Is divesting from fossil fuel companies enough?

Managing
August 7, 2020

UPDATE: August 2020

A consultation between the Ministry of Business, Innovation and Employment and fund managers is currently underway. The consultation addresses the extent of removing fossil fuels from funds. Two options are being discussed:

  1. the first option would require default providers to screen out stocks that have “proved or probable” fossil fuel reserves and earn at least 15 per cent of their revenues on the back of them, or
  2. alternatively, default funds would exclude shares based on the above criteria plus those caught under primary business activity definitions covering:
  • exploration, drilling, and production of oil and gas
  • supply of equipment and services to oil fields and offshore platforms
  • integrated oil and gas companies, or
  • exploration for or mining of coal.

This will impact KiwiSaver providers seeking default status. Request for proposals for default status will take place shortly (delayed from the COVID-19 lockdown). It's likely newly-appointed KiwiSaver default scheme providers will begin their seven-year terms at the end of next year. It's currently unknown as to the timings for rolling out the implementation of fossil-free default KiwiSaver funds.

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Fossil fuel use is the world’s primary source of carbon dioxide, which accounts for 65% of all global greenhouse gas emissions [1].

In recent years, more institutional and individual investors have chosen to divest from investment in companies that extract, refine and supply fossil fuels. As at January 2020 the value of fossil fuel divestments worldwide had reached USD12t [2].

This global divestment trend is beginning to impact the reputation and power of the fossil fuel industry itself. In 2018, analysts at Goldman Sachs said the “divestment movement has been a key driver of the coal sector’s 60% de-rating over the past five years” [3].

This is not necessarily due to a direct correlation between divestment and the performance of these companies. What we’ve seen is that divesting your investments from fossil fuels sends a strong message (like tobacco) that this is no longer an industry that is acceptable to be associated with.

Commerce Minister Kris Faafoi said banning investment in fossil fuel companies would help combat climate change and carbon emissions. He also said the Superannuation Fund sold NZD950m worth of holdings in 297 companies [4] and its investment returns had not suffered [5].

Since then, there remains over NZD1.15b of KiwiSaver money invested in companies involved in fossil fuel extraction and production .

Given that by 2050 KiwiSaver would have more than NZD900b of investments  the New Zealand Government made a bold move recently by revamping KiwiSaver rules for default fund providers. KiwiSaver members are allocated a default provider if they don't actively choose a KiwiSaver fund - and nearly 700,000 people are currently in that situation . From July 2021 default KiwiSaver funds will have divested (amongst other things) in fossil fuels.

Simple, right?

No - unfortunately, our major banks are still investing billions of dollars in the fossil fuel industry. In the last four years, New Zealand’s major banks have loaned over NZD21b to fossil fuel projects both here and offshore [9]. The vast majority of investment portfolios, still include shares in companies that extract, refine and supply fossil fuels.

And on another matter, here’s a diagram showing the process that oil and gas goes through, and who’s involved, as it gets removed from the ground and made into products that we use everyday.

Oil and gas value chain

As you can see there is quite a process involved, to turn it into something that manufacturers can use. You can also see that there many more manufacturing, supply and distribution companies involved who then turn them into the products that we use.

In 2017, 50% of all crude oil produced worldwide was refined into fuel for transport, most as petrol [10]. Luckily, carpooling, scooters, electric vehicles and more efficient forms of public transport mean demand for petrol is falling.  So in addition to our divestment of fossil fuel companies, our changing demand for their primary product is dropping.

But it seems that to counter the decreasing demand for petrol oil and gas companies are turning their focus to consumer goods.

Did you know that fossil fuels are found in 96% of the items we use each day [11]? Fossil fuels are used in products that have become essentials in our daily lives, like computers, clothes, makeup, deodorant, refrigerators, dishwashers, telephones, medicines and plastics.

So while it’s anticipated that over the next 15 years demand for petrol will continue to decline, at the same time global plastic production is expected to double. In fact, plastic made from crude oil is predicted to increase by 3.8% every year until 2030.

Replacing the fossil fuel component of our everyday products

Cheap plastic is made using chemicals produced in the process of making fuel. In the process of transforming crude oil into petrol, ethane, as a by-product, was produced. Ethane is needed to produce 99.0% of all plastics [12].

Plastic packaging of goods is the single largest source of plastic demand [13] and this is facing scrutiny because the environmental consequences of making even more plastic from crude oil will be significant. In addition to the plastic pollution washing up on our shores, simply producing more plastic will accelerate our carbon emissions.

