Should Your Clients Divest From Fossil-Fuel Companies?
May 17, 2016
by Michael Edesess
Since the financial crisis, Warren Buffett's Berkshire Hathaway has had significant exposure to financial stocks in its portfolio. Q1 2021 hedge fund letters, conferences and more At the end of March this year, Bank of America accounted for nearly 15% of the conglomerate's vast equity portfolio. Until very recently, Wells Fargo was also a prominent Read More
On hot-button issues, advisors should provide well-reasoned guidance that is devoid of their own ideological leanings. When faced with a client who asks whether to divest from fossil-fuel investments, that requires knowledge of the moral, scientific and financial consequences of their decision. Here is a template for having those conversations.
On March 16, 1979, the movie The China Syndrome, a white-knuckle thriller depicting a nuclear power plant accident and starring Jane Fonda, Jack Lemmon and Michael Douglas, was released to large audiences.
Only 12 days later, on March 28, there was a severe nuclear power plant accident at Three Mile Island in Pennsylvania, the first serious nuclear power plant accident ever.
No one was injured at Three Mile Island. But that accident and the release of that frightening movie delivered a double-whammy that stopped the progress of the nuclear power industry for more than 30 years.
Could something like this happen to fossil fuels?
Don’t bet against it.
The nuclear paradigm
The “China syndrome” of the movie’s title referred to the fanciful notion that if a nuclear power plant in the United States were to have a severe accident, entailing a meltdown of its nuclear fuel, the whole power plant would sink so deeply into the earth that it would come out on the other side in China. It portrayed a nuclear power plant accident as something that could have catastrophic, virtually unstoppable and inexorably spreading consequences. This impression has stuck with the public ever since.
In 2011 a Japanese nuclear power plant experienced – with no fatalities – the fourth strongest earthquake in history, followed by a tsunami reaching heights up to 128 feet that directly killed more than 16,000 people. The impression this left with the public was not that nuclear energy had survived the ultimate stress test with relatively little damage save a high cost of cleanup, but that it had proven too unsafe to use. In the aftermath of the Fukushima nuclear power plant disaster, Germany voted to phase out nuclear power completely. Even China slowed work on its nuclear power program.
This was probably because it was much easier for news coverage to film the hydrogen explosion and havoc at the power plant than to cover the 16,000 tsunami deaths. But if you ask people now what catastrophe occurred at Fukushima in March 2011, they would probably say it was a nuclear power plant accident.
Nuclear power entails risks, of course. But while the occasional crash of a commercial airliner killing hundreds of people has been accepted as the very small but unavoidable risk of flying, the idea of an occasional nuclear power plant accident as the price of clean energy has gained no acceptance and seems unlikely to do so soon.
This is partly due to the fear of radioactive nuclear fallout, which fueled ban-the-bomb protests in the 1950s and 1960s. Activists regarded radioactivity as an insidious and extremely dangerous poison. It was only after much study that it has been learned that – apart from massive doses such as those that killed 200,000 in the Hiroshima and Nagasaki bombings in 1945 – low-level nuclear radiation is not as deadly as previously thought; it may not even be dangerous at all. And yet, the widespread belief now is exactly the one that motivated ban-the-bomb activists more than 50 years ago.
Lessons for the fossil-fuel industry
A similar effort is underway now against the burning of fossil fuels. A similar group of activists is playing a leading role – a coalition of activists and scientists. As they did then, these present-day activists have a powerful and valid point. Then, it was that the world would fatally contaminate itself with radiation and ultimately blow itself up in an exchange of nuclear weapons if it did not change course fast. Now, it is that the world will heat itself into oblivion if it does not change course fast.
Most people assume that although the climate is changing and getting warmer and will continue to do so, we will muddle through with no greater apocalypses than occur in any era; be they war, pestilence, famine or massive poverty and homelessness.
Nevertheless, this insouciance could change rapidly. And, as the ban-the-bomb movement and The China Syndrome planted the seed for the demise of nuclear power, the seed for the demise of fossil fuels has been planted by climate change warnings.