Divestment
Definition(s)
Divestment refers to the action taken by an institution (i.e. a business, university/college, government, etc.) to withdraw money invested in a company or country. This withdrawal could take many forms, including, but not limited to, selling off subsidiaries, investments, or other assets. Often divestment is carried out for a financial, ethical or political objective.[1] In the context of environmental law and policy, the term divestment is used when an entity transfers money invested in fossil fuel companies to non-fossil fuel companies.[2]
History
The fossil fuel divestment movement has its origins in university/college campuses across the US, and has spread across the globe over the past decade. In 2012, the Unity College in Maine was the first higher education institution to divest its endowment funds from the fossil fuel industry.[3]
Since then, the impact of fossil fuel divestment has exponentially grown worldwide. As of 2021, over 1,485 institutions (i.e., faith-based organizations, educational institutions, pension funds, charities, governments, etc.) across 71 countries have divested an astounding $39.2 trillion worth of assets from the fossil fuel industry.[4]
Arguments for divestment
Advocates for divestment rely on economic, moral, and more recently, legal arguments. From an economic perspective, institutions should divest from fossil fuel assets to avoid the risk that these assets will significantly decline in value in the future as a result of the “stranded asset” scenario. A “stranded asset” occurs when a fossil fuel companies’ reserves are written off by the company because they have been deemed unusable and unsustainable and have declined in value.[5] “Stranded assets” are caused by a global trend towards reducing carbon emissions, and a transition to non-fossil fuel energy sources.[6]
From a moral perspective, institutions should divest from fossil fuels because they have a responsibility to not invest in energy sources that contribute to global warming, and a responsibility to ensure a ‘livable’ future for the planet and humanity.[7] Another moral argument is that institutions should not invest in the fossil fuel industry because Black, Indigenous and People of Colour (BIPOC) communities – both in Canada and internationally – face a disproportionately high likelihood of risk from the negative impacts of fossil fuel pollution – on their health, safety, cultures, and socio-political fabrics.[8]
A legal argument commonly invoked is that investing in fossil fuels is a breach of the fiduciary duty of investors, as the fossil fuel industry faces risk and uncertainty due to multiple and overlapping institutional changes (ex. market shifts to low-carbon energy sources, emissions regulations, lawsuits).
According to President Lawrence Bacow (of Harvard University), in the context of university-level divestment cases, a breach of fiduciary duty is a breach of an educational institution’s duty to its members to “…make long-term investment decisions that support [the institution’s] teaching and research mission.”[9]
To date, the divestment movement has rarely used court litigation to pursue its aims. Traditionally, the fossil fuel divestment movement has advanced its aims through methods such as direct action (i.e., protests) and public pressure or persuasion campaigns. Such efforts have been targeted to institutions such as post-secondary educational institutions, banks and financial institutions, religious institutions, governments, pension funds, and charitable organizations and with significant success.
One recent example of a case where legal arguments were invoked in support of divestment is Harvard Climate Justice Coalition et al. v President and Fellows of Harvard College et al. (2015). In this case, students brought a claim to the Massachusetts Superior Court, seeking an injunction requiring Harvard University to divest and sell its holdings in fossil fuel companies. Students and environmental groups argued that by investing in fossil fuels, the University was breaching its fiduciary duty to act in the best interests of its members. Students and environmentalists were unsuccessful in their claim. However, after public pressure and potential threat of further lawsuits, in 2021, Harvard committed to divest its endowment of fossil fuel companies.
Harvard Climate Justice Coalition et al. v President and Fellows of Harvard College et al. (2015)
Overview:
A group of seven law, undergraduate and graduate students from Harvard University (part of the organization “Harvard Climate Justice Coalition”, or the “plaintiffs”), in 2014, sued the Harvard University and Harvard Management Company (collectively ”Harvard” or the “defendants”) for their investments in the fossil fuel industry. The plaintiffs sought an injunction requiring Harvard to both sell off its direct holdings in fossil fuels, and to divest itself of its indirect holdings in such companies.
Arguments of plaintiffs:
- Harvard should not be investing in a fossil fuel industry which contributes to anthropogenic climate change.
- Harvard is mismanaging its charitable funds by investing in companies because fossil fuel investments don’t allow members of the charity (students) to enjoy the benefits of Harvard’s “charitable activity.”
Arguments of defendants:
Members of a charitable organization do not have the right to sue their organization for a mismanagement of funds – this right belongs exclusively to the Attorney General of Massachusetts.
