Mercer Insights


The Mercer Investments view on fossil fuel divestment


“All action must, to a certain extent, be planned in a mere twilight, which…gives to things exaggerated dimensions and an unnatural appearance.”  So wrote Carl von Clausewitz in his famous treatise on military strategy On War.  Today’s big investors are facing increasing scrutiny over their respective exposures to a raft of sensitive investment areas, notably to the fossil fuels sector.  They’re also facing unprecedented pressure from both internal and external stakeholders to divest.  Like Clausewitzian strategists, today’s investors are forced to plan their actions in a mere twilight.

Planning effectively cannot start by blindly following what others believe.  Investors cannot just nod and agree with the divestment lobby, any more than they can nod and agree with those advocating divestment as the road to ruin.  The first step, always, must be to determine one’s own investment beliefs and plan from there.

Just over two years ago, Rolling Stone magazine published a call for fossil fuels divestment in the article by 350.org founder Bill McKibben titled Global Warming’s Terrifying New Math.  Around that time, Mercer published an article on the US student-led ‘Go Fossil Free’ campaign aimed at integrating sustainability concerns into their university endowments.  More recently, we have seen such activism culminate in important divestment-related decisions by universities, from Yale to ANU.

Last year, our Canadian colleagues published a paper that considered the divestment debate, specifically if the question of whether to divest or not was the right question to be asking in the first place.  Their conclusion aligns with Mercer’s long-held belief that step one should be a discussion about the nature of risk (and opportunity) presented by climate change.  From there, each organization can determine the most appropriate way to address those risks and opportunities.  Fossil fuels divestment is only one possible response.  It’s relatively untested and potentially difficult for a host of reasons; for example, eliminating the investor’s ability to engage with and influence the divested companies.   Other options might include:

  • Reviewing existing manager approaches.
  • Accessing sustainable investment themes.
  • Exercising shareholder power and influence via share voting.
  • Engaging directly with companies and policy makers.
  • Starting a committee, inclusive of all stakeholders, to review and debate the sustainability issues in a collaborative way.
  • Getting involved in projects seeking to influence positive change, such as Mercer’s new study to analyse investment risk & return of climate change.

Divestment is a complicated and highly emotive issue, but it’s an issue that, like the planet, is only hotting up.  It provides an opportunity to get on the front foot.

So don’t just stand there nodding to someone else’s argument, however persuasive it may be.  Be sure of your own investment beliefs so you can be powerful in supporting your position and in making the investment decisions that are right for you and your stakeholders.

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You may also be interested in our article on how Mercer is helping organisations identify where they stand on sensitive investment topics and what their next steps might be through our Sensitive Investment Topics Analyser (SITA).  Learn more.

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