Investment firms are banking on clean energy

By CHRIS WERLE,

While it may not be widely used in Mississippi yet, the term “divestment” has been making big news nationally, and according to banking giant Goldman Sachs, this may be a sign of things to come.

Basically the opposite of investment, fossil fuel divestment is an economic tool for reducing carbon emissions by removing stocks, bonds, and loans for companies involved in extracting fossil fuels.

Beginning with just a half dozen universities in 2011, administrations began to transfer endowment funds from the fossil fuel industry into clean energy.

The next year saw rapid growth to roughly 50 participants, and by 2015 it became the fastest growing divestment movement in history.

As of last month, 1,200 institutions and nearly 60,000 individuals representing $12 trillion in assets worldwide have divested from fossil fuels.

Self described as “a leading global banking, securities and investment management firm for corporations, financial institutions, governments and individuals,” Goldman Sachs is ranked 62nd on the Fortune 500 list.

Just last month they announced a new policy ruling out financing for any new oil drilling or exploration in the Arctic, including the Arctic National Wildlife Refuge.

They also will no longer finance new thermal coal mines, mountain-top removal or coal-fired power projects worldwide.

With this divestment, Goldman Sachs joins a growing number of major financial institutions rejecting Arctic oil exploration.

 More than a dozen of the largest banks worldwide have made similar divestments, including Barclays and the Royal Bank of Scotland, but Goldman Sachs is the first major American bank to do so.

And outside of the banking sector, there also are some major changes within the oil industry itself.

BP is perhaps a notorious company for us here in the Gulf region, but they also have had a decades-long presence in Alaska.

However, BP announced last August that they are selling all of their Alaskan assets for $5.6 billion, including both the Prudhoe Bay oil field and the trans-Alaska pipeline.

This major sale is just one piece of BP’s planned divestment of $10 billion in fossil fuel assets by 2020.

"We have been steadily reshaping BP, focusing investment on assets that offer the best opportunities for competitive growth within our portfolio, while continuing to strengthen our financial performance and better positioning the company for a low-carbon future," said Brett Clanton, senior director of BP's U.S. media affairs. For BP, this decision was not so much about greenhouse gas emissions as it was about the future viability of their company. By planning for a low-carbon future, they are positioning for a more renewable energy sector and avoiding the financial hits from the divestment movement.

Other companies have been less perceptive, and the Dakota Access Pipeline is one notable example.

Despite their eventual legal win over the Standing Rock Sioux Tribe, the companies involved in the project suffered major losses afterward. Energy Transfer Partners, the parent company of the pipeline, experienced a drop in stock price of nearly 20 percent between 2016 and 2018, even with a nearly 35 percent rise in the S&P 500 over the same period. And that’s BEFORE the most recent spill event.

This past November, nearly 400,000 gallons of oil leaked from the new pipeline, providing motivation for more divestments.

All this has led to instability in fossil fuel prices, making investment in oil extraction increasingly risky. From 2014-15, West Texas Intermediate  fell in value from $107 to $50 per barrel. According to a January 2015 Goldman Sachs statement, even if prices stabilized at $70 per barrel, $1 trillion of planned oilfield investments would become unprofitable.

With the price now hovering around $60 per barrel, the writing is on the wall.  Sure, there likely is more money to be made in the short term by investing in the fossil fuel market.

But according to analysis from the Aperio Group, there is a “statistically irrelevant” risk of economic loss for institutions choosing to disinvest in fossil fuel.

All indicators point to a more sustainable energy grid of the future; shrewd (and ethical) investors will turn to renewable energy projects.

But don’t take my word for it; ask Goldman Sachs.

Chris Werle is a Lamar County resident who is leader of the Hattiesburg chapter of the Citizens' Climate Lobby. Email him at hattiesburg@citizensclimatelobby.org