5 things you need to know about becoming “fossil free” with your money

If you’re wondering whether your stock market investments are damaging the Earth, maybe the time has come to understand why many organisations are divesting from this sector and why “fossil free” indexes exist. The latest example comes from Australia in the form of the Fossil Free Index created by Thomson Reuters and Future Super –

If you’re wondering whether your stock market investments are damaging the Earth, maybe the time has come to understand why many organisations are divesting from this sector and why “fossil free” indexes exist. The latest example comes from Australia in the form of the Fossil Free Index created by Thomson Reuters and Future Super – the first major Australian pension fund not investing in the fossil fuel industry.

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Heightened awareness about investing in sustainable businesses is partly attributable to the Divest from fossil fuels campaign promoted by 350.org, which calls on multinationals, institutions, insurance companies and foundations to divest from fossil fuels.

What’s new is that divesting from fossil fuels is rapidly turning from an ethical choice to one that makes sound financial sense. As John Quiggin suggested in 2014, “the cold hard numbers of putting money into fossil fuels don’t look good.” A large part of the scientific community and even the International Energy Agency say that to avoid the dangerous effects of climate change we have to leave most of the fossil fuel resources not already exploited in the ground. And that we have to stop burning the fossil fuels already found, immediately.

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What does fossil fuel divestment mean?

Divestment is the opposite of investment: it’s the removal of invested capital from shares, bonds or funds. The global movement for fossil fuel divestment calls on institutions to move their money out of oil, gas and coal companies for moral and financial reasons.

Why divest?

Virtually all the reasons for divesting from fossil fuels are based on moral or financial arguments. The moral reasoning is basically rooted in numbers. Scientific research shows that to meet the target of a rise in global temperatures that doesn’t exceed 2ºC in order to avoid climate catastrophes we need to keep under ground between 2/3 and 4/5 of currently available fossil fuels. From a financial point of view, the reasoning is that fossil fuel investments will fall in value if the global community reaches a climate agreement.

Who has divested?

More than 220 institutions globally have committed to some form of fossil fuel divestment, including pension funds, foundations, universities, faith organisations and local authorities. For example, divestment is being carried out by a coalition of philanthropic foundations that includes the heirs to the Rockefeller oil fortune, and cities such as San Francisco, Seattle and Oslo. The world’s largest sovereign wealth fund, Norway’s Government Pension Fund Global (GPFG), recently revealed it has withdrawn support for 114 companies, including tar sands producers, on climate grounds.

Isn’t it hypocritical since we all use fossil fuels?

Most of the goods and services that we use in our daily lives, from heating to plastics, derive from fossil fuels. But the movement against investing in oil, gas and coal maintains that fossil fuels are pushing us towards an unprecedented climate crisis and that the world needs to change paradigm rapidly by backing renewable energy sources.

Is my money invested in fossil fuels?

Almost certainly. Most major banks have millions invested in fossil fuel companies. Most investment funds, including the trillion-dollar pensions industry, heavily invest in fossil fuels and fail to offer fossil free options even though demand is increasing. You can get information on all funds from Morningstar and find out more about responsible investment from Finanza sostenibile.

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