Why fossil fuel divestment will not work

Climate change activists have had enough. The continuing rise of energy companies, and, in turn, fossil fuels, has angered them to no end and thus, they have started a new project: divestment. Divestment is the action or process of selling off subsidiary business interests or investments, in this case of energy companies. They want to do this to stop climate change progressing at the alarming rate which it is doing as of now.

How will divesting help this? Well, the activists think that a large sell off in the shares of these energy companies will cause them to rethink their actions for fear of further repercussions, namely a drop in their share price. This all looks very well and good on paper, but in practice, it simply would not work for a number of reasons, the first of which being that investors will quickly snap up any chances to buy the shares at the newly reduced share price. Due to the mechanisation of today’s society and therefore trading as a whole, this process would take around 5 minutes at most as prices went down and then up, a momentary shudder on the otherwise rigid share price.

Although this process may raise a small sense of alarm in the “big figures” of the energy companies, they would just treat it as a small price movement. Sellers outmatched buyers. Buyers levelled it. It’s as simple as that. There are far too many people in this world who could not give the slightest hoot about climate change, and who do care about buying at a reduced share price; buying low, as they say. Until a majority of the significant shareholding population will care enough about climate change to do something about it, a small number of firms divesting will do nothing at all.

However, I am all for seeing every possible scenario, so let’s say that divesting does work and Company X announced that it would not extract fossil fuels from its assets any more. The “big people” at Company X would be astute enough to aim to make some money back from this decision, and not just to sit on their losses. As such, they will simply sell their assets to Company Y, who is willing to extract from them. Now instead of the assets being split between Company X and Company Y, Company Y simply has all of them, and Company X has nothing. Apart from a significant amount of work to do for the company printers, nothing would have been achieved here, and we are not any closer to raising awareness about fossil fuels than we were before.

You could say that the awareness raised by Company X selling their assets to Company Y would be a good thing, however, in my opinion, this positive news would be offset by the negative news that Company Y has bought up yet more assets of fossil fuels. There would be no net gain for anyone and the cause would not be strengthened in any way. Don’t get me wrong, I am all for preventing climate change, it is a great evil of our society, however divestment is simply not the way to do that. It just wouldn’t work.

By Shrey Srivastava

A finance and economics enthusiast, and someone who wants to share his views with the world.

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