In the last year there have been a growing number of religious organisations here and overseas which have publicly resolved to remove their investments from coal, oil and gas extraction. They include the Uniting Church Synod in NSW/ACT and five Anglican Dioceses in Aotearoa/New Zealand. What has prompted this?

Most fund managers, banks and super-funds will assure their clients that they are socially responsible investors, but few acknowledge that the common understanding of what this means has become outdated.

A CALL TO CHURCHES: A poster from the Australian Religious Response to Climate Change's campaign to raise awareness among religious organisations of what they are investing in.

"Will religious trustees be among the first to refuse to profit from activities that are destroying the earth, or will they be among the last? Will the values of compassion, justice, peace and stewardship of creation translate into the way trustees invest their money?"

In 2012 the Carbon Tracker Initiative published its ground-breaking analysis of how much carbon pollution the atmosphere can carry before breaching the accepted threshold of a two degree Celcius average global temperature rise. The maximum we can emit is 565 gigatonnes of CO2. The total proven reserves owned by companies and governments is already equivalent to 2,795 gigatonnes, or five times as much! If we go on with business as usual, this “carbon budget” will be used up in just 14 years. Since we can’t suddenly stop at that point, we really must start reducing consumption immediately.

Mining companies are intent, however, on continuing with business as usual; indeed they are exploring for ever more coal, oil and gas. Therefore, most mining companies fund climate denial think-tanks and actively lobby against legislation that supports the large-scale take-up of renewables.

Yet very few funds managers, banks and super funds are inclined to remove their money from investment in fossil fuel companies and invest in more responsible alternatives. When challenged, they cite concerns about reduced returns. However, recent research by The Australia Institute suggests that “screening out fossil fuel extraction and downstream industries can have negligible impact on risk-adjusted returns". This confirms a large body of research overseas.

Indeed, it can reasonably be argued that continued investment in fossil fuel extraction leaves assets at higher risk, which is clearly contrary to asset managers’ fiduciary duty. The reasoning is that fossil fuel stocks are valued based on the assumption that the world’s dependency on coal, oil and gas will continue unabated. However, the threat of further warming will increasingly compel governments to regulate their use. Thus markets are likely to see a rapid devaluation of these stocks at some point. The “carbon bubble”, as it were, will burst in the same way as we saw the “housing bubble” burst in 2008.

350.org has spearheaded a growing global movement to influence investors to screen out fossil fuels along with other socially unacceptable options. Many cities, philanthropic foundations and universities have resolved to align their investments with their values. Worldwide, around seventy-five religious organisations have already joined them.

The Australian Religious Response to Climate Change is challenging religious people in Australia to do the same. Will religious trustees be among the first to refuse to profit from activities that are destroying the earth, or will they be among the last? Will the values of compassion, justice, peace and stewardship of creation translate into the way trustees invest their money? 

This is a challenge for individuals too - and an opportunity. Many people are unwittingly investing in the very industries they find objectionable, through the money they have in their bank and superannuation fund. Around 55 per cent of the world's superannuation is invested in high-carbon assets while less than two per cent is invested in clean energy. Particularly culpable are Australia's “big four” banks - Commonwealth, Westpac, NAB and ANZ - which have together invested $19 billion in coal and gas projects since 2008. 

Many hundreds of Australians have already taken the opportunity to switch to banks and super funds that do not invest in fossils. There are super funds which substantially screen out fossil fuels such as Local Government Super, Australian Ethical Super and Christian Super. We vote in elections every three years, whereas we vote with our money every day. Why not align your money with your values? You can be guided in this process by Market Forcesand the Vital Few.

For trustees, a phased approach is recommended, starting with the companies with most exposure to coal, oil and gas projects. A phased approach reduces the risk of volatility due to holding a portfolio with a smaller number of companies. Given that some companies are more “dirty” than others, the first step is to assess the level of exposure of various companies.

In the Australia Institute’s abovementioned article, companies are categorized into four “tiers”. In Tier 1 are those which are substantially involved in fossil fuel exploration and extraction, such as Whitehaven Coal, Santos, Woodside Petroleum and Origin Energy, and immediate divestment from these are suggested. In Tier 2 are companies with “downstream” fossil fuel operations such as pipeline companies and power generators, and are also candidates for immediate divestment. The activities of companies in Tier 3 are only partially in fossil fuels, so divestment from these may be left for a year or two. They include BHP Billiton, Rio Tinto and Wesfarmers. In the meantime, trustees with investment in Tier 3 companies could engage, ie, advocate that the companies get out of fossil fuel extraction.

For institutional investors, the approach recommended for Tier 4 is engagement or shareholder advocacy because they are only indirectly implicated in fossil fuel extraction through their lending practices. We have a much better chance of changing the minds of managers of these companies than those managing the fossil fuel companies themselves. Examples of these companies are Lend Lease, QBE Insurance and the “big four” banks. 

Many people ask about renewable energy alternatives in which they can invest. In my view, this should be approached as a separate question from the moral stand taken through divestment itself. There are many responsible investment options apart from renewable energy, such as in energy efficiency or sustainable transport. Australian-based renewable energy companies have been disadvantaged by a chaotic regulatory environment, so they are risky but may be included in a revised portfolio simply on principle. There are many renewable energy options overseas, however, which deliver healthy returns. 

This essay is more about the ethical and practical reasons for divestment from fossil fuels, but readers would be wise to seek advice from accredited ethical financial advisers for more detail. 

Thea Ormerod is president of the Australian Religious Response to Climate Change.

www.arrcc.org.au