Based on Wikipedia: Fossil fuel divestment

By 2023, institutions controlling more than forty trillion dollars in assets had committed to pulling their money out of coal, oil, and gas companies. This makes fossil fuel divestment the fastest-growing divestment movement in history—faster than the campaigns against apartheid South Africa, faster than tobacco divestment, faster than any previous effort to use money as a moral lever.

The basic idea is deceptively simple: sell your shares in companies that extract fossil fuels.

But the movement is about something much larger than portfolio management. It represents an attempt to delegitimize an entire industry, to mark certain profits as morally unacceptable, and to accelerate the transition away from carbon-intensive energy sources through financial and social pressure. Whether divestment actually works—and what "working" even means—depends on who you ask and what you believe money can accomplish.

The Birth of a Movement

The fossil fuel divestment movement began where many American political movements begin: on college campuses. In 2011, students at universities across the United States started pressuring their administrations to sell off endowment investments in oil, gas, and coal companies. Their argument was straightforward. Universities are supposed to educate future generations. Climate change threatens those generations. Therefore, universities shouldn't profit from the companies causing the problem.

Unity College in Maine became the first institution of higher learning to take the plunge in 2012. The school divested its entire endowment from fossil fuels, making a statement that rippled through academia.

The environmental organization 350.org—named for the 350 parts per million of atmospheric carbon dioxide that climate scientist James Hansen identified as a safe upper limit—helped coordinate and amplify these campus campaigns. The strategy drew explicitly on the playbook of the anti-apartheid divestment movement of the 1980s, which had successfully pressured American universities to sell their holdings in companies doing business in South Africa.

By 2015, the movement had grown explosively. Pension funds, religious institutions, city governments, and philanthropic foundations joined universities in pledging to divest. The Rockefeller Brothers Fund—whose fortune derived from Standard Oil—announced it would eliminate fossil fuel holdings from its portfolio. The irony was deliberate and pointed.

The Math of Climate Change

Understanding the divestment movement requires understanding the terrifying arithmetic of climate change. The Intergovernmental Panel on Climate Change, the United Nations body that synthesizes climate science, has calculated that humanity can emit roughly one thousand gigatonnes of additional carbon dioxide while maintaining a two-thirds chance of keeping global warming below two degrees Celsius—the threshold widely considered the upper limit of manageable climate change.

A gigatonne is one billion metric tons. To put that in perspective, global carbon dioxide emissions currently run about forty gigatonnes per year.

Here's where the math gets uncomfortable. Fossil fuel companies have already located and claimed reserves containing far more carbon than that budget allows. The coal, oil, and natural gas sitting in known deposits, if burned, would release roughly three times the amount of carbon dioxide the atmosphere can absorb while keeping warming below two degrees.

This means that only about one-third of existing fossil fuel reserves can ever be used. The rest must stay in the ground.

But the business models of fossil fuel companies assume they will extract and sell all their reserves. Their stock prices reflect this assumption. Their exploration budgets reflect this assumption. In 2013 alone, fossil fuel companies invested 670 billion dollars searching for new oil and gas deposits—deposits that, according to climate science, should never be tapped.

Stranded Assets and the Carbon Bubble

This mismatch between what climate science demands and what fossil fuel companies plan creates what economists call "stranded assets." The term refers to investments that lose value or become worthless because of regulatory changes, technological shifts, or changing market conditions.

If governments take serious action to limit carbon emissions—through carbon taxes, cap-and-trade systems, or outright bans on fossil fuel extraction—then the reserves that fossil fuel companies have spent billions discovering and developing could become unburnable. Those assets would have to be written off entirely.

Some analysts call this potential devaluation the "carbon bubble."

In 2013, the global bank HSBC published a study warning that between forty and sixty percent of the market value of major European oil companies—including BP and Royal Dutch Shell—could evaporate if carbon regulations forced them to leave reserves unexploited. That's not a trivial write-down. That's a potential industry-wide collapse.

