Recently there has been a large push among universities to divest their endowments away from fossil fuels, and this is based upon a false assumption that divestment is an effective tool for reducing emissions. Key leaders in the divestment movement have stated that they see energy companies as the biggest opponents to clean energy, and seek to use divestment as a method of both raising awareness of energy company’s high emissions, and also punishing the companies financially for their practices. Divestment alone does not actually produce any emission reductions though, since it ignores basic functions of the market.
In the past, divestment was used as a tool to punish South African apartheid as well as tobacco companies. Actual analyses of the effects of divestment on share prices though show that there was no significant effect of divestment on the share values of targeted companies. When one party divests, the only effect of this is to transfer ownership of shares to a less interested party. By divesting, universities are actually giving up their voice in the energy market, as well as sacrificing the potential fiscal gains from their investments, which could be used to fund clean energy initiatives and research.
Making the divestment movement even less effective is that it is based on the assumption that there are clean energy alternatives to fossil fuel that are readily available. Energy companies, while obviously a major source of emissions, are merely reacting to the conditions of the market. So long as the demand for fossil fuel remains high there will always be investors interested in capitalizing on the market. Divestment has no effect on the market demand, and this is why it fails as a strategy to reduce overall emissions.
If environmentally conscious parties truly want to use their investments as a tool to reduce emissions, they would be better served by using their investments as a voice to influence energy company practices, and to use the financial gains from their investments to fund clean energy. A divestment is nothing more than a political statement, and in terms of effectiveness on climate change it merely serves to harm parties focused on environmental progress rather than advance their cause.
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