The folks at Bloomberg New Energy Finance (BNEF) are out with a fascinating paper, which they call a “thought experiment,” on the fossil fuel divestment movement – of which we’re big supporters – and what it would look like if it achieved “trillion-dollar scale.” Here are a few key points, followed by some thoughts of our own.
- Although the fossil fuel divestment movement, led by Bill McKibben, has some momentum, “divestment calls are not enough to move a needle calibrated in the trillions of dollars.”
- “Fossil fuel divestment is neither imminent nor inevitable. But, neither is it impossible for motivated investors.” But if divestment “were to achieve trillion-dollar scale, what would it look like?”
- “Divestment represents both a challenge and an opportunity:Oil and gas divestment will be a challenge;” “Coal divestment could be relatively easy;” “Re-investment in clean energy requires investor appetite and structures for true scale.”
“Any large-scale divestment movement beyond campuses, churches, and municipalities will require engaging and persuading firms such as BlackRock, Vanguard, State Street, and Capital Group – each with more $1trn of assets under management – to reconsider their portfolios. Any large-scale divestment movement beyond campuses, churches, and municipalities will require engaging and persuading firms such as BlackRock, Vanguard, State Street, and Capital Group –each with more $1trn of assets under management – to reconsider their portfolios.”
- Clean energy has come a long way in the past decade – technologically, financially, and in its business models –but..it does not have the scale of other multi-trillion dollar sectors; its equities are liquid but volatile; and its yield instruments are still very small.” Also, “clean energy as an asset class is simply not large enough to absorb substantial amounts of capital divested from fossil fuels“
- What could change this paradigm? 1) scale; 2) investment vehicles; 3) perception
- There are, however, a number of trillion dollar-plus sectors that could absorb divested dollars. The seven sectors below [IT, Pharmaceuticals, Food & Beverage, Engineering, REITs, Automobiles, Industrials] are highlighted to absorb fossil fuel divested capital not just because of scale, but because each also includes companies where minimizing fossil fuel use, creating greater energy efficiency, or manufacturing and servicing a lower-carbon energy system is part of the growth strategy“
Generally speaking, we like this analysis and believe it rings true. The bottom line is that divestment from fossil fuels is absolutely feasible, the only real question being whether there are attractive – and sufficiently large – alternative investment vehicles for that capital. Fortunately, those vehicles are available, and one of them is clean energy itself. Even if clean energy isn’t large enough at the moment to absorb every dollar of divested capital from fossil fuels, that could be the case in the future with increased clean energy scaling, investment vehicles, and positive perception — all of which the industry is working on.
In addition, there are many industries out there, as BNEF points out, that are integrating cleantech into their cost-reduction and sustainability planning. For instance, high-tech firms like Google require enormous amounts of reliable, sustainable, economically attractive energy, which is one big reason why they are shooting to go 100% renewable. And most firms these days realize that cutting energy waste – in their buildings, manufacturing processes, transportation fleets, etc. – is a smart thing to do for their bottom line. All of those areas offer attractive possibilities for investors moving their money out of fossil fuels and looking for alternatives. They also offer the potential for the “trillion-dollar scale” needed to defund dirty energy for good.