Mark Carney, then the governor of the Bank of England, put it bluntly at a 2015 World Bank seminar: "The vast majority of reserves are unburnable" if the world is serious about limiting temperature increases to two degrees Celsius. In 2019, Carney went further, suggesting that banks should be required to disclose their exposure to climate-related financial risks. He warned that companies failing to move toward zero-carbon emissions "could be punished by investors and go bankrupt."

This isn't just theoretical. Between 2010 and 2015, the American coal sector lost seventy-six percent of its value. Two hundred mines closed. Peabody Energy, the world's largest private coal mining company, saw its share price collapse by eighty percent before eventually filing for bankruptcy. The causes included tightening environmental regulations and competition from cheaper natural gas, but the pattern illustrated how quickly fossil fuel assets can become worthless.

The Financial Case

Divestment advocates make two distinct financial arguments. The first is defensive: divesting protects portfolios from the coming collapse in fossil fuel valuations. The second is offensive: divesting is simply good investment strategy regardless of climate policy.

The defensive case rests on the carbon bubble theory. If you believe governments will eventually take serious action on climate change, then fossil fuel companies are overvalued. Their reserves cannot all be extracted. Their exploration spending is wasted. Selling now, before the bubble bursts, is prudent risk management.

The offensive case points to historical returns. According to a 2019 analysis by the Institute for Energy Economics and Financial Analysis, the energy sector of the S&P 500—dominated by fossil fuel companies—has underperformed the broader index since 1989. Investors who avoided fossil fuels would have made more money, not less.

This underperformance reflects structural challenges facing the industry. Oil and gas prices are notoriously volatile. West Texas Intermediate crude oil fell from 107 dollars per barrel in June 2014 to fifty dollars per barrel by January 2015—a collapse that made many planned drilling projects unprofitable. Goldman Sachs estimated that if oil stabilized at seventy dollars per barrel, one trillion dollars in planned oilfield investments would never generate positive returns.

Meanwhile, renewable energy has become increasingly competitive. Deutsche Bank predicted that by the end of 2017, solar electricity would be cost-competitive with fossil fuels across eighty percent of the global electricity market. In some places, this has already happened. Australia's Stanwell Corporation, which operates coal and gas power plants, lost money in 2013 because rooftop solar panels flooded the grid with cheap daytime electricity, driving wholesale prices down to nearly zero on sunny days.

The Moral Case

Not everyone who supports divestment cares about portfolio returns. Many see it primarily as a moral statement.

The philosopher and climate justice campaigner Alex Lenferna articulates three interlocking ethical arguments. First, investing in fossil fuels contributes to grave harm and injustice. Second, divesting helps fulfill a moral responsibility to promote climate action. Third, investing in fossil fuels makes investors complicit in the injustices perpetrated by the fossil fuel industry.

This last point deserves unpacking. Climate change does not affect everyone equally. The people who have benefited most from burning fossil fuels—residents of wealthy industrialized nations—are generally better positioned to adapt to a changing climate. They can build seawalls, install air conditioning, and relocate if necessary. The people who have benefited least from fossil fuel consumption—residents of poor countries, particularly in coastal and tropical regions—face the most devastating impacts: flooding, drought, crop failures, and extreme weather events.

From this perspective, profiting from fossil fuel extraction means profiting from a system that transfers wealth from poor countries to rich ones while simultaneously making poor countries less habitable. The moral calculus is stark.

The activist and author Naomi Klein captured the moral logic in a statement that appears frequently in divestment literature:

"This is part of a process of delegitimizing this sector and saying these are odious profits, this is not a legitimate business model... once we collectively say that and believe that and express that in our universities, in our faith institutions, at city council level, then we're one step away from where we need to be, which is polluter pays."

The Toronto Principle

In 2014, after the environmental organization 350.org submitted a divestment petition to the University of Toronto, the university's president established a committee to study the question. The committee's 2015 report offered a nuanced framework that has influenced divestment debates ever since.

