anthropogenic climate change, for our failure to act and act with urgency, especially the
failure of those in positions of power, affluence and wealth, may very well halt and then reverse the
progress we have made on reducing poverty, leading to poverty, the scale of which this world has never
seen before. This is a manmade problem and not a question of charity. It is a matter of justice, especially
to the global poor and future generations.
Mandela went on to say that sometimes it falls upon a generation to be great. You can be that great
generation Let your greatness blossom. Of course the task will not be easy. But not to do this would be
a crime against humanity, against which I ask all humanity now to rise up. Many, both from within the
fossil fuel divestment and beyond are trying to be that great generation, Mandelas Great Generation.
The question now is will universities and other institutions join them?

44

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