Stellenbosch campaign

1. Potential profit cannot be the only factor in making investment decisions. If we were talking about a choice between investment in child labour or reduced returns, most people would opt for the ethical option. The moral case for divestment to address climate change is no less stark. The several universities that have already divested have obviously already concluded that this risk is minimal or worth taking. There is also evidence that investments returns from socially responsible investments are in many instances superior to the returns from conventionally weighted portfolios.

2. A number of ‘Green Funds’ have emerged in response to high demand and impressive yields from investments in the ‘’Green Revolution’’. Having a five-ten year divestment plan allows ample time for implementing divestment commitments. 

3. Financial imperatives in these very challenging times are clearly legitimate, but need to be balanced against ethical and social interests. Divestment is becoming financially prudent. Fossil fuel asset values are declining, with a high likelihood of stranded assets and a carbon bubble. Conversely, financial returns from the global renewable energy market are growing rapidly. Moreover, positioning Wits as a pioneering ethical ‘Green University’ with major research strengths in climate change may facilitate access to climate change financing mechanisms, such as the Green Climate Fund to which the ‘’G7 nations’’ recently reiterated its commitment of $100 billion per year.

4. It is more likely that the university is losing or will lose money by remaining invested in fossil fuels. For example, over the past five years, typical portfolios based on the JSE Top 100 would have outperformed when decarbonised (research by ET Index Research, London, available on request).

5. Most SA universities have not, to our knowledge, yet sought to establish or quantify what income they might lose or assess whether such losses might be acceptable. There is good reason to think they would have gained financially by divesting sooner, as unpublished research by both ET Index Research and S&P indicates that risk-adjusted returns over the past five years in typical SA portfolios would have been improved by excluding fossil fuels.

6. Many overseas institutions have divested without loss of income. The Financial Times notes that, ‘The outperformance of ESG strategies is beyond doubt.’ (goo.gl/eL1WdB). Index company MSCI’s research showed that its MSCI ACWI ex Fossil Fuels Index outperformed the conventional MSCI ACWI index in five of the six years to January 2018 (goo.gl/X1utAs).

7. ‘Legendary’ investor Jeremy Grantham (who has managed a US fund with assets exceeding $100 billion) considers it a myth that divestment threatens returns and has compiled research in support of that argument (goo.gl/ePSnvk).

8. Risk-adjusted investment returns may sometimes look better when fossil fuel companies are included in portfolios, but equity risk assessments do not fully price in objective criteria beyond the horizons of most investors, such as the probability of continuing rapid technological change in the energy sector, new regulations, abrupt stranding of assets, damages caused by accelerating climate change impacts and litigation by victims of climate change (goo.gl/bxQU9q).

Only to the extent that sanity in climate policy-making remains fringe! But no. Policy in climate change evolves at a very rapid pace – what may have seemed radical a few years back is now mainstream. More than half of all universities in the United Kingdom have divested, for example (88/165, as of 2021).

Many international cities, like London and New York – and Cape Town – have divested; even whole countries like Ireland and Norway have divested sovereign wealth funds. A full list of the more than 1500 institutions around the world that have divested, including leading corporations, can be viewed here.

It’s a good question, as modern investment vehicles are often extremely complex and opaque, often by design as asset managers claim their portfolio construction techniques are confidential intellectual property.

But screening instruments of equal complexity have been designed, for example, by ESG ratings agencies. They are often as opaque as the instruments they are applied to. But effective total exclusion of fossil fuel investments from funds is possible when we put our minds to it. A real world example is the South African Select BCI ESG Equity Fund, an South African equity-based index fund that completely excludes thermal coal companies listed on the JSE, and Sasol.

There is no direct link between divestment and job losses. Divestment makes it harder to raise new capital, and reduces market confidence in companies, but leaves them room to improve their performance in response. Without doubt, it is important to ensure a ‘’Just Transition’’ for workers and communities involved in coal and other extractive mining, and to secure their livelihoods. Compared with the coal mining sector, renewable energy is more labour-intensive, and provides safer work conditions and more opportunities for skill building.

There are detailed plans and proposals for a transition to renewable energy in South Africa. Moreover, the world is learning fast that a robust environment is essential for a robust economy. Paradoxically, by protecting the fossil fuel industry, we are accelerating climate change and thereby destroying livelihoods, especially those of subsistence farmers throughout Africa who are among the population groups most affected by intensifying droughts, floods and temperature extremes. Indeed, ”Environmental racism’’, driven by the fossil fuel and other polluting industries, makes mostly low-income, Black and other communities of colour victims of the pollution from elite, wealthy communities.

Divestment of financial assets and pension funds is NOT tied to receipt of research funding from industry or engagement with industry through participation in company boards, for example.

Universities globally have made a clear distinction between divestment of financial stocks, investment funds and pension funds on the one hand and research funding on the other. Industry obtains major benefits from research partnerships with, for example, Wits University and oftentimes rely heavily on academics at the University to provide critical technical and other inputs into their work, especially during this period of major flux in the industry. Many companies are requesting assistance in decarbonisation, and are well aware of the need for rapid reform. There are few specialist research groups and experts in South Africa and an industry partner would often struggle to find another university in South Africa that is able to provide the research expertise that is available in leading universities. Divestment can also be used as a lever in these interactions, where companies who achieve their targets for reducing emissions are then not divested from.  Divestment in a considered manner, that is accompanied by engagement with affected companies, is unlikely to affect research funding. Ultimately, decisions of a University around divestment must centre on ethical principles primarily, and only secondarily on relations with industry.

Universities usually do not promise every donor that it will invest in them.

Even if companies like Sasol do withdraw research funding, more progressive companies, such as Axa which has both divested and funds the UCT African Climate Risk chair, are sometimes stepping in.

We agree that universities should, while adopting an ethical investment policy, also work to reduce the various environmental impacts of operations in all dimensions, and have always advocated for this. But efforts to reduce environmental impacts are usually incomplete and imperfect, and action in one domain cannot be predicated on first achieving perfection in another.

Decarbonisation efforts in all realms are extremely urgent and must be pursued in parallel: universities should divest AND decarbonise their own operations.

Our continued dependence on fossil fuels is now in a very good part a function of fossil fuel industry efforts to slow and stop the energy transition. In South Africa, numerous studies now show renewable energy would be a healthier, cheaper option in the electricity sector. Change will be slower in the transport sector, but the time to set clear targets for decarbonisation is now, as even other developing countries are already doing. (No less than 48 developing countries now have targets for 100% renewable energy.)

Too many fossil fuel companies play lip service to the Paris climate agreement while in fact doing their best to stall compliance even with existing regulations for controlling air pollution, much less setting their own clear targets for phasing out emissions. Continued investment in any particular fossil fuel company can only be justified when that company has committed itself to science-based targets for decarbonisation in alignment with global targets. For examples of companies that have already done this, see sciencebasedtargets.org.