The head of one of the largest investment groups in the world said Sunday that the fossil fuel divestment campaign is creating oil barons in the energy market.
Bill McNabb, chief executive of Vanguard, told the Financial Times if divestment campaigners succeed in forcing down oil prices, the outcome will be to create a situation where only a small number of oil producers will cove the market.
“I get the theory relating to cost of capital, I’ve just never seen it work,” McNabb told reporters. “Companies would get taken private, and then the private equity guys and the management teams get rich beyond belief,” he said about the effect a successful divestment campaign would have on the oil markets.
The campaign risks monopolizing the oil industry.
“You would take something that was public and transparent and make it private and opaque, and a wealth creation vehicle for a small group of individuals,” he said, referring to the massive amount of capital public companies are able to raise in order to stay profitable.
If oil companies move their holdings from public to private, McNabb added, it will force smaller companies without access to capital out of the energy market, potentially leaving only the largest companies left to pick up the profits.
McNabb is skeptical that the divestment charge will affect an oil producer’s share prices enough to cause a difference.
“There is no impact to the income or balance sheet of the company. You are not sending a message to the company. You are better remaining an owner and being able to engage with the company,” he said.
Vanguard manages more than $3.5 trillion in assets, and attempts to improve the governance of its assets, according to McNabb, mostly because promoting social and environmental issues leads to failure because, he added, “our clients’ [views] are all over the map” on those kinds of investments.
Still, divestment campaigners such as environmentalist Bill McKibben and billionaire environmentalist Tom Steyer are pushing full bore on divestment, especially in university endowments.
Steyer’s political action committee, NextGen Climate, announced in April a $25 million campaign to encourage college students to support and vote for green energy candidates in the November 2016 election.
The mega-wealthy Democratic donor also shoveled more than $8.5 million into unsuccessful bids to get divestment-supporting candidates elected to office in 2014. Steyer’s efforts failed, especially in Colorado, where he plowed more than $4 million into Colorado Democratic Sen. Mark Udall’s unsuccessful reelection bid in 2014.
He has also spent more than $13 million thus far to influence the 2016 election, according to OpenSecrets.org.
McKibben’s environmental groups — Divest and Invest and 350.org — continually champion statistics showing that 500 institutions representing over $3.4 trillion in assets have pledged, in some form, to purge their oil assets.
Yet, critics aren’t buying it. They believe McKibben’s numbers are inflated beyond proper measurement.
Forbes suggested in December that divesting institutions have sold off, at most, $125 billion. Additionally, that $3.4 trillion number is likely the total number of assets held by those institutions, not the actual number of fossil fuel divested assets.
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