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By Robert A. Vella

Summary: Wall Street’s influence on the growing fossil fuel divestment movement can be examined in four general categories: investment strategies, structural resistance, business associations, and political considerations.

Investment strategies: Wall Street financiers are heavily focused on short-term strategies to maximize profits utilizing its inherent advantages in capital, market expertise, and technology (i.e. high-speed computerized trading). Long-term investment opportunities, such as clean and renewable energy development, are secondary considerations particularly when competing in established industries (i.e. fossil fuels) having existing and extensive financial relations with the big banks. Oil, coal, and natural gas investments provide the kind of liquidity Wall Street prefers and which wind, solar, and other green energy investments currently lack. Fossil fuel divestment pressures pale in comparison, and therefore, must be seen as an inconvenience by financial executives – at least for right now. See: How Wall Street Really Is Failing The Planet

Structural resistance: In addition to its own capital investment strategies, Wall Street offers a variety of investment products and services to clients (i.e. depositors) including portfolio funds, such as a mutual fund, which are a collection of stocks, bonds, and other financial instruments. The portfolio manager is responsible for the individual instruments contained within the fund, while clients buy into or sell out of the fund based on its overall share price. Since these products are managed by the financial institution (i.e. the big banks), clients typically have little to no say in the individual stocks and bonds the fund invests in. This makes divesting from fossil fuels more complicated for portfolio fund clients, and creates structural resistance against the movement. See: How to extract fossil fuels from your investment portfolio and How to divest fossil fuels investments, and maybe impress the kids

Business associations: Wall Street’s close relationship with the fossil fuel industry is certainly no secret, stretching back to the Robber Baron era of the late 19th century when John D. Rockefeller’s Standard Oil Company obtained monopolistic control over the oil market. It continued throughout the 20th century as the Big Banks financed much of the development of oil, coal, and natural gas production in America and across the globe. In the 21st century, Wall Street invested heavily in new extractive technologies, such as hydraulic fracturing (a.k.a. fracking), designed to increase domestic fossil fuel production from cost-intensive resources like shale deposits (see: Cleanest Fossil Fuel is Wall Street Bet on Climate Change). Additionally, the financial industry has become much closer to the media organizations which report on it, leading watchdog groups to investigate potential conflicts of interest within journalism. The Wall Street Journal, for example, is published by Dow Jones & Company a division of Rupert Murdoch’s News Corp (see: WSJ Obscures Contributors’ Fossil Fuel Ties). These business associations have come under increased scrutiny, and have triggered mass public protest demonstrations in recent years (see: Climate activists take on ‘Wall Street,’ but can’t reach New York Stock Exchange).

Political considerations: Another well-documented aspect of Wall Street is the great influence it exerts on America’s political system through its lobbying operations and political spending. From 2013 to 2014, its political expenditures (about $500 million) surpassed every other industry sector by a huge margin, with nearly two-thirds of the funds going to Republicans and other conservative organizations (see: Political Spending by Interest Groups, Industry Sector Totals). Democratic Party recipients of Wall Street’s largesse were primarily centrist, establishment types more friendly to the financial industry than their progressive counterparts (see: How the Finance, Insurance, and Real Estate Sector Drove the Growth of the Political One Percent of the One Percent and Upset by Warren, U.S. banks debate halting some campaign donations). It should be difficult to ignore the obvious coincidence here. Just as Republicans and centrist Democrats are more favorable towards Wall Street, they are also more deferential towards the fossil fuel industry.

Conclusion: Because of its short-term investment strategies, the types of financial products and services it provides, its business associations and politics, Wall Street must be considered as a major obstacle to the fossil fuel divestment movement. However, this is likely to change with time. Global warming has already become a serious global concern, and it will only become more so going forward. The moral obligation to mitigate anthropogenic climate change will continue to mount. Conversely, the public’s acceptance of fossil fuels is destined to decline as its environmental costs are realized. Also, recent volatility in the crude oil markets is already generating some worry that investment in these traditional energy industries may not be as safe nor as rewarding as they have been in the past. Finally, the arrival of cost-competitive and logistically-feasible clean energy alternatives will eventually force Wall Street into a greener stance. After all, they are in the business of making money.