Rather than recommending blanket divestment from all fossil fuel companies, the committee proposed targeting firms whose behavior was "irreconcilable with achieving internationally agreed goals." Specifically, they recommended divesting from companies that "blatantly disregard the international effort to limit the rise in average global temperatures to not more than one and a half degrees Celsius above pre-industrial averages."

This would include coal companies and coal-fired power plants, firms pursuing aggressive fossil fuel development in places like the Arctic or Canadian tar sands, and companies that actively distort public policy or deceive the public about climate science.

Benjamin Franta, writing in the Harvard Crimson, dubbed this framework the "Toronto Principle." The principle aligns divestment with the goals of the Paris Agreement, the 2015 international climate accord. Rather than treating all fossil fuel companies identically, it distinguishes between firms working within the constraints of climate policy and those actively undermining it.

In a twist that illustrates the slow pace of institutional change, the University of Toronto's president rejected his own committee's recommendations in 2016. It wasn't until 2021, after continued student pressure, that the university finally announced plans to divest by 2030.

The Lofoten Declaration

In 2017, a group of civil society organizations gathered in Norway's Lofoten Islands—an archipelago in the Arctic Circle that has been proposed as a site for oil exploration—to issue a declaration that extended the divestment framework.

The Lofoten Declaration went beyond selling shares. It called for wealthy countries to stop exploring for new fossil fuel reserves entirely and to begin phasing out existing production. The declaration emphasized "just transition"—ensuring that workers and communities dependent on fossil fuel industries receive support as those industries wind down.

The declaration also highlighted the moral responsibility of wealthy nations. Countries that industrialized first—and therefore contributed most to cumulative carbon emissions—should lead the transition away from fossil fuels, the signatories argued. They have both the resources to manage the transition and the historical obligation to do so.

Does Divestment Work?

Critics of divestment argue that selling shares accomplishes nothing directly. When you sell stock, someone else buys it. The company's operations continue unchanged. No oil stays in the ground because a university endowment sold its ExxonMobil shares to a hedge fund.

In 2014, ExxonMobil itself dismissed divestment as "out of step with reality," arguing that refusing to use fossil fuels was "tantamount to not using energy at all." John Felmy, the chief economist of the American Petroleum Institute, was more blunt, calling divestment advocates "misinformed, uninformed, or liars."

But divestment proponents counter that direct financial impact was never the primary goal. The real mechanism is stigmatization.

A study by the Smith School of Enterprise and the Environment at the University of Oxford found that divestment campaigns can "materially increase the uncertainty surrounding the future cash flows of fossil-fuel companies." When major institutions publicly divest, they signal that the social license of fossil fuel companies is eroding. This uncertainty affects stock valuations and, crucially, increases the cost of capital for new projects.

The study concluded:

"The outcome of the stigmatisation process poses the most far-reaching threat to fossil fuel companies. Any direct impacts pale in comparison."

There is evidence this mechanism is operating. Fossil fuel companies have reported that divestment pressure has contributed to rising costs of capital for new projects. When investors view an industry as morally problematic and financially risky, they demand higher returns to compensate, making marginal projects uneconomic.

The parallel to tobacco is instructive. Tobacco divestment never threatened the financial viability of cigarette companies—they remain highly profitable. But divestment campaigns contributed to the broader stigmatization of the tobacco industry, which eventually led to advertising restrictions, smoking bans, and other regulatory measures. The goal was never to bankrupt tobacco companies through stock sales. The goal was to change the political environment in which those companies operated.

The Hidden Costs

A 2015 study examined the hidden economic costs imposed by twenty major fossil fuel companies. The researchers attempted to calculate the "externalized" costs of carbon dioxide emissions—the damages from climate change that companies impose on society but do not pay for directly.

The findings were striking. For every year studied between 2008 and 2012, the economic cost to society of these companies' carbon emissions exceeded their after-tax profits. The only exception was ExxonMobil in 2008. For coal companies, the results were even more dramatic: the economic cost to society exceeded not just profits but total revenue—including wages, taxes, and supplier payments—in every year studied.

