There’s a fascinating illogic in the divestment movement, which illuminates a major problem with anti-fossil fuel efforts. Activists push for universities and pensions to divest from traditional fuel extraction and processing companies under the argument that it’s wrong to profit from these fuels.

But oil and natural gas are critical components of all stocks. They underlie millions of consumer and industrial goods, make modern health care possible, make up the laptops and fiber optic cables of tech companies, fuel the transportation industry, and enable agriculture to get to market, to name just a few categories. Even solar panels and wind turbines are made with oil and gas products.

Divestment activists are limiting their calls to fuel production companies because otherwise there would be literally no stocks left to invest in.

 Fossil fuels make modern life possible, and any attempt to “divest” from them is at best symbolic and at worst hypocritical.

Nonetheless, activists have focused on universities and pensions as the next battlefield for oil and natural gas divestment efforts. But while these activists gain fame and funding, they aren't paying the price for their ill-considered actions. That burden falls upon the students and pensioners, who have to live with the higher costs and lower returns that result from such divestment. Long after the activists have declared victory and moved on, students will be paying higher tuition costs and pensioners enjoying a lower quality of life as a result of these misguided (but fervent!) activists.

Luckily, most organizations are rejecting this expensive—and hypocritical—symbolic act.

What Others Have Said About Divestment



Divestment's Inconvenient Truths

Want to learn more about the follies of divestment? Check out these pieces:

Divestment Proponents’ Dirty Secret

Divestment activists are a lot like self-righteous vegetarians who eat bacon cheeseburgers when no one is looking.

They call on others to divest from oil and natural gas and to “keep it in the ground, but they don’t—and frankly they can’t—practice what they preach.

They buy gasoline to drive to anti-oil rallies which they coordinate using their laptops. They record their protests on their phones; use pens to gather signatures; and sport faux-leather shoes and sunglasses … and all of these products are made from petrochemicals derived from oil and gas. Even the solar panels and wind turbines they agitate for are derived from oil and gas.

And that’s the unfortunate truth of the divestment movement: they happily encourage others to sacrifice income, health, opportunities, and convenience to help them reach their political goals … but they don’t practice what they so shrilly preach.

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The Inelastic Demand

Think back to your high school economics class. Remember that supply-demand chart? And remember that question about what happens when there’s an inelastic demand, but the supply goes down? Answer: prices go up.

This is the unfortunate truth so often ignored by the “Keep It in the Ground” crowd. They’d like you to believe that “keeping it in the ground” would result in a cleaner world. This is, at best, stunning economic illiteracy. And at worst, these activists are deliberately misleading the public in order to achieve their extremist political goals.

Because the truth is that fossil fuels don’t just create the car, bus, jet, and truck fuels that drive our modern transportation system for people and goods. They also are the building blocks for everything from IVs to cell phones to seat belts. Everything plastic comes from petrochemicals, as do medicines, clothes, insulation, packaging, and tires (to name but a few of the literally millions of items that can only be derived from fossil fuels).

So our demand for fossil fuels is pretty darn inelastic. We need to move goods and people. We need to create and buy medicines, clothes, home goods, and safety gear.

And what happens if the “Keep It in the Ground” activists succeed in limiting the supply? Prices will go up. Consumers—especially low-income families with less disposable income—will pay the price for the activists’ actions. And consumption of fuel and the countless essential goods that are derived from oil will continue unabated, because our lives literally depend on it. So the environmental gains that are the ostensible goal will not be achieved. 

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The Divestment Distraction

Divestment activists are a bit like the drunk who looks for his keys under the streetlight, instead of where he dropped them, because “the light is better here.”

These activists know that every one of us relies on oil and natural gas—and the petrochemicals derived from it—for every aspect of our lives. And they also know that trying to convince students to give up their cell phones or pensioners to give up modern medicine in the name of fighting climate change would expose the ridiculousness of their “keep it in the ground” rationale.

So they have taken their campaign “to the streetlight” by pressuring institutional investors to give up the reliable returns that oil and gas companies provide investors. Even the activists themselves admit that such campaigns are purely symbolic and will have no impact on their stock value. But it will affect the companies’ reputations, which is their real objective.

