You’re welcome. Divestment is subject to that eternal law called the law of unintended consequences. Visualize an ecosystem of generalist index tracking big institutional investors — energy market dumb money — cohabiting with niche energy market smart money that waits years for the moment when an oil price crash, pessimism or other displacement event causes energy market dumb money to dump assets at fire sale prices (2009, 2016, early to mid 2020). If you’re running the investor relations department of Apache, Occidental or Anadarko or RD Shell which shareholder base makes your life easier? As always, the stock market is a mechanism for transferring wealth from the weak to the strong (a Michael Lewis aphorism, not mine)
The dumb money bugging you about redirecting capex to greener fuels or… The smart money that cares only about return of capital to shareholders and avoiding empire-building acquisitions at peak of the cycle valuations and dumb ego-feeding the CEO risky growth. The real risk you’d hate to confront is having your company and its stock removed from a big index or index-tracking ETFs run by Vanguard, iShares or Blackrock. You want to keep onside the passive investment big money that’s forced to buy your shares whether they’re worth buying or not.
Starving rogue petro companies of capital is a worthy goal. But divestment, as generically defined, is not necessarily to best way to do that unless it targets the key choke points of the system. Larry Fink’s greenwashed fossil fuel ESG policies for Blackrock’s ETFs have a far greater impact than any individual endowment’s or pension fund’s ESG policies. This kind of ESG fraud is why the SEC is looking into establishing a set of rules for ESG ratings.
An institutional investor that no longer owns the company’s shares can’t pressure that company unless it has enough influence with the big ETF providers to get the company kicked out of the index the ETF tracks. If you divest all your fossil fuels stocks but still own a broad-based index fund, you’re still indirectly invested in fossil fuel stocks. That’s why I don’t own broad-based indexes like SPY, QQQ, IWM. They’re all full of trash of one sort or another. I hope this is helpful.
I’m not one of the 1%. I’ve been dumb money too often to join.
