Why I’m voting against fossil-fuel divestment at McGill University

This week at the faculty of arts at McGill University, we’re deciding whether to ask McGill’s board of governors to sell off the university’s investments in companies that produce fossil fuels. I’m voting “No” in the electronic ballot of the faculty’s 280 or so members. A preliminary vote at a faculty meeting on Tuesday went 25-4 for divestment, so, unless attendance was strongly unrepresentative, which is always possible, I’m expecting to lose.

Those proposing divestment argue that oil companies continue to explore for petroleum deposits even though enough already have been discovered to fuel consumption levels that eventually will raise the planet’s temperature by more than the two degrees Celsius activist-consensus says should be the upper limit we set on climate change.

They also blame the companies for pushing back against climate-change activism. The best way to influence them, the divesters say, is to hit their bottom line by selling their stock. And they point to previous McGill divestments from tobacco and apartheid-era South African investments.

I can understand that if people feel strongly about burning oil, gas and coal, they don’t want to be associated with companies that make it possible, even if the companies themselves account for only a small proportion of total burning. To each his own morality. But as for the rest of the argument, I’m unconvinced.

Divesting means selling to a buyer—someone who isn’t as bothered by what the companies are doing as you are and is therefore happy to take up the capital-market slack you are creating. True, having fewer total buyers in the capital market makes it at least slightly harder for the companies to raise funds, which probably does discourage their activities at the margin. But there’s hardly a big shortage of capital in the world at the moment. Just the opposite, in fact. So your selling yours may have only a tiny impact.

If you do want to influence the companies, you have to decide whether you get a bigger bang from withdrawing your bucks—well, actually, other people’s bucks that have been endowed to the university where you work, which makes decisions about what to do with them so much easier—or from sticking with the companies and, as activist shareholders, trying to change their behaviour. To my mind, it’s not obvious which strategy is more effective in influencing management. The divesters clearly think the one-time bang from withdrawing will be greater than the many-time bang of pressuring management. But is there any real evidence on that?

An economist would naturally suggest that in choosing your anti-carbon consumption strategy you should consider all the alternatives available to you. One obvious alternative, since most of the damage from consuming fossil fuels comes from actually burning them, which we all do, is to reduce consumption. It’s true that reducing your own consumption may well reduce the fuels’ prices, thus encouraging others to produce more. (When demand curves “shift in,” part of getting to the new equilibrium is sliding down the new demand curve a tad, though not all the way back to where consumption was before.) But at least you can be sure you have done your bit and that doing so has hurt you at least somewhat. Which isn’t the case when you make largely shambolic gestures using other people’s money.

At bottom, I oppose divestment because I don’t think using fossil fuels is immoral. Quite the contrary. The big picture over the last 25 years is that nuclear’s contribution to total energy use has fallen while the contribution of wind, solar and other alternative fuels has gone up, with basically no change in the still dominant share of fossil fuels. People who know a lot more about energy use than I do tell me that share may well go down over the next 50 years but, barring technological breakthroughs—which can’t be discounted but shouldn’t be assumed, either—it’s going to remain very important. Not least in the continuing development of the world’s poor countries.

Accepting that as a fact of near-future life, should we in the West insist that these countries’ future development rely only on expensive new forms of energy, rather than the cheap fossil fuels that facilitated our own economic development? That sounds the opposite of moral to me.

Most of the world’s fossil fuels are controlled, not by companies, but by governments. The most effective way to influence the extraction and use of these fuels is by changing government policy, which at the moment is happening virtually on a daily basis. Owning stock of a fuel company that has to play by rules that in the world’s rich countries are set by democratic governments is no reason for shame.