Addendum: Wall Street, even as big and powerful as it is, does not constitute the greatest impediment to the divestment movement. That would be the fossil fuel industry itself. Fortunately, for environmentally-conscious people, other avenues are available to advance the divestment movement. Colleges and universities who have received large endowments from fossil fuel interests are feeling the pressure to divest. This process is much more straightforward that the complex world of banking, and many institutions have either divested already or are considering doing so.

Further reading:

The Fossil Fuel Resistance: Meet the New Green Heroes

UN climate chief joins alumni calling on Swarthmore to divest from fossil fuel

The Tale of a Divestment Convert

Oxford University Sidesteps Fossil Fuel Divestment Debate

As UN Backs Fossil Fuel Divestment, Bill McKibben on Vanuatu, Oxford Vote, California Water Crisis

Why It Makes More Sense to Dump Your Fossil Fuel Stocks

Rockefeller Fund Joins Global Movement to Divest Fossil Fuels and Invest in Renewable Energy

8 thoughts on “Wall Street’s influence on the fossil fuel divestment movement

  1. Robert, this such a clear and understandable overview of the forces that make it difficult to address climate change issues in a world dominated by corporations and capitalism. You’ve helped me connect all the dots 🙂

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  2. From YahooHow oil is preparing for a new world order:

    A new oil order has arrived and it will be marked by greater uncertainty and generally lower oil prices as the oil industry frantically re-prices as costs decline and gains in efficiency are made, strategists say.

    As investors continue to weigh up the fallout of a rout in oil prices since June last year, Goldman Sachs has warned that the “level of uncertainty cannot be underestimated as these dynamics spill over into the price of commodities, currencies and consumption baskets around the world, with far-reaching market and economic implications.”

    […]

    And oil strategists say there are a number of factors that suggest oil markets will be characterised by uncertainty and volatility in the months ahead.

    […]

    Miswin at Barclays said that two developments he was watching closely for the outlook was the solar industry and energy storage.

    “There are reports that we will get to grid parity in the next 12-18 months in the solar industry, which has very important implications because that means even without subsides electricity generated by solar power will be one-to-one with conventional energy, he said.

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  3. More on endowments:

    From BloombergNYU Faculty Calls for School to Divest From Fossil-Fuel Industry:

    (Bloomberg) — More than 130 New York University faculty members are calling for the school to divest its $3.4 billion endowment from publicly traded oil, natural gas and coal companies.

    NYU currently has about $139 million invested in the fossil-fuel industry, according to an e-mailed statement from the group known as NYU Divest, which also includes students and staff. Faculty from the school’s campuses worldwide began collecting signatures last month for a letter delivered Monday to President John Sexton, who will step down next year.

    The NYU faculty are joining a growing chorus from institutions including Stanford University, Harvard University and Columbia University in petitioning leadership to end financial support of industries that contribute directly to climate change. The NYU letter cited past examples of how divestment was used to combat apartheid in the 1980s and argued that fossil fuels stocks may be overvalued, posing a financial risk to the endowment.

    From USA TodayStudents push for fossil fuel endowment divestment:

    Students are squaring off against their universities and their boards in an effort to force them to divest an estimated $400 billion in university endowments in fossil fuels.

    […]

    While it is unclear exactly how much each university invests in fossil fuels — endowments are not made public — many colleges have huge incentives to boost the energy industry.

    “There are definitely ties to Duke with fossil fuels,” said Laura Mistretta, a senior member of Divest Duke. For every dollar a Duke graduate working at Exxon donates to the university, says Mistretta, Exxon will match it “3 to 1.”

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  4. Excellent post.

    I believe it’s honest to say that not only has the financial industry had close ties with the fossil fuel industry, old bankers started the oil industry by setting up the entire system, financing operations and purchasing the subsidies from the government to help finance oil exploration.

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