Held:
Lawsuit dismissed by Massachusetts Superior Court. The Court found that the individual students do not have standing to bring the suit, as they were not specifically and personally affected by the investment decisions. The Court of Appeal confirmed the decision.[10]
Aftermath:
- Early 2021: Students, professors and alumni from Harvard submit a legal complaint to the office of Attorney General Maura Healey; argued that a state law in Massachusetts dictates particular charitable responsibilities to all non-profit societies.[11]
- September 2021: Harvard University, after public pressure and potential threat of further lawsuits, commits to divesting its endowment of fossil fuel companies.[12]
Despite the plaintiffs’ loss in court in the Harvard case, the potential for divestment advocates to use the legal system is not completely lost. Since Harvard University’s decision to divest from fossil fuels in September 2021 – called a ‘watershed’ moment by advocates – student climate organizers from other U.S. universities (i.e., Yale, Stanford, MIT, Princeton, Vanderbilt) have filed legal complaints to push divestment through state laws governing non-profit societies.[13]
[1] Cornell Law School, Legal Information Institute, “Divestment” (January 2022), online: https://www.law.cornell.edu/wex/divestment#:~:text=In%20business%20law%2C%20divestment%20is,sale%2C%20closure%2C%20or%20bankruptcy.
[2] Divest UVic, “About Divestment” (n.d.), online: https://divestuvic.com/about-divestment/
[3] Unity College, “Divestment from Fossil Fuels” (2022), online: https://unity.edu/about/reinventing-college/sustainability-science/divestment-from-fossil-fuels/.
[4] Stand.earth, “Divest Invest 2021 Report” (October 2021), online: https://old.stand.earth/sites/stand/files/divestinvestreport2021.pdf.
[5] Mercure, J. F. A., Pollitt, H., Viñuales, J. E., Edwards, N. R., Holden, P. B., Chewpreecha, U., Salas, P., Sognnaes, I., Lam, A., & Knobloch, F. (2018). Macroeconomic impact of stranded fossil fuel assets. Nature Climate Change, 8(7), 588-596. https://doi.org/10.1038/s41558-018-0182-1; Mercure, JF., Salas, P., Vercoulen, P. et al. Reframing incentives for climate policy action. Nat Energy 6, 1133–1143 (2021). https://doi.org/10.1038/s41560-021-00934-2.
[6] Fiona Harvey, “’Carbon bubble’ poses serious threat to UK economy, MPs warn” (6 March 2014), Guardian, online: https://www.theguardian.com/environment/2014/mar/06/carbon-bubble-threat-uk-economy-fossil-fuels-mps.
[7] Alex Lenferna, ‘Divest–Invest: A Moral Case for Fossil Fuel Divestment’, in Ravi Kanbur, and Henry Shue (eds), Climate Justice: Integrating Economics and Philosophy (Oxford, 2018; online edn, Oxford Academic, 22 Nov. 2018), https://doi.org/10.1093/oso/9780198813248.003.0008 (Accessed 27 Nov. 2022).
[8] Shiri Pasternak and Hayden King, “Land Back: A Yellowhead Institute Red Paper” (October 2019), Report, Yellowhead Institute: https://redpaper.yellowheadinstitute.org/wp-content/uploads/2019/10/red-paper-report-final.pdf; Adrian Wilson et al., “Coal Blooded: Putting Profits Before People” (2012), online report, National Association for the Advancement of Coloured People (NAACP): https://naacp.org/resources/coal-blooded-putting-profits-people.
[9] Climate Defense Project, “Harvard Divests from Fossil Fuels, Citing Fiduciary Duty” (16 September 2021), Climate Defense Project, online: https://climatedefenseproject.org/harvard-divests-from-fossil-fuels-citing-fiduciary-duty/.
[10] Harvard Climate Justice Coalition et al v. President and Fellows of Harvard College (Massachusetts Superior Court 2015), online: http://climatecasechart.com/wp-content/uploads/sites/16/case-documents/2015/20150317_docket-2014-3620-H_memorandum-of-decision.pdf; Harvard Climate Justice Coalition et al v. President and Fellows of Harvard College (Massachusetts Appellate Court 2016), online: http://climatecasechart.com/wp-content/uploads/sites/16/case-documents/2016/20161006_docket-15-P-905_opinion-and-order.pdf.
[11] Sabrina Shankman, “After nearly a decade of resistance, Harvard divests from fossil fuels” (10 September, 2021), Boston Globe, online: https://www.bostonglobe.com/2021/09/10/science/after-nearly-decade-resistance-harvard-divests-fossil-fuels/.
[12] President and Fellows of Harvard College (2021), online letter: https://links.repoint.harvard.edu/servlet/MailView?ms=MzM2NzA0MDUS1&r=MTYxNjUxMDM3NzE0S0&j=MjAyNDE3MjgwMgS2&mt=1&rt=0.
[13] Chris McGreal, “Yale, Stanford and MIT’s fossil fuel investments are illegal, students say” (16 February 2022), Guardian, online: https://www.theguardian.com/environment/2022/feb/16/us-universities-fossil-fuel-divestment-students-legal-complaint.