On Monday, the heirs to the Rockefeller family announced that they will join Global Divest-Invest, a philanthropic coalition comprised of 650 individuals and 180 institutions that represent a combined wealth of $50 billion in fossil fuel assets. The Rockefellers’ portion will be divested from its Rockefeller Brothers Fund, a philanthropic arm of the family’s holdings with investments worth $860 million.
On its website, the Fund explains that this will be a two-step process. First, the Fund will reduce its investments in coal and tar sands to less than 1 percent of its total portfolio by the end of the year. It will then analyze its remaining fossil fuel exposure “and will develop a plan for further divestment as quickly as is prudent over the next few years.”
The efficacy of divestment campaigns can be debated, but the statement the Rockefellers are making – one day before the 2014 international climate summit and one day after 400,000 climate activists went marching through New York’s streets – cannot be overstated.
This is a family that was built on oil. John D. Rockefeller became history’s first billionaire in 1916 from the profits of his Standard Oil company, and though the Rockefellers now rank only 24th on Forbes’ list of richest families in America, the scions of Standard Oil remain among the most profitable companies in the world: ConocoPhillips, BP, Chevron and Exxon Mobil.
Stephen Heintz, director of the Rockefeller Brothers Fund, issued a statement on the family’s decision: “We are quite convinced that if [John D. Rockefeller] were alive today, as an astute businessman looking out to the future, he would be moving out of fossil fuels and investing in clean, renewable energy.”
The man’s great-great-granddaughter, Valerie Rockefeller, was quoted in the Washington Post as saying divestment “is a moral imperative to preserve a healthy planet.”
The Downside of Divestment
The divestment movement began in 2011. Students on six college campuses urged their administrations to pull their investments from the coal industry and other fossil fuels, arguing that their negative environmental impacts clashed with the schools’ principles. Since that time, divestment has spread beyond universities to philanthropies, faith-based organizations, healthcare providers, local governments and NGOs.
Yet the market caps of fossil fuel companies are so immense that divestment alone cannot force the industry to cease mining, drilling or fracking.
As Donald P. Gould, trustee and chair of the Pitzer investment committee and president of Gould Asset Management, told the New York Times, “I don’t think that anyone who favors divestment is arguing that the institutions’ sale of the fossil fuel company stock is going to have much impact, if any, on either the stocks or the companies themselves.”
Greg Wendt, a Senior Wealth Advisor at StakeHolders Capital and the founder of the Green Economy Think Tank, agrees. In his estimation, the combined assets of Global Divest-Invest ($50 billion) won’t even affect their market price. “If anything,” he explained, “the stock price drops and someone buys it at a killing.”
Oil company revenues are huge. Exxon Mobil reported a $111.6 billion revenue in its 2014 second quarter report, earning $8.8 billion in Q2 profits. That represents a nearly 30 percent growth year-on-year from mid-2013.
With those kinds of numbers, Wendt explains, fossil fuel companies make so much money that they can afford not to care about a few billion investments that will eventually be sold to less scrupulous buyers. Trading assets is not enough to make fossil fuel companies change their ways.
And though it’s big news that the Rockefellers are looking to reinvest in clean energies, it isn’t a solution to the planet’s fossil fuel problem. “That’s a huge message,” says Wendt, “but it’s a message nonetheless. Economically, it’s not much.”
A member of the California Financial Opportunities Roundtable, Wendt is a major advocate of socially responsible investing. He claims that, at its heart, divestment is less about its financial impact and more about sending a message to influence public opinion and trigger a mindset shift. When companies divested from South Africa over its apartheid laws, it was a battle of perception; South African stocks did not suffer nearly as badly as the region’s reputation.
I asked Wendt if the divestment approach is too hostile.
“I feel there is an opportunity for the movement to embrace a wider range of approaches to transform the fossil fuel industry for good,” he said. “Generally speaking the main activity over the last 40 years has been to protest and shame, with some engagement in constructive relationships. We must acknowledge that there are limits to protest and disengagement when those whom we aim to influence are continuing to remain indifferent to the concerns of the movement.”
“It’s kind of like a bunch of people throwing rocks at an elephant,” I said.
“And then you have some people saying ‘if we get some more rocks we can really hurt that elephant.’ That’s what appears to be going on,” said Wendt. “There are likely more and better ways to engage in shifting the fossil fuel industry, yet to discover these we have to recognize the limits of divestment and continue to refine and evolve our approach.”
The fact is, Wendt concluded, divestment does not go far enough. “This is a great start, but we need to go further. We need to start looking at things and coordinating strategies from across the board, including stopping the investment of our tax dollars through subsidies.”
“subsidies on fossil fuels run at $540 Billion a year, a massive encouragement to burn carbon that should be done away with..” @TheEconomist
— Gregory Wendt, CFP (@gregorywendt) September 21, 2014
Currently, the billions of dollars in fossil fuel subsidies is one of the major obstacles to putting renewable energies on an even playing field. And in some U.S. states, utilities are doing everything they can to make sure that field never gets evened out.
“Every tree starts with a sprout,” said Wendt, “but we can’t pretend that today’s action is enough to change the game. Let’s get clear that divestment is just the beginning and one of the many things that needs to be done.”