Some questions to consider on fossil fuel divestment and shareholder engagement

John Sealey

My comments reflect on some uniquely Ignatian considerations, challenges and opportunities, regarding divestment and active shareholder engagement strategies. I hope these provide perspectives other than those that take vociferous and binary approaches toward the fossil fuel reallocation question.

Previously, I shared the need for patient trust in the active engagement in fossil fuel divestment and reinvestment in other sources, and the response of the Jesuit Committee on Investment Responsibility (JCIR).

Some questions in considering the divestment strategy

Does d ivestment sever a possible relationship that has the potential to change hearts?

We know that one of the earliest ministries of the Society is to “reconcile the estranged” which always leaves open a door to dialogue. Some Jesuits and lay leaders bristle at the word “divestment” which seems to carry for them a negative connotation, a termination of a relationship and with it the potential for redemption.

Perhaps, if the tone is too clamorous or righteous, it can feel overly didactic like “excommunication.” Ignatian discernment nuances that the good Spirit touches the soul gently, tenderly, and sweetly, as a drop of water entering a sponge. But the evil spirit touches it sharply with noise and agitation, like a drop of water hitting upon a rock.

However, if a shareholder relationship with a fossil fuel corporation is terminated through divestment, there are perhaps remaining or even new relationships that can be explored in a civil society, as we are all stakeholders living in the fossil fuel footprint.

Can we help educate, convene, and work cooperatively with consumers or citizen groups? Or can we leave open to door to possible reconsideration should a company make significant changes in its fossil fuel business practices? These are just a few possibilities to retain the principle of dialogue and reconciliation.

Does divestment run the risk of blunt oversimplification that might be dismissed as unrealistic?

Paul Younger, energy engineering professor at the University of Glasgow, wrote a feature article in the British Jesuit weekly, The Tablet, titled Carbon: problem … and solution. He argues that renewable systems are not yet in place to handle immediate de-carbonization, that in this way we cannot “have something for nothing.” Therefore, according to Professor Younger, fossil fuel divestment is not “simple” in a way that it was for apartheid or tobacco as blame not only lies with companies, but also with the dominant global economic systems.

Can the divesting institution publicly express its position in a way that is neither simple nor strident?

In his excellent paper, A Model of Ignatian Advocacy, British Jesuit Frank Turner suggests that Ignatian advocacy, be it policy or corporate, should be both critical and constructive. Criticism implies something needs to be changed but advocacy is more than comment alone, says Turner. If we divest, how can the process be transformational and not only a slogan or a condemnatory part of a mass movement?

Some questions in favoring active shareholder engagement

Is the institution willing to commit to a long, incremental work of shareholder engagement to help companies move toward cleaner alternatives?

I should note that our host, Loyola University Chicago (LUC), has a shareholder advocacy record. LUC went so far as to initiate a shareholder dialogue with JP Morgan Chase regarding financial capitalization of mountaintop removal coal mining, so it can be done but it is rare in the higher education sector.

Does the institution have the capacity to undertake shareholder advocacy?

Voting proxies is a minimal starting point. I would encourage all proxy votes in favor of stronger carbon reductions and green energy investment with other sectors such as big box stores, banking, food retailers and automotive.

In his rules for discerning new ministries, Saint Ignatius invites us to consider: “What is truly possible? What is not being addressed by others? What kindles our strongest passions? What is likely to succeed? What will benefit the most people?”

Using these questions, can the institution go beyond proxy voting to join or lead dialogues, press for change at annual meetings, file shareholder resolutions, commit thought leaders to join with others in the faith and social investment community?

Looking back on my experience of long human rights engagements with the oil and gas sector (namely Chevron and OXY), I have some growing doubts that traditional shareholder advocacy alone can alter the core business models of the major fossil fuel extractives, particularly given our relatively limited time frame (15 to 20 years) and to stay within the International Energy Agency assessment that “no more than 1/3 of proven reserves of fossil fuels can be consumed prior to 2050 if the world is to achieve the 2 degrees Celsius goal.”

While there are some movements toward renewables by oil and gas companies, I wonder whether this amounts to “window dressing” particularly when this outlay is compared to the investments in political lobbying expenditures to maintain current state of affairs, not to mention exploration of new reserves.

On 7 January 2015, Reuters reported that investments in new exploration will sag 17% (to US$571 billion) in the coming year due to the crude oil price slump. Shareholder pressure was not mentioned as a reason for curbing new exploration.

According to the US Securities and Exchange Commission (SEC) Rule 14a-8 of the Securities Exchange Act of 1934, stockholder resolutions can petition some board actions but other content is disallowed. For instance, stockholder resolutions can ask for reports regarding stock valuation threats from potentially trapped carbon assets or oil spills and country risk reports regarding areas of weak governance. Resolutions can request lobbying disclosures or corporate policies for water use, human rights, and rights of indigenous communities. Such resolutions frame and set boundaries for the ensuing dialogue.

A resolution can be excludable when it deals with matter relating to the company’s ordinary business operations. For example, Monsanto could easily dismiss a stockholder proposal that simply calls on the company to end production of GMOs; however, shareholders could petition for a report on financial risks of GMO seed contamination as a way to address this issue.

