151–160 of 253 posts
Unless someone can un-convince me of general macro-economics, not investing in fossil fuel companies will lead to depression of the fossil fuel market and incentivize more relatively lucrative opportunities. The companies of the past only had the means of production of the past, the companies of the future have access to non-fossil fuel dependent energy.
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Gates says divestment will not lower carbon emissions. This is very different from saying it will not lower valuation. Has the reduction in tobacco companies' stock prices materially affected smoking rates? I don't think so.
precursory note: Not an analyst - just read a lot of tobacco industry reports Over the better part of the last decade, many tobacco stocks are down (BAT, PMI, RT, JT etc,) however most dividends on their common stock are still increasing YoY. Not certain if it's generally above the market average but seems to be more than not. If you look at long term production rates (sticks shipped) cigarette manufacturing has been…
I'm pretty unclear on how anyone even thinks divestment works, actually. When a company sells stock in an IPO, buying stock from them allows them to raise capital, so it seems clear to me that you shouldn't buy stock from a fossil fuel company. But that's non-investment, not divestment. Divestment is about selling existing stock. It's true that divestment drives down the stock price. This could mean that if a company…
> It's true that divestment drives down the stock price. I find that hard to believe. Stock prices are set by the profitability of the company. This doesn't change by investors divesting. Only if you manage to get a 100% boycott could that happen, but then it would be insanely profitable to break the boycott and cash in. To me divestment just looks like a form of shunning. People think some companies are disgusting,…
No, stock prices are driven by demand. The most dominant factor in determining demand might be profitability for some investors, but it's one of many (stability, risk, ethics are all other factors). Even saying profitability is the dominant factor for stock prices is dubious, since many unprofitable companies have outrageously high stock prices based on speculation of growth.
If demand dropped enough in spite of profitability, it would reduce the stock price.
Divestment also results in less shareholder oversight of emission heavy companies because environmentally conscious investors are selling their shares to investors with less scruples. This isn't just theoretical. According to Fossil Free, asset managers with about 10 trillion under management have committed to divesting. If you assume 10% of that is tracking something like the S&P 500, then these investors have sold…
Continuing to exist, and emit, just a bit slower is only delaying climate impact, and by a tiny amount.
However I think there are two obvious ways it has > zero impact. Let's take an oil company as an example:
1) If fewer influential investors/funds are invested in oil, there will be fewer people angry if a third party proposes a law or regulation that will hurt oil profits. As said in the article, it makes change easier. 2) The money divested will not go under a mattress. It will be invested in something slightly better (or less worse). Over time this moves money in the right direction.
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Rising stock prices is not the only way or even the primary way that companies generate returns for their investors. Many oil companies pay dividends to their stockholders and these can outweigh the gain from increasing stock prices. BP, for example, uses a significant amount of their cashflow to pay dividends and buy back stock. Their current dividend return is ~6% and has varied between ~2% and ~8% over the last 10…
It is true that stocks are assigned some value based on expected future dividends, but this only one component of the value of a share, and for any company undergoing a divestment campaign, this will shift. A publicly traded Ponzi scheme can maintain a 10% yield for 10 years with only an IPO.
> for any company undergoing a divestment campaign, this will shift.
Since you don't specify, I will presume that you are implying that the "shift" would be an decrease in the portion of the value of the stock that is derived from expectations of future resale value. High dividend companies will thus be less susceptible to divestment campaigns as their stock's value is less dependent on that future resale value.
If divestment happens gradually enough, it is potentially feasible for stock buybacks to somewhat compensate. With companies (such as BP) that do both buybacks and dividends (and aren't thus aren't raising capital by selling stocks), the lower stock price directly helps the company buy back more stocks which then reduces the costs of dividends and makes the company financially stronger. As long as enough of their remaining shareholders don't make waves (because they like the idea of a stronger company that will be more likely to continue paying dividends) divestment is actually beneficial to that company.
As I mentioned elsewhere, I think coordinated, contingent and relatively quick divestment has the greatest potential for motivating share holders to demand changes from the company to protect stock price. This sort of control is ONLY possible if you haven't already gradually divested your stock. This sort of shareholder activism does have great potential, but it is rarely done out of concern for morality or society rather than profit.
So it seems to me that if environmental activists want to influence the behavior of oil companies, they would be better served by buying and holding oil company stock and becoming activist investors. (I agree with Bill Gates the best result for the planet is served by taking that money and investing it into green tech companies.)
Note that companies (such as BP) are only as invulnerable to divestment as they are because of they don't need to raise money by selling stocks. In a situation such as South Africa in the 1980s, their need to raise money by selling stocks made the country much more vulnerable to a divestment campaign. (It also helped that South Africa in the 1980 had a GDP of ~250MM after inflation and that is ~1/1000th of BP's current gross revenue)
Divestment of fossil fuels will probably end up being good financial advice. German utilities lost value fast when renewables were implemented. I would put my retirement money in an S&P 500 index fund that excluded fossil fuels.
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I've divested from oil companies, not because I think it will change corporate governance at XOM or BP, but because I like to buy things that I can hold for a decade or three, without thinking too hard about them. I don't want to spend my time thinking about when, precisely, XOM and BP will have peaked. I'd rather just get rid of them and free up that mental space to concentrate on what's next in the world of energy…
Sure, that makes a lot of sense, but what companies can you invest in that you wouldn't have to worry about for that long?
A lot of large tech stocks, beloved consumer companies (cost, dis, sbux, mcd, ko, tgt...), a few pharmas, banks have been around for a long time, and will still be around in another decade. I'm happy to keep them in my portfolio for the foreseeable future.
Some types of real estate fit the bill (farms and timber. residential and commercial in some locations).
There are places where the world changed and I probably should've bailed a little sooner, but I really don't know how anybody can look at the cost curves for renewables or energy storage and walk away thinking that fossil fuels are a solid long-term investment. They don't spark joy. Thank them for their service, and hit the fucking bid.
I can't help but remember: past results do not indicate nor guarantee future returns. Unless someone can un-convince me of general macro-economics, not investing in fossil fuel companies will lead to depression of the fossil fuel market and incentivize more relatively lucrative opportunities. The companies of the past only had the means of production of the past, the companies of the future have access to non-fossil…
Taxes/limits, we need that on carbon. The economic status quo on the subject is also the most obvious response: pay for the externality you're causing when burning carbon. EU's limits system (cap-n-trade) is already there and has been for many years, can be plugged into a global CO2 emissions market. This should eventually extend to cars, airplanes, ships, steel, concrete, home heating, whatever - even the farting cows.
Either that or solar geoengineering.
I'm pretty unclear on how anyone even thinks divestment works, actually. When a company sells stock in an IPO, buying stock from them allows them to raise capital, so it seems clear to me that you shouldn't buy stock from a fossil fuel company. But that's non-investment, not divestment. Divestment is about selling existing stock. It's true that divestment drives down the stock price. This could mean that if a company…
The argument made by most economists and Bill Gates is that divestment does not drive down the stock price, unless it is practiced by a overwhelming majority of all investors. The reasoning is that anyone not participating in the divestment scheme will simply bid the share price back up to near the market value. If divestment did indeed drive down share price, it would succeed in hurting the company. The company woul…
Also, markets price in these sorts of things. If divestment was a real threat, that would already be factored into the price. It is partly why the P/E ratio of BHP is 13.94, whereas it is 75.56 for Amazon.
Lastly, with a lot of money in index funds (~50%), divestment seems close to impossible. Unless index funds specifically were pegged to non-fossil fuel indexes, they will alway be investing in those companies.
This seems likes the investment version of the plastic straws ban: ineffectual at best.