Why we are pushing for divestment from fossil fuel in fight against climate change

BRANDON CHEE, JERALD LIM, AND BERTRAND SEAH Today Online 1 Jan 19;

Minister for Trade and Industry Chan Chun Sing recently spoke about how just as Singapore’s past 50 years have been defined by its successful water story, the next 50 will be defined by its ability to manage its energy challenges amidst the threat of climate change.

The special report from the Intergovernmental Panel on Climate Change (IPCC) contained stark warnings to drastically reduce global greenhouse gas emissions. In particular, it called for governments to fully decarbonise their economies as soon as possible, which necessitates transitioning from fossil fuels to cleaner forms of energy.

This is why we, a group of National University of Singapore students, have been campaigning for divestment from fossil fuels.

Our efforts have been targeted towards getting NUS, who invests a small percentage of its S$3.7 billion endowment in fossil fuels, to commit to full divestment by 2024.

Our inspiration for this is the global fossil fuel divestment movement, which aims to accelerate the transition to a zero-emission economy, powered primarily by renewable energy and with minimal use of fossil fuels. Currently, roughly 80 per cent of global carbon dioxide emissions come from the burning of fossil fuels.

The IPCC says this must be achieved by 2050, and more optimistic targets say this can be done as early as 2030.

The biggest obstacle to this is not technical, economic, or commercial, but political, specifically because the fossil fuel industry has enormous political influence. Divestment thus seeks to undermine the ability of the fossil fuel industry to inhibit climate action.

Divestment can be understood simply as the opposite of investment. It involves discarding any assets or holdings in companies; in this case, any companies related to fossil fuels.

Divestment not only sends the message that the continued burning of fossil fuels is morally unacceptable in light of the need to drastically reduce emissions, it also makes financial sense.

This is due to the risk of fossil fuel investments turning into “stranded assets”, which refer to assets that are prematurely written-down, devalued or converted into a liability. These risks come in three main forms: reputational risk, market risk, and regulatory risk.

First, an entity can suffer a reputational risk from investing in fossil fuel assets. Investors and wider stakeholders today are become increasingly aware of the damage to the climate caused by fossil fuels.

This trend is especially pronounced among younger investors and stakeholders.

The potential damage to an entity’s image, branding, and legitimacy may ultimately offset any returns from investments in fossil fuel companies.

Second, the value of fossil fuels is exposed to market risk. Existing asset values of fossil fuel companies are based largely on their fossil fuel reserves, which means that they must be able to tap these reserves in the future.

However, studies have projected that 82 per cent of the current known fossil fuel stock must be kept underground to avoid catastrophic climate change. In other words, the amount of proven fossil fuel reserves are about five times the amount permissible in order to keep to a 2°C warming target.

If fossil fuel companies are no longer able to tap their fossil fuel reserves, it should follow that their asset values are not representative of their real value.

We can therefore expect the long-term returns and asset prices of fossil fuels companies to drop, especially if governments implement more stringent emissions regulations, which would in turn cause a spike in the cost of burning fossil fuels.

The sovereign wealth fund of Norway, for one, made reference to these risks when it announced plans to divest from oil and gas companies, noting that it wanted to shield itself from a “permanent drop in oil and gas prices.”

For these moral and financial reasons, the divestment movement has gained significant momentum as a way to combat climate change.

To date, over 1,000 institutions globally have divested funds worth close to US$8 trillion from fossil fuels, while the mayors of London and New York City have called on cities to divest from fossil fuels, and started a global network to undertake divestment and green investment.

So far, there has been flexibility in how divestment has been carried out. Some, such as Trinity College and University of Edinburgh, have divested from all fossil fuels, while others like Stanford University have only divested from coal.

The timeline for divestment can also be flexible, and need not be immediate.

Ireland, for example, became the first country in the world to pass a bill in Parliament fully divesting from fossil fuels, and set itself a five-year timeline for doing so.

This means divestment can be carried out gradually, and societies have the time to transition towards cleaner and more renewable energy sources. Furthermore, the money taken out of fossil fuels can be put towards green investment, which will contribute to advancements in making renewable energy more deployable at a large scale.

Compared to other forms of environmental action, divestment does not entail direct impacts on one’s livelihood, and means that if we are to reduce our dependence on fossil fuels, it is done in ways that target those responsible for the emissions.

This is important because, as the recent protests in France against fuel tax increases have shown, pursuing environmental action that threaten people’s livelihoods can have serious political repercussions.

Rather, divestment targets climate change at the site of production, sending the message that we can use our investments to steer our future in greener paths, which then signals governments and businesses alike to adapt accordingly.

As Singapore's Year of Climate Action draws to a close, it is worth reiterating that, with the climate continuing to worsen, ever greater efforts will be required to tackle it.

Moving away from the financially risky business of fossil fuels and towards a cleaner, greener future will go a long way in showcasing Singapore’s ability to confront the challenges of an uncertain, volatile, and warming world.



ABOUT THE AUTHOR:

Brandon Chee, Jerald Lim, and Bertrand Seah are students at the National University of Singapore, and are three of the founding members of STAND (Students Taking Action for NUS to Divest). The group advocates for NUS to fully divest from all fossil fuel assets by 2024.