As new evidence emerges internationally to show the efficacy of fossil fuel divestment for accelerating the global struggle to limit climate breakdown, Fossil Free SA has released its first report surveying SA institutions attempting to divest.
Following a long-standing campaign by students and Fossil Free South Africa, the University of Cape Town (UCT) made a formal commitment to divestment in March 2022. The university has already made significant strides in implementing this commitment.
At the time of UCT’s divestment commitment in March 2022, the endowment’s investments in fossil fuels amounted to around 3.6% of the total of R5.1 billion with allocations of 0.4% to local renewable energy. In line with UCT’s declared strategy of beginning the divestment process with offshore assets, the university reduced its fossil fuels exposure to around 2.3% towards the end of September 2022. In addition, the university committed a significant amount (greater than 1.5%) to fund local infrastructure opportunities, which include renewable energy, waste to energy and water in South Africa.
“We were ecstatic when UCT made the commitment,” says Fossil Free South Africa Coordinator David Le Page, “but we were concerned that it would require the same level of ongoing pressure to ensure they lived up to their promises. The conversation is far from over – UCT must now also drop its Sasol shares – but we are happy to see the university taking the lead in making swift progress and focusing on local renewable infrastructure.”
Divestment in South Africa beyond UCT
Several other institutions including the City of Cape Town and the Anglican Church of Southern Africa have to various degrees advanced their own commitments.
- The Anglican Church of Southern Africa: Has divested from all coal products and has reduced their investments in petrochemical shares. “We still have some way to go on this,” says principal officer Rob Rogerson. “However, we have already divested approximately R50 million of fossil fuels [from our R1.5 billion portfolio] and have also invested in renewable energy through bond offerings.”
- The City of Cape Town: Committed to divestment in 2017: “As the City was never invested in prohibited investments there was no need to disinvest. Whilst the City has updated mandates of fund managers it has not dealt with the independent pension funds.” The City says it has updated fund manager mandates and shared information with independent pension funds
- Inyathelo, the South African Institute for Advancement: Took a decision to sell shares in a company that has significant fossil fuel implications. It was further decided that no further investments would be made in fossil fuel companies.
- The Lewis Foundation: Has completely divested from Sasol.
- The ArchDiocese of Cape Town: No longer directly invests in energy or mining companies that produce or process fossil fuels.
Sadly, despite repeated efforts, we were unable to get any response on progress made on divestment by Durban, which committed to divestment in 2020.
Fossil fuel divestment is especially difficult in South Africa
Divestment is challenging in South Africa because our economy is so carbon-intensive, our financial markets are relatively small, while most ethical investors have limited financial clout and are forced to take positions in collective investment funds that are invested in fossil fuels. Only two investment funds that we are aware of substantially limit exposure to fossil fuels, the two-year-old Select BCI ESG Equity Fund, and the more established Sanlam Living Planet Fund.
Fossil Free SA recognises that divestment decisions are not always black-and-white. For example, both the above funds include investments in BHP Billiton which continues to mine some thermal coal.
It is not always easy for equity-only funds to re-investment in renewables, nor how to determine the end point of divorced association from fossil fuel companies. Index funds leave fund owners little wriggle room. However, these challenges are not a reason to shy away from divestment but rather a sign that the movement must continue to grow so that options can expand and further material financial implications to these companies are seen. This is already the case on a global scale.
But divestment does work
There is much evidence that fossil fuel divestment is an effective challenge to the power and influence of fossil fuel companies, and the most responsible action for investment managers seeking to safeguard the interest of investors. For example:
- Since its inception in 2012, the S&P 500’s Fossil Fuel Free Total Return Index has consistently outperformed the S&P 500 overall.
- Fossil fuel companies are fighting both direct divestment and indirect divestment via ESG funds. They wouldn’t do this if divestment did not affect them.
- Divestment’s key non-financial effects include the effective stigmatisation of fossil fuel companies.
- An article published in the Financial Times on April 10, 2023 reported on a recent study that suggested that “the rising number of funds pledging to dump investments in carbon-intensive companies has led to more market participants grappling with the risks of holding fossil fuel assets.”
- The FT report further suggested that, “Fossil fuel divestment pledges by investors including sovereign wealth funds, trusts and foundations which gain traction on social media have an outsized impact on carbon-intensive companies, wiping billions off their market value.” It cited a powerful example: Ireland’s parliament, which “voted to divest from fossil fuel companies”. This saw $14bn, or 3.1 per cent “wiped off the collective market value of the biggest US oil, gas and oil companies.”
- According to Richard Brooks, climate finance director at Stand.earth, who was quoted in the FT article, this peer-reviewed study has proven the short-term financial impact on fossil fuel companies due to divestment commitments. This, says Brooks, “counters one of the main, regular arguments against divestment”, which suggests it is better to keep fossil fuel investments in order to change the ways fossil fuel companies operate.
Author and 350.org co-founder Bill McKibben explains that divestment has “become by some measures the largest anti-corporate campaign of its kind in history, with $40 trillion in endowments and portfolios joining in.”
According to Brooks, divestment “has become a force that is now a material risk for fossil fuel companies”. South Africa is already on a trajectory with the rest of the world. The question remains whether or not local funds and asset managers will respond in time.
|For more information or to organise an interview contact David Le Page on firstname.lastname@example.org / +27 84 522 0968, or Sarah Robyn Farrell at email@example.com / +27 83 409 5557