Foundation News

Getting to the "Clean Trillion"

 

In a victory for transparency advocates and shareholder activists, Exxon Mobil recently announced that it will begin letting its investors know how much it will cost to produce a carbon intensive product if stricter limits are placed on climate pollution. As reported in the New York Times, this announcement from the world's largest oil and gas company comes on the heels of similar announcements from FirstEnergy, the nation's largest electricity company, and Peabody Energy, a St. Louis-based coal company.  

Increasingly, fossil fuel companies are depending on fuel sources that are harder and more expensive to extract, transport, and refine -- think deepwater drilling in the Gulf of Mexico or Arctic Ocean drilling north of Alaska. If our global policies change to reflect the risk posed by carbon-intensive fuel sources, many of these hard-to-get-at reserves will be too expensive to compete with lower-carbon alternatives.

Convincing the world's largest fossil fuel company that this could be its new reality was no small feat on the part of the activists who worked for years to make it happen. On the other hand, it's a smart business decision. It doesn't take a Harvard MBA to recognize that carbon constraints are not a matter of if, but when. As climate-related disasters continue to mount and communities continue to rise up against the health impacts of fossil fuels, the pressure on governments to actually lead us away from the brink will be too great. Companies that begin planning for that future now will most likely survive; others may not, especially as capital begins fleeing to cleaner alternatives.

Unfortunately, the flow of capital isn't shifting fast enough. According to the International Energy Agency as relayed in an excellent new report from Ceres called "The Clean Trillion," to limit global warming to 2 degrees Celsius (3.6 degrees Fahrenheit) and avoid the worst effects of climate change, "...investments in low-carbon energy technologies will need to at least double, reaching $500 billion annually by 2020, and then double again to $1 trillion by 2030." According to Ceres, current annual investment in clean energy is nowhere near where it needs to be. Global investment in clean energy in 2012 was $281 billion (as measured by Bloomberg New Energy Finance). This is in stark contrast to Ceres' estimate that "as much as $7 trillion in the next decade alone" will be invested in fossil fuel companies.

What can we do to turn this investment scenario on its head? As a grantmaking institution, The Sierra Club Foundation will continue to use our grant funds for projects that seek to change the regulatory environment to make fossil fuel companies internalize their costs. No campaign going right now has been more successful at this than the Sierra Club's Beyond Coal Campaign. With its partners, Beyond Coal has targeted every aspect of the coal life cycle -- from mining and transport to burning and disposal -- to make sure polluters are paying for the mess they create. Through hard-nosed tactics, such as using a surveillance camera to show that a utility has been continuously dumping toxic coal ash wastewater into the Ohio River, and by pressuring the EPA to issue strong carbon rules for coal plants, Beyond Coal is forcing the industry to come to grips with a new level of accountability to the public and its shareholders.

But what else can we do? Philanthropic institutions have significant leverage through their investment holdings. Yes, they can continue to hold fossil fuel companies accountable through shareholder action, and The Sierra Club Foundation chooses to hold a very small number of direct ownership positions in fossil fuel companies for this purpose. But perhaps more meaningfully in the long run, philanthropies -- from small family foundations to large institutional grantmakers -- should divest their holdings in fossil fuels and reinvest those assets in climate solutions. This sector has a unique opportunity and responsibility to lead through both its grants and its investments.

The Sierra Club Foundation is honored to be a part of the Divest-Invest Initiative, an undertaking of 17 initial signatories with a total asset base of $1.8 billion, which is committed to divest from fossil fuels and invest in clean energy and climate solutions. Now, we are in full outreach mode. For this to be successful, we need this number to grow quickly. And many of us who are smaller, early adopters need to clear the way for much larger investors like pension funds, college endowments, etc. We hope many other philanthropic institutions and other institutional and private investors will join us in this effort.

Creating the "Clean Trillion" is going to take all of us doing all we can. Effective grantmaking creates the right policy environment for change. Divesting and reinvesting assets into climate solutions creates the right market conditions. To get to the Clean Trillion, we need to do both.

 

- Peter Martin, Executive Director, The Sierra Club Foundation

 

Category: News and Updates