GRAY MAGUIRE: UCT’s move against fossil fuel investment signals hardening attitude

After nine years of campaigning, climate justice activists won a largely unheralded but significant battle last week when the University of Cape Town (UCT) council announced that it had agreed in principle to immediately divest from international fossil fuel investments and reinvest in renewable energy and green economy assets.

While only 2.5% of the university’s about R7bn endowment fund is invested in fossil fuels, the move signals a steadily hardening attitude on behalf of investors towards climate inaction from fossil fuel companies.

The council’s decision follows 2021’s submission from the university’s panel on responsible investment of recommendations on fossil fuel investment to the joint investment committee, which cited research on the performance of 7,000 companies over 40 years.

The research found that risk-adjusted returns from investment in fossil fuel stocks are “not significantly different from those of other stocks” and that the screening-out of fossil fuel stocks “has no significant impact on the return and risk of a global well-diversified portfolio of industry indexes”.

Indeed, there is significant evidence to show that continued investment in fossil fuels poses a bigger financial risk than divestment, as anyone who has watched the performance of the MSCI SA ESG leaders index, which explicitly excludes fossil fuel extraction companies, can attest.

This is further supported by a joint report issued in 2021 by the International Energy Agency and the Centre for Climate Finance & Investment Global, which compared the risk-return profile of global and emerging market publicly traded renewable power and fossil fuel companies and found renewable investments generated higher total returns relative to fossil fuel. This is significant for longer-term funds in particular, where the financial argument that the fossil fuel industry is a lower yield and more risky investment is highly relevant.

Rebranding campaigns

Why it took so long for a highly climate-aligned institution such as UCT to finally divest from fossil fuels has much to do with the widely held investment ethos that argues that it is better to maintain a seat at the shareholder table and engage the companies in question than divest and have no say. But there is very little evidence supporting the contention that this approach has any real effect. The reality is that engagement is a time- and resource-intensive process that does not align with the drastic action that must be taken over the next decade if the goals of the Paris Agreement are to be met.

At an international level, companies such as BP have made headlines with rebranding campaigns such as its now infamous “Beyond Petroleum” campaign, all while the industry spends $100m a day on exploration and the development of new fossil fuel resources. In SA, Sasol and PetroSA have both snubbed EU grant funding to trial the development of biofuel investment opportunities. Sasol’s newfound climate ambition to reduce emissions from 64 to 45 Mt CO2e by 2030 is itself based on yet more investment in fossil fuels by the state that will probably lock SA into a gas-based future energy mix.

Similarly, large mining houses continue unimpeded by shareholders to pass on their coal assets to ever smaller and less scrutinised emerging mining firms, which merely shift emissions off their books. How telling that Coronation was the only major fund manager to vote against Anglo American’s unbundling of its coal assets to form Thungela Resources.

Energy minister Gwede Mantashe has been unequivocal in his support for the fossil fuel industry, and not only intends for us to consume established resources but to develop new ones to boot. Fossil fuel companies have in their own right continued to pay lip-service to the need to transition their business models, despite clear evidence that better returns would be achieved through renewable energy resources.

It is high time that longer-term investment funds particularly lead by example and divest.

• Maguire is carbon project manager at Climate Neutral Group SA. He writes in his personal capacity.