The logic goes as follows: If organizations dump their investment in fuel extraction and production companies, they will send a message that the fuel industry is bad, which the activists themselves acknowledge is nothing more than a symbolic action.

Unfortunately, the economic consequences of divesting from carbon fuels are all too real—and students, pensioners, and shareholders are the ones to pay for activists’ ignorance.

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The Immorality Argument

The latest mantra from the “Keep it in the Ground” crowd is, “If it’s immoral to damage the environment, then it’s immoral to invest in companies that damage the environment—we need to Keep It in the Ground.” It’s catchy, right? Almost intuitive. Too bad it’s a ridiculous argument.

The first big flaw is that the vast majority of emissions comes from the consumption—not the extraction—of oil and natural gas. So the argument would then go, “If it’s immoral to damage the environment, then no one should use fossil fuels.”

Which is where the second big flaw comes into play. Because it assumes a single metric of morality. Oil and gas are used to provide affordable heat and electricity around the world. The petrochemicals derived from them make modern medicines, cell phones, seat belts, sanitary food packaging, and car seats, to name but a few of literally millions of products that enrich our lives. Are these products—that save millions (if not billions) of lives a year—immoral?

There are currently no replacements for the affordability and versatility of fossil fuels. Even solar panels and wind turbines are made from them.

So anyone urging you to “divest” from fossil fuels and just “Keep It in the Ground” are either ignorant or misleading you to further their own extremist goals. Regardless, morality has nothing to do with it.

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The Flawed Economics of Divestment

Campaigns to coerce universities, pensions, and institutions to divest from the oil industry are breathtaking examples of economic illiteracy.

Divestment campaigns generally look to divest from fossil fuel extraction and production companies. Even ignoring the economic reality that other investors will immediately snap up their stocks (thereby inflicting zero economic damage on the companies people divest from), there’s a bigger problem: they are divesting from the supply side, but continue to invest—and perhaps expand investment in—the demand side.

Most people fail to understand exactly how critical a role petroleum products—and the petrochemicals extracted from them—play in modern life.

At the most basic level, there are fuels. These include not just the gasoline for cars and buses but also the tractors and combines used by farmers to grow and harvest crops; the truck and airplane fuel that carries goods across the country (as in, anything you’ve ever ordered from Amazon); the fuel that heats millions of American homes every winter; and the fuel for generators that keep hospitals running even during power outages.

But that’s just the beginning. There’s more in a barrel of oil than just fuel—the rest is turned into the building blocks for literally millions of modern-day essentials. These include anything made with plastic (inhalers, food containers, keyboards, MRIs), synthetic materials (seat belts, clothes, tennis shoes), and chemical compounds that create everything from disinfectants to cell phones. Ironically, even solar panels and wind turbines are created from fossil fuels.

The omnipresence and importance of carbon fuels means that divestment efforts are fundamentally flawed because there is no way to divest from fossil fuels, either personally or institutionally. Short of reverting to a pre-industrial lifestyle, no one can live without utilizing fossil fuels. And no investment is fossil-free—no company can function without consuming fossil fuels and therefore supporting the companies extracting and producing it.

But the bigger point is this: fossil fuels provide reliable, affordable energy and chemical building blocks—two things that currently cannot be replaced by any other energy source. So attempting to demonize a critical part of modern life is not only futile but an unfortunate waste of time, money, and effort that could be directed to more productive environmental efforts.

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Beware Simple Solutions

While there is a certain appeal in labeling one industry as the “villain” in climate change discussions, this oversimplification falls apart under closer scrutiny.

First off, companies are extracting oil and natural gas for one simple reason: modern economies, lifestyles, and medicines all require the energy and chemical building blocks that come from these fuels. This irrefutable fact is ignored or misunderstood by divestment and “Keep It in the Ground” activists.