In the climate change area, there are some successes according to Ceres, a non-profit organization with a coalition advocating for socially responsible investment (SRI) and sustainability leadership in the business sector, as 71% of non-fossil fuel companies have taken steps to reduce carbon emissions, often through productive shareholder engagement.

Yet in the fossil fuels sector, there is little to show. In September 2013, a group of 70 institutional investors (mostly from the US and Europe) with an accumulated US$3 trillion in assets called on 45 fossil fuel giants to respond to the potential share devaluation in the event of stronger carbon regulations or competition by renewables. Most coal and coal fired utilities did not respond, and while most oil and gas companies did respond, they generally dismissed the threat, feeling secure that status quo would remain firmly in place.

The overall dismissal of the inquiry by coal, as well as a thin track record of SRI engagements, is especially disconcerting as the US Department of Energy ranks coal as the dirtiest energy source and the greatest contributor to global warming, asserting that coal-fired power plants are responsible for the vast majority of carbon dioxide pollution since 1990.

Can we use our investor place at the table to promote greater transparency from fossil fuel companies?

Jesuit social analysis calls us to seek out the truth of the situation and elucidate the “national reality,” in the words of Jesuit martyr Father Ignacio Ellacuria. The fossil fuel sector not only produces fuel but also produces public policy, absorbs scarce government investment, and at times, generates mis/disinformation that confused public opinion, obscured the truth, and created political wedges to divide voter bases.

On 14 September 2012, the New York Times reported that with less than two months before the 2012 presidential election, the “estimated spending on television ads promoting coal and more oil and gas drilling or criticizing clean energy had exceeded $153 million” [and] that “the American Petroleum Institute, backed by the nation’s largest oil and gas companies,” was the top energy spender.

An often quoted 1969 internal memo from a Brown and Williamson tobacco executive said, “Doubt is our product since it is the best means of competing with the ‘body of fact’ that exists in the mind of the general public. It is also the means of establishing a controversy.”

Have not the same dynamics been in play when it comes to climate change disinformation?

In his well- known paper, “Men and Women for Others” (1973) Jesuit Superior General Father Pedro Arrupe concluded with some practical advice for how one might become such a person: “To be just, it is not enough to refrain from injustice. One must go further and refuse to play its game… How do we get to this principle of justice?… First, live more simply. Second, a firm determination to draw no profit whatever from clearly unjust sources…”

Given what we know in terms of proven carbon reserves and time horizon, is it too strong to say that we are passing from naiveté (unfounded optimism on current strategies) to perhaps adopting more volitional participation with or consent to profit from destructive forces?

The termination of a relationship is sometimes warranted. The La Oroya copper smelter in Peru owned by a US private equity group, brought some local jobs but also created one of the 10 most polluted places on earth and was temporarily shut down by a Church-led campaign. On the eve of its 2012 reopening, Jesuit Archbishop Pedro Barreto (Huancayo) said “The biggest threat to our lives is to continue to accept the pollution of the atmosphere, lead in the blood of our children and to know that the future will not be better after all this contamination.” Two days later, he and his team received death threats.

Final thoughts

The JCIR’s mission is not to prescribe one strategy over another and our present mandate is only to pursue active engagement and the discernment paper, which is still under construction.

Given the unique institutional relationships, proficiencies, and cultures, Jesuit institutions and other religious investors will arrive at different strategies to address the complex concern.

As we look across institutions, let the Ignatian principle of presuming the best in one another be our modality. Working with our stakeholders and boards, we will discern various methods – active SRI for some, reallocation by others, and hopefully a commitment to explore renewable energy investments by all. Yet our witness will be stronger working together than allowing ourselves to be divided on a tactical point.

Speaking with our six Midwest university delegations whom I know best and thank for the opportunity to be here, each institution has unique strengths and gifts which can move us forward: University of Detroit Mercy (community engagement), Creighton University (education for advocacy), Xavier University (sustainability), John Carroll University (collaborative partnerships and networking), Loyola University (the creative edge of the International Jesuit Ecology Project), and Marquette University (peacekeeping and restorative justice).

We know from our own experience that contact with innocent suffering can be a potent catalyst for solidarity and personal conversion (from The service of faith and the promotion of justice in American Jesuit higher education [The Santa Clara Lecture] by Fr Hans-Peter Kolvenbach).

Let us bring the experiences of innocent suffering through climate change to our discernment too – those current and future victims of drought, sea level rise, famine, environmental refugees, typhoons, and other extreme weather events. We remember those communities from the Niger Delta and Amazonian basin, to Appalachian coal towns and to inner city neighborhoods whose health and social indicators are diminished by carbon fuel production and combustion.

In solidarity with these least and with all, I close with what may seem a weak argument but perhaps it is the strongest. Even if our actual chances for success are dismissed as minimal and even if a marginal cost to return were to be risked, are these not small prices to pay to defend with urgency God’s gift of creation?

Give God the benefit of believing
that his hand is leading you,
and accept the anxiety of feeling yourself
in suspense and incomplete.

Thank you for imagining what this new spirit gradually forming within you, within us, will be.

John Sealey is from the Jesuit Committee on Investment Responsibility and serves the North American Jesuit provincials with regard to socially responsible investing. John shared some Ignatian discernment perspectives on the fossil fuel divestment issue during the Second Annual Climate Change Conference at Loyola University Chicago last 19 to 21 March 2015. He may be reached through his email jsealey(at)jesuits.org for further information.