Modern, sustainable living

What is the effect of your savings on dirty energy companies?

by | Sep 12, 2018

You may have noticed the work of an organization called Fossil Free South Africa. It’s currently running a social media campaign, Spotlight, calling for SA’s biggest pension and investment funds to help savers divest from coal, gas and oil.

To date, about 1500 people have signed the petition and environmental activists have publicly called for divestment. Makoma Lekalakala says, “Our future generations cannot have jobs, food and water if we continue to destroy our environment. We can only create a better sustainable future by not investing in polluting industries”. Robyn Hugo, an environmental justice activist and lawyer for the Centre for Environmental Rights, Greenpeace Africa’s Melita Steele and Desmond D’SA, a 2014 Goldman Environmental Prize winner are among other people who have joined the social media campaign.

Fossil Free SA aims to “stigmatise fossil fuel use, accelerate sustainable system change, help slow climate change, reduce the financial risks of fossil fuel investments, and so help secure our human rights and common future”. It is campagning for “the process of using investment choices to withdraw funds from the companies that are heavily invested in fossil fuels.”

What’s their argument? Burning fossil fuels like coal and oil has increased the concentration of atmospheric carbon dioxide, which is the main driver of climate change. This is a global concern, but the impact of climate change might be more severe in Southern Africa both because the effects will be more severe and because poor countries are least able to mitigate and adapt.

How does this relate to us as savers (assuming we are lucky enough to be among the fewer than 10% of South Africans who are able to save for their retirements)? Should we worry about where those savings are invested and, in particular, whether they are invested in dirty energy companies?

If, like most investors and savers, you handed your money over to an advisor and only catch up with it once in a while, you probably have no idea what it’s doing. Your financial advisor most likely didn’t ask about your values, your religion or your lifestyle. And, because the sector is large, it is very likely that at least some of your savings are invested in companies that emit lots of carbon in the course of doing business, whether by making or selling fossil fuels (coal mines, Sasol and the other oil companies) or by using lots of energy.

If you want to, you can change this. You have a few “clean” savings options and soon there will be many more. In developed countries, especially in the USA, there has been a remarkable rise in environmental, social and governance factors being taken seriously during investment decision-making. These factors, according to Georg Kell (until 2015, he was the executive director of the UN Global Compact), may not be part of traditional financial analysis, but do have financial relevance. He notes, for example, that most traditional financial analysis don’t look at risks outside a three to five year time horizon while most climate change risks fall beyond that horizon. For instance, questions about how will a company respond to climate change should be asked? How good is its water management system?

Managers should start making it easy for principled investors to stop investing in fossil fuel companies

These are good questions for long-term investing, but Fossil Free SA wants you to go further: to divest from particularly carbon-intensive businesses and to renounce further investment in them. In the press release for the launch of its campaign, David Le Page, Fossil Free SA’s co-ordinator, says that none of South Africa’s top asset managers are committed to helping citizens invest without doing harm. “Most continue to invest in fossil fuels, and have not committed to supporting vital conventions on climate change, such as the Paris treaty.” Managers, he says, should start making it easy for principled investors to stop investing in fossil fuel companies like Sasol.

There is the big question of whether and how divestment would impact on the actions on the targeted companies. Le Page and Fossil Free SA argue that by reducing the number of people willing to buy these companies’ shares, the campaign would restrict these companies’ access to capital and keep them smaller than they would otherwise be. This may be true, but, as one economist said to me, most saving and investment is done on secondary markets, where people buy and sell shares that were issued when companies first go public. The company uses the proceeds from that first sale to grow. Some of the profits are paid to the shareholders, and to investors. Buying (or selling) shares on the secondary market does nothing to fund companies directly and doesn’t make them more or less profitable. All it does is determine whether you share in the company’s profits or not. So the real question is not whether you can live with your money’s financing of fuel companies; it is whether you can live with the idea that some of the money your investments earn comes from those companies.

So what will you do the next time you’re in your financial advisor’s office?

Luckily there is scope for change

You do have control over your investment habits and your consumer habits. Ask questions. Ask your advisor to specify the carbon footprint and carbon risk of your portfolio. What are your alternatives? As one financial advisor who prefers to remain anonymous says, “I wouldn’t invest in bad shit. I wouldn’t invest in Sasol. Not in British Amercian Tabacco. BP. Nor Beyer. And definitely not Nestlé.” He says that advisors aren’t matching their clients’ values with their needs. So remember to tell your advisor where you’re happy for your money to be. Luckily there is scope for change.

Fossil Free SA suggests excluding major emitters from your investments – most especially Sasol, Eskom (bonds), Anglo American, BHP Billiton, Exxaro, African Rainbow Minerals – and those who finance them. David says, “We are also concerned with other issues besides fossil fuels…. We don’t see much point in moving money from Sasol to British American Tobacco.”

The best current options for partial divestment, according to Fossil Free SA are:

The Kigoda Sustainability Basket on the EasyEquities platform

Nedbank’s Green Savings Bond

WWF-Prescient Living Planet Fund

But in the meantime, to reduce petrol stations to empty, unused sites, to reduce demand on fossil fuel and to have an impact on the earnings of big public fossil fuel companies, share a ride to work tomorrow.

To sign Fossil Free SA’s petition go here.

For more advice on how to divest and where to reinvest, read Fossil Free’s guide How to (try to) divest in South Africa”.

Image credit: Unsplash

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