While it’s certainly more comfortable to blame an amorphous corporation, the truth is that we all rely on fossil fuels. They not only fuel cars and provide electricity for our homes, but also create plastics (think IVs, water pipes, cell phones), synthetic materials (seat belts, memory foam, waterproof jackets), and chemicals that create literally millions of products that make modern life possible.

The fact is fossil fuels provide huge benefits to society. Children are saved every day by medicines, car seats, and the sanitary food packaging that all come from oil and natural gas. Our modern agriculture, transportation, and commercial infrastructure would grind to a halt without these fuels, as would the fledgling alternative energy industry— solar panels and wind turbines can only be created from petrochemicals.

Producers, refiners, and transporters are meeting a need—and as long as consumers want the economic, health, and security benefits of modern life, then the market will continue to meet it. The questions at hand are whether we’d prefer to get our energy from domestic or foreign sources, and how much we would be willing to pay for it. 

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Divestment’s Inconvenient Truth

There’s a fundamental flaw in fossil fuel divestment efforts: they pretend that their divestment campaign will force oil companies to keep oil and natural gas in the ground.

The reality is that oil and natural gas—both as fuels and as the petrochemicals derived from them—are inextricably intertwined with every aspect of our economy and personal lives. It is literally impossible to find a single company that exists without using them or a person whose life has not been made better by them.

Divestment efforts are not only inherently ineffective (after all, there are always other investors more than willing to buy up the divested stocks), but they hurt the pensioners and students who are directly affected by the diminished value of their pension funds or university endowment.

That’s a high price for students, pensioners, and investors to pay for what is nothing more than a PR campaign.

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What Others Have Said About Divestment

“In our judgment, the deliberate public act of divestment would entangle MIT in a movement whose core tactic is large-scale public shaming…This would retard rather than encourage the open collaboration and ability to hear new ideas that are central to our research relationships, central to our ability to help government and business think creatively together, and central to our ability to convene and inform the thinking of those with opposing views.”
MIT President L. Rafael Reif, October 2015
“We’re sitting in a room that’s heated and lighted, and when we drive to where we go, we use fossil fuels, it seems to me that it would seem to be hypocritical to say, ‘we’re going to divest from the companies we rely on for the energy, what we need to do business.’”
Notre Dame President Rev. John I. Jenkins, February 2015
“American dependency on fossil fuels dominates every facet of businesses both willing and unwilling to engage in alternative energy solutions. Without an alternative, the motivation to surrender an extremely lucrative and foundational endeavor complicates any incentive to change. Divestment in this situation is akin to asking a coffee shop to stop serving coffee.”
California CalSTRS, August 2013
“The endowment is a resource, not an instrument to impel social or political change. …I also find a troubling inconsistency in the notion that, as an investor, we should boycott a whole class of companies at the same time that, as individuals and as a community, we are extensively relying on those companies’ products and services for so much of what we do every day.
“Given our pervasive dependence on these companies for the energy to heat and light our buildings, to fuel our transportation, and to run our computers and appliances, it is hard for me to reconcile that reliance with a refusal to countenance any relationship with these companies through our investments.”
Harvard University President Drew Faust, October 2013
“Every member of the Board has a fiduciary responsibility to his systems’ investments. With PRIT showing an annualized return of ten percent or better on funds invested in oil or gas by their investment managers, it would be a violation of their duty to tell their managers to remove fossil fuel equities from their fund.”
Massachusetts MACRS President Denis Devine, September 2013
“It seems unlikely to us that divestment from fossil fuel would ‘revoke a social license’ when we continue to use fossil fuels day after day in every aspect of our lives.”
Columbia University Advisory Committee on Socially Responsible Investing, February 2015
 “I’ve been involved in five divestments for our fund. All five of them we’ve lost money, and all five of them have not brought about social change.”
CalSTRS Chief Investment Officer Chris Ailman, June 2015
“If you go to some of the biggest assets in our portfolio, Chevron, Exxon Mobil, you see they are not just a fossil-fuel company. They are involved in solar, they are involved in natural gas. You can’t just turn off the spigot to fossil fuels and turn on something else.”
California San Francisco’s Employees Retirement System Officer Brian Stansbury, October 2013

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