Australia is a small country by many standards. But as the world’s single largest exporter of coal, to those who are tackling dangerous climate change, Australia is a superpower. That’s why it makes perfect sense that the Australian Environmental Grantmakers Network (AEGN) has produced the DivestInvest Philanthropy Guide, a five-step governance and implementation tool to divest from fossil fuels, designed for trustees, managers, investment committees and wealth advisers.
Co-author of the Guide, Lou O’Halloran, reflects on divestment and re-investment as a high impact tool for getting results and how global philanthropy is changing the game.
I am a glass half full person and for many years I did not fully understand the notion, posed by a growing chorus of experts and thought leaders, that our human species could possibly be the maker of its own end. With all our unrivalled capacity for analysis and problem solving, empathy and foresight, intellect and dominance, surely they couldn’t be suggesting that we, the human species, the highest species, might go the way of dust? But now I understand what they were trying to say.
There are many ways that we might be the makers of our own end, but climate change is among the most likely. We are already experiencing devastating floods, fires, droughts, heatwaves, exacerbated cyclones, new diseases coupled with drug resistance to old diseases, rising sea levels and alarming rates of extinction across our finely tuned biosphere. And apparently we are now so far into this problem that we have just three years to galvanise and accelerate our co-ordination across government, businesses, citizens and scientists to arrest the inevitable conclusion to this trajectory.
This call to action – our three-year window – was delivered recently in the esteemed journal, Nature, by former UN climate chief Christiana Figueres and Hans Joachim Schellnhuber of the Intergovernmental Panel on Climate Change. They calculate that if we can bring emissions down considerably and permanently by 2020, then “temperature thresholds leading to runaway irreversible climate change will not be breached”.
YOU INSURE YOUR HOUSE BUT NOT YOUR HOME
Even a cursory look at the science explains why this trajectory should be so alarming to all of us concerned with health and disease, poverty, refugees from climate catastrophe, food and water security, the environment and myriad other issues that beckon philanthropy to step up with influence, funding and imagination.
You probably know the science, but there is one part of the story worth reflecting on to emphasise why this problem is not for later – it is for now, and to be precise, it is for the next three years.
By studying ice cores, scientists know that carbon dioxide in our atmosphere over the last 800,000 years has ranged between 180 and 280 parts per million (ppm). Roughly 200 ppm during ice ages, and 280 ppm during our warmest periods. Then suddenly, just 200 years ago, when we started using fossil fuels, the ppm of CO2 in the atmosphere started rising above 280ppm. First quite slowly, and then, in just the last 50 years, it has shot up in a hockey stick shape and is now 400ppm – and rising. Almost all of this is due to human activity related to the use of fossil fuels. Our delicate and balanced climate system has never had to deal with this level of insulation and blanketing – and the frightening weather we are experiencing now is a direct result of that.
We insure our houses against fire where the odds are 3,000 to one. The odds for our home planet are far, far lower than that, and we remain frighteningly underinsured. We must now redirect capital away from fossil fuels and toward zero carbon solutions with an urgency that reflects the surety of the science and the scale of what we have to lose.
DIVESTMENT – WHAT’S TO GAIN?
Philanthropy has played a massive leadership role in the divestment movement. There are 688 institutions with $5.2 trillion in funds under management that have pledged to divest – 23 per cent of those signatories are foundations. By participating they have gained in two important ways. Firstly, they have added their influence (eg, Rockefeller Brothers Fund) to a public movement that has prompted whole new levels of financial analysis into the coal, oil and gas sectors leading to a material, upstream impact on the allocation of capital away from fossil fuels and toward the green economy. And secondly, they have reduced the carbon risk exposure of their portfolio investments.
The power of symbolism and movements contained in the first point cannot be underestimated – it worked during the anti-Apartheid movement and it’s working now. The second point about financial risk is worth unpacking for those who are not au fait with the mechanics of stock valuation.
In 2012, the International Energy Agency stated that no more than one third of the “proven coal, oil and gas reserves” held on the balance sheet of companies could be consumed prior to 2050 if the world is to limit warming to 1.5 to 2 degrees celsius. For coal, this figure is drastically lower. No more t`han 12 per cent of ‘proven coal reserves’ can be consumed if we are to reach our already agreed upon targets. What does this mean for your portfolio risk?
When a financial analyst values a stock in the fossil fuel sector, they will incorporate the expected future earnings from the company’s fossil fuel reserves into that company’s current stock price (see page 5 of the DivestInvest Philanthropy Guide). If 66 to 88 per cent of these ‘proven fossil fuel reserves’ will be staying in the ground, consistent with global agreements, and this is currently not factored into pricing and analysis, what happens next? The answer is that company valuations will never be realised, and prices are vulnerable to collapse – resulting in what is commonly known as “stranded assets”.
This is why the AEGN has developed the DivestInvest Philanthropy Guide. In philanthropy there is incredible willingness to align corpus with mission – you hear it spoken about all the time – but understandably many are still unsure how to go about it. This Guide fills that gap and helps managers, trustees and investment committees come together to navigate this area carefully, backed by good governance, stakeholder engagement and reasoned decision-making.
DIVEST, THEN INVEST
The conference is called ECO:investing – philanthropy energising the green economy. We will examine Australia’s transition to a green economy and ask: how are we tracking, what is philanthropy doing, where are the opportunities, and what does economic transformation look like?
DO SOMETHING ABOUT IT
Barack Obama said in 2014, “We are the first generation to feel the effect of climate change and the last generation who can do something about it.” Since 2014, emissions and weather events have escalated beyond our most dire predictions, and our window of opportunity has narrowed.
We urge you to use the DivestInvest Philanthropy Guide to assess how climate change fits in relation to your mission and goals, to come to AEGN’s conference to learn about investing in the new green economy, and to join together in the human project to save this rare planet Earth – and our own rare human species – from the trajectory we now know is well underway.
Please contact Lou at email@example.com for more information.
To find out more about the AEGN conference or to register, head to the website.
Lou O’Halloran is the NSW Manager and Finance Sector Specialist at the Australian Environmental Grantmakers Network.