Pax Funds has been a leader in “socially-responsible investing” for decades now. Their CEO Joseph Keefe had some good thoughts on portfolio management with regard to divestment or semi-divestment of fossil fuels:
There is some debate within the sustainable investment community about which strategy— divestment or engagement—is best. My own view is that neither strategy is sufficient but both make sense and need to be pursued in tandem. At my company, Pax World, we are pursuing a combination of strategies including(1) partial divestment [we offer a fossil fuel-free fund], (2) investments in energy efficiency, alternative energy and low-carbon technologies, (3) carbon reduction strategies across portfolios, (4) shareholder engagement, and (5) public policy advocacy.The sustainable investment community needs to take such a multi-pronged approach. We can’t let the perfect strategy become the enemy of the good strategy. One can divest fossil fuels and still own a portfolio that remains very carbon intensive. One can engage with companies until the cows come home and make no discernible progress. There is no perfect solution, there are only solutions. What we need to do is design such solutions for investors.
But ultimately he comes out against divestment as being needlessly antagonistic. And after all, if we could pass a carbon tax — perhaps even with their help or acquiescence — then such shareholder activism would be unnecessary! The damage of carbon would be internalized, and the market would work its magic, away from carbon fuels. Invest in whatever, because the price is paid.
So, how do we convince the fossil-fuel industry that a carbon tax is in their interests? In my view, the only way the fossil-fuel industry is going to embrace a carbon tax and leave two-thirds of its known reserves in the ground is if it is paid to do so. Essentially, we need to make it as profitable for them to produce clean energy as it is to produce dirty energy.
That’s environmental economics 101. But I guess my response is that we’re not there yet. An investment in fossil fuels is currently a very dirty proposition. If Keefe is genuinely optimistic that we can get Exxon et al on board with a carbon tax, I’m all ears! That would make my year. Is that realistic? Is it more realistic that a divestment campaign that is, to be certain, currently an awareness and PR campaign more than anything else?
Anyway, there are lots of options and lots of smart people thinking about this exact question. Right now I can’t get beyond the idea that many of our institutions and individuals — well-meaning, all of us — are tied up with an industry that’s leading a worldwide suicide attempt. Like a wolf caught in a trap, I wonder if gnawing our own leg off is the only option.