Engagement Instead

It is sometimes argued that UH University should retain its holdings in fossil fuel corporations so that it can engage with them. We believe that this argument is technically incorrect and very disingenuous when made by the UH administration itself.

Technically, by retaining as little as a $2,000 stake in any corporation, a stakeholder can bring shareholder initiatives, which is the principle avenue for engagement. If the administration is asserting rather that a multi-million dollar holding would create a louder voice in their engagement, we will counter that UH has enough stature and clout to be taken seriously independent of the size of its investment.

Turning to the “disingenuous” charge, we are unaware of any shareholder resolutions or other forms of  “engagement” in which UH is involved. Perhaps they are planning on doing it someday. Or perhaps there is some current engagement occurring. In either case we would appreciate UH publicly divulging what that engagement is, which would be a sincere expression of active concern over this issue.

We favor divestment over engagement for various reasons, but we also acknowledge that they can be complementary parts of an overall strategy. The main factor working against engagement is that shareholder activism, the usual route for engagement, has a patchwork of guidelines and an overly-limited focus. It is also not well suited to changing core business practices. Thus, you have virtually no chance of getting major oil or coal companies to voluntarily abandon the 80% of their reserves that experts say must be left in the ground to avoid a catastrophe of huge proportions.

Shareholder activism has been effective for addressing things like executive compensation and corporate social responsibility. But in the decades that socially responsible investors have owned fossil fuel companies, no direct reductions in CO2 emissions have been attributed to shareholder activism. The unfortunate reality is that CO2 emissions are a derivative of the core business model, namely the extraction and burning of fossil fuel resources. Asking companies like ExxonMobil, BP, Shell and Chevron to write off 80% of their known reserves is not something that can be accomplished with a shareholder initiative.

After many years of shareholder activism, here is what investors have had to show for it. In late 2013, Ceres, a sustainability advocacy coalition, joined a group of 70 institutional investors in pressing 45 fossil fuel companies to contend publicly with the fact that as much as 80% of their reserves (assets) must be “stranded” to preserve the viability of the Earth for human habitation.

ExxonMobil, one of the largest of those 45 companies, responded and released a report stating its position on the stranded assets, and here is what it said:

We are confident that none of our hydrocarbon reserves are now or will become ‘stranded’” and “[We] ExxonMobil believes that although there is always the possibility that government action may impact the company, the scenario where government restricts hydrocarbons in a way to reduce GHG emissions 80% during the Outlook period is highly unlikely.

ExxonMobil is thus making the explicit judgment that ongoing international climate negotiations and existing carbon emissions reduction pledges and commitments will not bear fruit. It is also expressing the intention to go on pumping and burning oil no matter what scientists say will be the catastrophic results. Our economic system provides no incentive, no means of control or imposing self-control on the fictional person of a corporation. Money makes judgment in favor of more money no matter the threat to the future of humanity. This is profoundly immoral behavior, but there is no requirement for moral behavior built into our system.

Engagement and divestment are not mutually exclusive tactics for effecting change in the business practices of the fossil fuel firms. As alluded to above, the Securities and Exchange Commission’s (SEC) rules indicate that any investor who maintains at least a $2,000 stake in the securities of any corporation may propose a shareholder resolution. The strength of the resolution is not in the number of shares held by the party or parties bringing the resolution to the annual shareholder meeting. Rather, its strength lies in the nature of the resolution, the prestige of those bringing it and the alliance that can be created behind it based upon the merits of the resolution itself.

Thus, UH can hold on to a small number of shares to meet the prerequisite for bringing such a resolution, divest from its other shares, engage the company in question and commit to reinvesting at such a time that the company changes its offensive, and in fact immoral, business practices.

In addition to flaunting the dire scientific assessment of the consequences of business as usual, there is also disinformation, the corruption of lawmakers with campaign contributions, the suppression of public will with two times as many fossil fuel lobbyists in Washington as there are members of the House of Representatives, and the obfuscation of the consensus of scientists by public relations firms and other fossil fuel-funded groups, which are all part of those offensive business practices. These are well-documented tactics that have been pursued by vested fossil fuel interests to prevent humanity from weaning itself from its dependence upon a product that is destabilizing the climate of Earth.

So “engagement” instead of divestment is a specious argument, and perhaps disingenuous if being made by the university itself. Engagement in addition to divestment would be acceptable under the terms stated above.