Wall Street's Resistance to Fossil Fuel Divestment

Wall Street’s Resistance to Fossil Fuel Divestment

Fossil fuel divestment has become an increasingly popular tactic in fighting climate change. In 2021 alone, Harvard University, the Ford Foundation, and French bank La Banque Postale joined the movement. But a number of Wall Street and major financial institutions remain skeptical. Citigroup and BlackRock, for example, announced their stance against fossil fuel divestment, arguing that as stakeholders, they will have more say over transitioning to clean energy by remaining at the table with the largest energy companies than by walking away.

Why This Matters

In an ideal world, companies can maximize profits and address the climate crisis simultaneously. People like BlackRock's CEO, Larry Fink, have argued that industries and investors will only make such moves if it is in their financial interests to do so, given their fiduciary obligation to make money for their shareholders and investors.

The private equity industry is not subject to public disclosure rules, nor do they have to report the environmental and community impacts of their investments shine a public spotlight on their holdings. If they won't divest, measures will be needed to shine a public spotlight on their holdings. Around COP26, the private equity community itself took a provocative first step and announced the formation of its own net-zero alliance, pledge, and organization.

Last week, Larry Fink, summed up the firm's attitude towards their role in climate action: "Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not 'woke.' It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper."

CNBC: BlackRock CEO Larry Fink - We need to work with hydrocarbon companies, not against them, January 18, 2022.

Divestment Drawbacks & Loopholes

While Citigroup and BlackRock's opposition to divestment as a tactic is a setback for the movement, divestment does have its drawbacks. Many companies that aim to divest from fossil fuels actually sell those interests in public carbon-intensive assets to smaller, private operations. These smaller companies then continue to drill without having to report their emissions.

For example, private company Hilcorp bought all of BP's assets in Alaska for $5.6 billion, allowing BP to inch closer to net-zero emissions by 2050. But in Alaska, Hilcorp has an even worse environmental and safety record than BP, making the benefits of this divestment only nominal.