The worldwide divestment movement is growing by leaps and bounds! As recently reported by Bill McKibben (350.org), over 1,000 institutional investors have divested. Total assets controlled by those who have joined the divestment movement are over $8 trillion. Two of the biggest contributors are the Norwegian sovereign wealth fund ($1 trillion) and the New York City pension funds ($189 billion). The latest converts include major French and Australian banks and Brandeis University.
Faith based institutions are also playing a vital role. People of faith understand that Social Justice and Spirituality are intertwined. Statements of support have accordingly come from the Catholics, the Episcopalians, the Lutherans, the Muslims, the Quakers, the Unitarians, and the UCC folks. Pope Francis’ pronouncements have been particularly important.
We need grassroots support: The institutional support is awesome, but we need lots and lots of grassroots support as well. Our legislators need to know that their constituents deeply care about our environment.
The good news is that Divestment offers a “WIN-WIN-WIN” opportunity for our congregations:
– It is the right thing to do from an Environmental Justice and Spirituality standpoint. It lets each member know that their house of worship backs up its words with concrete actions.
– It is the right thing to do from a financial standpoint. Fossil fuel stocks (encompassing both the producers (e.g., Exxon) and the service providers (e.g., Schlumberger)) have drastically underperformed the overall market during the last 1 year, 5 year, and 10 year periods.
– Divestment gets the fossil fuel industry’s attention – and their legislative backers as well! It makes it clear that there will be a growing public outcry against their self serving attacks on our environment. (As Archbishop Desmond Tutu has noted, divestment helped to bring down apartheid in South Africa government in South Africa – and it can similarly help to confront the fossil fuel industry.)
Financial performance: Updated stock market performance (through 12/31/18) provides a compelling case for divestment from the fossil fuel industry. The statistics below compare the overall S&P 500 (500 largest stocks) gains with the corresponding gains of the 11 individual components.
I would particularly highlight the 10 year performance results. Based on these annualized gains, a $100,000 S&P 500 investment on 12/31/08 would have grown to $339,457 on 12/31/18. By comparison, a comparable $100,000 investment in the XLE Energy stocks (almost all are fossil fuel based) would have grown to just $150,751.
In summary, the S&P 10 year accumulation was more than TWICE the size of the Energy accumulation.
Annualized S&P Index Fund Returns (Through 12/31/18: 1, 5 and 10 years) / 10 Year Accumulation
S&P 500: (4.56%), 8.37%, 13.00% / $339,457
Consumer Discretionary: 1.59, 9.73, 18.22 / 533,224
Information Technology: (1.66), 13.55, 16.87 / 475,369
HealthCare: 6.28, 10.97, 14.51 / 387,645
Industrials: (13.23), 6.39, 13.01 / 339,757
Consumer Staples: (8.06), 6.17, 10.84 / 279,876
Financials: (13.03), 8.02, 10.81 / 279,119
Basic Materials: (14.86), 3.83, 10.75 / 277,611
Utilities: 3.95, 10.59, 10.27 / 265,811
Energy: (18.21), (5.74), 4.19 / 150,751
Real Estate: (2.34) / New sector
Communications Services / New (less than 1 year)
NOTE: The annualized returns represent the “level equivalent” returns over the period. For example, the S&P Index Fund growth from $100,000 to $339,457 (12/31/08 to 12/31/18) equated to a 13.00% per year compounded return over the 10 year period.
Why have fossil fuel stocks underperformed? There are many reasons for the last 10 years’ underperformance – and for a very questionable outlook as we go forward:
– Above all else, investors look for companies with strong revenue growth and strong earnings potential. The fossil fuel industry no longer meets these criteria.
– Global fossil fuel energy demand is expected to grow by about 1% per year. This pales by comparison with soaring demand for Information Technology, HealthCare, Social Media, Internet Retailing, etc. For example, Amazon projects 19% revenue growth in 2019 and Microsoft looks for 13%. (Fossil fuel energy demand is being moderated by green energy growth and conservation.)
– British Petroleum (BP) ultimately paid out $65 billion for the April, 2010 Deepwater Horizon oil spill in the Gulf of Mexico. 11 workers died. Transocean and Halliburton were also implicated.
– OPEC has become fragmented and has lost much of its control over oil and gas prices.
– And last, but not least, is the “stranded asset” risk. Keeping carbon dioxide in the atmosphere below catastrophic levels could ultimately require the fossil fuel companies to leave the vast majority of their reserves in the ground, rather than burning them.
NOTE: The steady erosion of fossil fuel stock prices has reduced the Energy component’s share of the S&P 500 to just 5.3%. This means that divestment only calls for reinvesting about 5% of a typical Endowment’s value.
Building a Movement / IREJN can help
Each congregation’s decision to divest encourages other congregations to do the same. First Congregational Church of Old Lyme, Unitarian Society of Hartford, and St. James Episcopal Church (New London ) are three of the pioneers. Each of these churches is an IREJN member.
IREJN Board member Mike Winterfield will be pleased to meet with any congregation that is considering divestment. Mike is a retired insurance company Vice President and Actuary. Mike worked in the investment products arena for over 30 years. He was one of the co-leaders of the Unitarian Society of Hartford’s divestment program. Mike also provided advisory assistance to St. James. Mike can assist congregations, whether they work with individual stocks, mutual funds, or a combination of the two.