Put differently: if these companies had to pay the full cost of the climate damage they cause, most would be unprofitable. Many would be massively underwater.

This unpaid cost represents an implicit subsidy from society to fossil fuel companies. It also represents a risk. If governments begin recovering these costs through carbon taxes or other mechanisms, the financial foundations of the fossil fuel industry would shift dramatically. Financial analyst firm Kepler Cheuvreux projected in 2014 that fossil fuel companies could lose twenty-eight trillion dollars in value under a regulatory scenario targeting 450 parts per million of atmospheric carbon dioxide.

Legal Obligations

A more recent argument for divestment centers on fiduciary duty—the legal obligation of institutional investors to act in the best interests of their beneficiaries.

Traditionally, fossil fuel companies were considered prudent investments. They generated reliable returns from a commodity the world required. But as climate-related financial risks have become clearer, some legal scholars argue that investing in fossil fuels may actually breach fiduciary duties.

The argument runs as follows: trustees are supposed to consider long-term risks to portfolio value. Climate change poses systematic risks to the global economy. Fossil fuel companies face specific risks from stranded assets, regulatory changes, and competition from renewables. Continuing to invest in fossil fuels, despite these known risks, could constitute a failure of fiduciary responsibility.

This argument received a boost in 2021 when Harvard University announced it would divest from fossil fuels. The announcement came after students filed a legal complaint with the Massachusetts Attorney General, asserting that Harvard's fossil fuel investments violated state laws governing fiduciary duty. In its announcement, Harvard explicitly cited its fiduciary obligations.

Fossil Free Research

As divestment campaigns matured, some activists identified a blind spot. Universities might sell their fossil fuel stocks while continuing to accept research funding from those same companies. The grants don't appear in endowment portfolios, but they create financial relationships—and potential conflicts of interest—that shape academic inquiry.

The Fossil Free Research movement emerged to address this gap. Advocates argue that funding from fossil fuel companies compromises academic independence, particularly in fields like climate science, energy policy, and environmental economics. They point to tobacco industry funding of medical research as a cautionary tale, noting how industry sponsorship skewed findings and delayed public health measures for decades.

The movement asks universities not just to divest their endowments but to refuse research grants and sponsorships from fossil fuel companies. This is a harder sell. Research funding is the lifeblood of academic science. Many university administrators view divestment as a symbolic gesture they can afford, while viewing restrictions on research funding as a material sacrifice.

The Road Ahead

The fossil fuel divestment movement has achieved remarkable scale in a short time. From a handful of college campuses in 2011 to over 1,500 institutions representing forty trillion dollars in assets by 2023, the growth has been exponential.

Yet the fundamental question remains unsettled: will divestment accelerate the transition away from fossil fuels, or is it primarily a way for institutions to burnish their ethical credentials while the hard work of decarbonization proceeds through other channels?

The honest answer is probably both. Divestment alone will not keep fossil fuels in the ground. But it contributes to a broader shift in how society views the fossil fuel industry—a shift from seeing these companies as essential providers of the energy that powers modern life to seeing them as obstacles to a livable future.

That shift in perception matters. It affects which policies politicians can propose and which investments feel safe. It determines whether young people seek careers in oil and gas or in clean energy. It shapes whether fossil fuel companies are treated as partners in the energy transition or as adversaries to be overcome.

The U.S. Environmental Protection Agency notes that Earth's average temperature has already risen by 0.78 degrees Celsius over the past century. Under current emissions trajectories, it could rise by another 1.1 to 6.4 degrees Celsius over the next hundred years. The upper end of that range would mean a world fundamentally inhospitable to human civilization as we know it.

Against that backdrop, the question isn't whether divestment is a perfect strategy. The question is whether it's part of an adequate response. Forty trillion dollars in commitments suggests that a growing number of institutions believe the answer is yes.