Fossil Fuel Divestment
Domini pursues a strategy of partial fossil-fuel avoidance, combined with corporate engagement. We do not currently offer a fund that is entirely fossil-fuel free, although our fossil-fuel exposure is relatively limited, as discussed below.
We believe a range of strategies need to be brought to bear on the problem of climate change. We currently exclude individual companies that, in our view, fail to responsibly address the key sustainability challenges they face. We apply exclusions to entire industries only where we believe the core business model is inherently destructive, and incapable of reform. Nuclear weapons manufacturers and tobacco companies are good examples.
Current Fossil Fuel Exclusions
Domini generally excludes companies with substantial involvement in coal mining, and utilities that derive the majority of energy from coal. We also generally exclude railway companies that derive most of their revenue from transporting coal, as their profitability depends on the continued use of coal. We have also excluded marine shipping companies for which transporting coal is a substantial part of their business.
With respect to oil, currently our social and environmental standards have led us to exclude the largest integrated oil companies (including ExxonMobil, Chevron, ConocoPhillips, Shell and BP), due to a range of environmental and human rights concerns, and energy companies deriving significant revenues from tar sands development.
The world is not currently positioned to eliminate fossil fuels. In the meantime, we believe it is important to support “better” sources of energy. Our funds’ energy exposure is currently tilted toward natural gas, which we continue to view as a ‘transitional’ fuel towards a renewable energy future. This means that we do hold a number of companies that produce both oil and natural gas, including a number of firms on Carbon Tracker’s top 200 list, the list used by 350.org as the basis for its fossil-fuel divestment campaign. At least for the near term, the lower carbon intensity of natural gas is important, and may be contributing to a decrease in the use of coal.
When natural gas is burned, it is far superior to other fossil fuels from a climate perspective. However when methane, the core component of natural gas, is directly released to the atmosphere it is a very potent greenhouse gas – it doesn’t last as long as carbon, but during its time in the atmosphere, it traps far more heat. Some studies estimate that natural gas is no better than coal, on a life-cycle global warming potential basis, if the methane leakage rate is above 3.2%. It is therefore critical to ensure that natural gas producers are measuring and managing their methane emissions.
We believe that we can have an impact as shareholders by, for example, encouraging natural gas companies to reduce the amount of methane that is released into the atmosphere through venting or leakage.
We have also actively engaged with natural gas companies in our portfolio about the environmental and community impacts of hydraulic fracturing, and are engaged in a number of other climate change initiatives, including corporate engagement on sustainable forestry and coal financing, and a variety of climate-related public policy initiatives.
Making a Statement
One way of viewing social screening is that it is a way to make a statement and send a signal to the marketplace. We believe we have made a strong statement on fossil fuels by excluding coal and most large integrated oil companies. We are continuing to evaluate, and re-evaluate this position. We, of course, must also consider the implications of a fossil-fuel free policy for the financial performance of the Funds.
For all of these reasons, we continue to pursue a strategy of partial fossil-fuel avoidance combined with direct engagement.