Choosing not to invest in fossil fuels has as much to do with risk management as ethics, the government's controversial boycott crackdown should steer well clear
The Guardian ran an interesting story yesterday indicating that the government's controversial crackdown on local authority boycotts could have repercussions for the divestment movement.
The Department for Communities and Local Government's guidance to councils initially targets those that have sought to boycott companies and assets connected to the Israeli government. But the Guardian report suggests the guidance can also be interpreted as a warning to councils that "they will face "severe penalties" if they divest from fossil fuel holdings or boycott oil, coal or gas firms in procurement tenders". The paper goes on to quote a government spokesman as saying, "councils should not be using pensions and procurement policies to pursue their own boycotts and sanctions. We are reminding councils of the rules to ensure taxpayers' and the UK's interests are protected".
Leaving aside for a minute the huge moral, political and democratic questions the government has unleashed with its insistence public sector bodies cannot undertake boycotts, what on Earth has any of this got to do with divestment and green procurement?
There are some similarities between boycott and divestment campaigns, but they are categorically not the same thing, especially when it comes to fossil fuels. Failure to make this distinction plain is one of the biggest threats to the continued success of the fossil fuel divestment movement.
In the vast majority of cases divestment is not about an ethical desire to be rid of morally dubious fossil fuel assets. It is about a dispassionate assessment of long term risk and a reasoned conclusion that fossil fuel assets are overvalued and should be avoided in favour of cleaner assets that have more of a role to play in a decarbonising economy.
Divestment eschews the black and white moral absolutism of a boycott, in favour of case-by-case risk assessment. Consequently, it comes in many shades, from a gradual withdrawal from the most carbon intensive assets, such as tar sands or Arctic oil, to a blanket acknowledgement that all fossil fuel holdings should be avoided on the grounds they are increasingly vulnerable to policy and market shocks and serve through their pollution to damage the viability of the rest of your portfolio.
Whether you agree with the government's guidance to those councils carrying out political boycotts or not, it should have nothing to do with the reasoned decision to divest and protect pension funds from fossil fuel risk? A decision that every financial institution and individual has the right to make based on their appetite for risk and their understanding of long-term climate threats and clean tech viability.
As James Thornton of ClientEarth observed yesterday: "The law makes it very clear. Measuring and managing financial risk is a legal obligation. This can be achieved by limiting exposure to financially risky fossil fuel investments. Local authorities that protect their pension fund holders from climate risks are making a responsible investment decision, not taking a political stance. As global efforts to mitigate climate change gear up, fossil fuel investments are likely to lose value, potentially diminishing the retirement pots of ordinary pension-holders."
You could just about argue that a procurement policy that prejudices a council against fossil fuel technologies is closer to the kind of anti-competitive boycotts the government's guidance is supposed to put a stop to, but it is an argument that requires some pretty bizarre logical gymnastics.
In reality, a council wanting to procure greener, cleaner, more efficient technologies has plenty of justifications for doing so, ranging from lower running costs to a desire not to poison its residents, before it has to resort to moral outrage to explain its purchasing decisions. A local authority opting for a fleet of plug-in hybrids over a load of VW diesels doesn't have to get all superior about the auto giant's recent ethical record to create the rationale for the greener vehicles.
The government's argument that "councils should not be using pensions and procurement policies to pursue their own boycotts and sanctions" is currently the subject of intense debate. But fossil fuel divestment and green procurement are neither boycotts nor sanctions, they are simply sensible investment decisions that are increasingly favoured by any organisation that understands long term risks and opportunities. DCLG should think very carefully before attempting to limit the ability of councils to embrace the kind of proactive and sustainable investment and procurement strategy a government committed to decarbonisation should be actively encouraging.