The divest-invest movement is an association of investors who have all pledged to divest from fossil fuels. This is done both for moral and financial reasons. The moral reason is that Climate change is seen as the human rights issue of our time: unless we slow climate change first the poorest on earth who had least to do with creating it and eventually all of humanity is unlikely to survive. It is thus seen as a moral imperative to stop investing in fossil fuel exploration and production. We already have too many fossil fuel reserves and can only burn 20% of the current proven oil, gas and coal reserves if we want to achieve the target of no more than 2 degrees global warming. 80% of the proven reserves, currently valued at $21 trillion will thus have to be written off. This so called “stranded assets” or the “Carbon bubble” is already about 50% larger than the $15 trillion mortgage bubble was in 2008. It thus makes financial sense and must be seen as the responsibility of asset managers and trustees worldwide to sell the fossil fuel assets before those suffer from dramatic value loss as their core assets have to be written off.
Wermuth Asset Management’s case is that independent if there is government intervention to agree on an international price for carbon – which would clearly be by far the best result, but many not be achieved – and independently if there may be regional prices on carbon emissions or taxes, the markets alone are sufficient today to ensure that the Carbon Bubble will burst: The new industrial revolution, based on the internet of things, increased resource efficiency and renewable power that is now competitive without subsidies in many places, it makes no more sense to explore for additional fossil fuels because long term fossil fuel prices will be under pressure from renewables and energy efficiency. Already in Austin Texas, solar power is being offered at $4cent/kWh in the summer of 2015. Oil would have to fall to $7/barrel to be able to compete. Once the auditors start questioning the high long-term price assumptions underlying the valuation models for the reserves of fossil fuel companies, write offs will be tremendous. Citigroup estimates that fossil fuel companies may even lose $100 trillion in currently expected revenue.
A divest-invest strategy thus makes both moral and financial sense.
Wermuth Asset Management GmbH pledged in early 2014 to divest from all of its fossil fuel production assets over the course of three years and to invest in resource efficient and renewable energy companies instead.Jochen Wermuth, family principal of Wermuth Asset Management GmbH, serves on the steering committee of “Europeans for Divest Invest”.
By 22 September 2014 $50bn of asset owners had committed to divest, including the Rockefeller Brother’s Fund. The aim was then to triple commitments by 22 September 2015 to $150bn. In fact, $2600 bn, or over 50x the amount the year before had pledged to divest by 22 September 2015.
Please see: www.divestinvest.org for more information