Could saying goodbye to oil and gas investments power a greener post-COVID recovery?
6 October 2020
Earlier this year, GoFossilFree.org reported that to date, almost 1,200 institutions and more than 58,000 individuals had committed to divesting from fossil fuels. This represents $14 trillion in assets worldwide. Divestment campaigns first emerged about a decade ago, mainly in Europe. By 2015, the decision to move away from fossil fuels was reported to be the fastest-growing divestment movement in history. More recently, some of the world’s largest financial institutions have begun backing away from oil and gas. And within the past year, several international banks, including five in the US, have announced policies that prohibit or restrict investment in new oil and gas projects in the Arctic specifically.
Genus Capital Investment in Vancouver is home to Canada’s first fossil-free mutual fund family. It is also a signatory to the UN Principles for Responsible Investment and the Carbon Disclosure Project. The Circle spoke to Mike Thiessen, a partner and director of sustainable investments at Genus, about how the divestment movement might contribute to a green recovery post-COVID, especially in the Arctic.
What does “fossil-free” mean in an investment context? Is it different from sustainable investing?
At Genus, fossil-free means we don’t invest in companies that extract, process or transport fossil fuels, including railways. Impact investing takes this to another level by not just avoiding companies that harm the environment or society, but investing in those that offer solutions to a lot of the world’s big problems. We invest in renewables, green buildings, electric vehicles, education, health and so on.
Who and where are the investors who are opting to divest?
We’ve found that it’s a social phenomenon, and tends to happen in waves. The first wave is usually activists and churches. We started seeing this at Genus about 20 years ago, when our activist clients wanted to divest—first from coal, then the oil sands. The second wave is public institutions, universities and cities: Paris, London and San Francisco have all decided to divest, as have many European universities. The third wave is pension funds and individuals. Pensions are where the big money is, and a number of European ones have already begun divesting. I would say Canada and the US are still in the second wave, but they’ve really increased the amount of sustainable assets under management in the past few years, as have Australia and Japan.
How might divestment support a green recovery post-COVID?
I think divestment can really change the overall market dynamics. When a lot of asset owners divest, it decreases overall demand for fossil-fuel investments. That makes it harder for those companies to get loans at favourable interest rates. If money is more expensive, then they can’t pursue as many projects—and fewer projects mean less carbon emitted. Of course, it works in reverse too: high demand for renewable energy projects means lots of low-cost money to fund them. Divestment also sends a signal—it stigmatizes fossil fuels. If a prominent asset owner like a university divests, that decision influences the next generation of students and leaders.
What impact could divestment have in the Arctic, specifically? Do investors distinguish between oil and gas in the Arctic versus elsewhere?
As an investment firm, we look at fossil fuels across all geographies, not specifically in the Arctic, because we don’t want to invest in any fossil fuels. But we have techniques to screen out financial institutions that may invest in extreme fossil fuel projects, like drilling in the Arctic or big coal power plants. And as mentioned, if money for fossil fuel projects starts to cost more, then global carbon emissions will drop, which will mitigate climate change and be positive for the Arctic.
What are some strategies to increase sustainable investment?
I think it’s important to raise awareness that it exists. A lot of people want their investments to align with their values, but don’t realize it’s possible. I also think making it clear that you can get good long-term performance from sustainable choices will help. Sustainability is a lot more attractive to people once they know they can still get the same strong returns. For example, our flagship fossil-free fund has been beating its benchmark by almost two per cent a year for the past seven years.
What kinds of sustainable investments do you suggest to clients who are particularly concerned about the Arctic?
Since mitigating climate change in general will slow down changes in the Arctic, I believe that investments in clean energy infrastructure and cleantech innovation can have the most impact. Many of these investments could be attractive financially as well.
Should Canada’s financing institutions play a leadership role in divestment?
Yes, I think they should. They control a lot of the big investment decisions around fossil fuel projects. They can decide what interest rate they’re going to offer. Or they can decide not to invest in a fossil fuel project at all. That would send a signal to the market and cause other banks to pause and ask themselves whether they should take that risk. Historically, big Canadian banks have made a lot of money off the energy sector, so it’s not going to be easy to wean them off of it. But I think overall, our financial institutions should be investing in the future, not the past.
There are probably very few people on our planet who haven’t been affected by the COVID-19 pandemic—and it’s still not clear what the environmental, social, political, economic and health impacts will be in the months and years to come. While the world rushes to develop a vaccine, people everywhere are making efforts to strengthen their resilience and limit the effects of this novel, deadly virus.
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