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About "ethical" funds and the power of divestment

This past weekend I had the opportunity to participate in the New Economy Summit at UBC, a conference seeking to “contribute to the growing citizen movement for a socially just and ecologically responsible economy.” Though I attended lots of amazing sessions, the one that I want to talk about here was a panel discussion on the topic of "Sustainable University Endowments and Divestment", which took place on Friday afternoon.

Professor George Hoberg opened the session by presenting the compelling case for universities to divest their endowments from fossil fuels, and describing the significant progress that the UBC students have, in coordination with Bill McKibben's 350.org movement, been making on this front. Later on Benjamin Richardson, a professor from the UBC Law faculty, outlined various legal frameworks which allow endowment managers to engage in socially responsible investment (SRI).

The part of the panel that really got me thinking, though, was the contribution made by the third speaker, Christie Stephenson, who represents a major SRI investment group called Ethical Funds.
 
According to her bio on the conference website, she “manages the environmental, social and governance evaluations of companies on sustainability criteria for over $10 billion in investment assets for Ethical Funds and external clients.”
 
In her speech, Stephenson made an extended argument against divestment, and ultimately suggested that in the case of the Canadian tar sands, the type of divestment advocated for by 350.org would represent a “huge missed opportunity for constructive engagement”.

Stephenson defined SRI as "an investment approach making reference to environmental, social, and government factors in the selection and management of investments", and explained that Ethical Funds implements these criteria through evaluations, corporate engagement, public policy work, and research.
 
The first of these four mechanisms, evaluation, actually resembles divestment: a company may at any point be found to be “ineligible” for Ethical Funds investment.
 
Despite that, Stephenson made it clear that this decision to not invest is only used in limited circumstances. She gave the examples of tobacco, nuclear energy, and the manufacture of weapons controlled by international treaties as examples of shares that would never be "eligible”.

In explaining her policy of investing in tar sands oil, Stephenson made reference to a pie chart which showed that the vast majority of Canada’s GDP is made up of banks and the resource extraction industry.
 
The idea was that an investor wishing to divest from these areas would be left with very few places to put their money. Beyond this, Stephenson continually argued that the most effective means of bringing about change is actually to invest in industry leaders since as a shareholder one obtains leverage that can be used to encourage innovation and sustainable practices.
 
Finally, Stephenson also raised the tired argument that if we don't do it—invest in oil, expand our oil export capacities, etc.—someone else will.

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