That’s because making plastic releases carbon dioxide (CO₂). Both transporting the crude oil to make it and then disposing of the plastic by incineration generates emissions. Most of the estimated total natural capital cost of plastic pollution – USD75b per year for the consumer goods sector alone – arises from CO₂ emissions linked to producing and transporting plastic.

Expanding plastic production and sending more plastic either directly to incineration or to waste-to-energy facilities - where plastics are turned into oil and used to generate electricity or heat – mean CO₂ emissions from plastic are expected to triple by 2050 to 309m metric tonnes. Incinerating mountains of plastic waste could become one of the largest sources of C0₂ emissions in Europe’s energy sector as fossil fuels are phased out.

Achieving net zero emissions from incinerating plastic packaging means eliminating all non-essential uses of petroleum-based plastic by 2035.

Replacing our everyday plastic use

Here are some other long-lasting plastic alternatives available right now:

  • bamboo is a fast-growing renewable resource that is lightweight, durable, and compostable and can replace plastic in items like tableware and drinking straws
  • hemp is also a fast grower that is lightweight, biodegradable and can replace many oil-based plastics making it good for sustainable plastics known as 'bioplastics'
  • natural fiber cloth is made from organic cotton, wool, hemp, or bamboo and won’t shed plastic fibers when washed
  • felted or recycled wool is a versatile, safe, and compostable material for children’s toys, household containers, and more
  • beeswax-coated cloth is used primarily as a replacement for plastic wrap and plastic bags, beeswax-coated fabric is easy to use and easy to clean
  • wood from sustainably-managed forests is a renewable resource that can replace plastic in household items like cleaning brushes, kitchen utensils, and cutting boards
  • pottery and other fired ceramics (with non-toxic glazes) offer a stable, waterproof alternative that’s good for food storage and tableware
  • plain paper was commonly used to package all sorts of things. While it can’t be recycled infinitely, all paper (except the glossy kind) is safe to put in your home compost
  • uncoated cardboard is also fully compostable and you can also use cardboard boxes to replace storage containers at home
  • glass is inexpensive, easy to clean and recyclable. Up-cycling glass jars into food storage is a low-cost way to package your food, as well as gifts and holding homemade drinks
  • food grade platinum silicone (without plastic fillers) is made primarily of sand and is flexible, durable and heat-tolerant, so you can use them to boil, bake, and cook safely, and
  • stainless steel is tough and easy to clean. You can use stainless steel to replace single-use cups, kitchen storage, lunch boxes, and more.

Halving our demand of petroleum-based plastic packaging by 2030 and phasing it out altogether by 2050 could ensure CO₂ emissions targets are still met.

But keep in mind that anything you buy has an environmental footprint. Though longer lasting than plastic, packaging and other supplies made from glass, metal, and so on still take energy to make and transport. For these swaps to make sense, you need to use them over and over and over again. Buying well-made, durable products will help ensure you get the most use from whatever you choose and coupled with our fossil fuel divestment from our KiwiSaver savings, decreased use of fuel for vehicles and an increased use of renewable energy sources will hopefully enable us to reach our targets.

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[1] Responsibleinvestment.co.nz, Reduce your ties to fossil fuels, 2019

[2] Statista.com, Value of fossil fuel divestments worldwide in 2014 and 2020, January 2020

[3] Responsibleinvestment.co.nz, Reduce your ties to fossil fuels, 2019

[4] Stuff.co.nz, NZ Government funds have no plans to scrap fossil fuel investments, December 2019

[5] Tvnz.co.nz, KiwiSaver rule change to ban investing in fossil fuels and illegal weapons, March 2020

[6] Scoop.co.nz, Changes To Kiwisaver Standards A Win For The Climate Over Corporate Interests, March 2020,

[7] Newsroom.co.nz, KiwiSaver changes recommended in industry report, September 2019

[8] Rnz.co.nz, Govt ban on fossil fuels for default KiwiSavers is 'virtue signalling', March 2020

[9] Responsibleinvestment.co.nz, Reduce your ties to fossil fuels, 2019

[10] Theconversation.com, Fossil fuel industry sees the future in hard-to-recycle plastic, October 2019

[11] Iagc.com, Importance of fossil fuels, 2018

[12] Earthworks.org, Fracking for plastic, March 2020

[13] Theconversation.com, Fossil fuel industry sees the future in hard-to-recycle plastic, October 2019

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