Can the fund/person/company demand that the fossil fuel company gives them their money back? Basically, how can divestment ultimately work if we’re trying to get *everyone* to divest…?
In: 0
So long as fossil fuels continue to generate profits, there will be someone willing to buy the stock.
The decision to divest from fossil fuels is mostly about principals. A person or institution who owns stock in a fossil fuel company stands to gain from doing so, either through direct dividend payouts that split the profits of the company among its shareholders, or indirectly through growth in the price of the stock as they hold it. If you view fossil fuels as an inherently evil thing, you might feel dirty taking money from a company that deals in them, and that’s fine. Investing doesn’t just have to be about profits.
But for a great many dollars in the market, investing *is* just about profits. This isn’t just individual hedge fund guys. Pension funds, mutual funds, sovereign wealth funds, trusts, etc. all invest money with minimal oversight from the people who actually have a claim on that money. Many have legal obligations to invest according to certain rules or to maximize returns given some level of risk. So long as it’s a good financial investment, these entities will happily buy up divested fossil fuel stocks. The price of those stocks may dip as they’re divested, but they’ll never fall that far below whatever fundamental valuation the fossil fuel business can support.
It’s tempting to entertain a hypothetical of “what if there was a company widely acknowledged to be profitable, but no one would buy its stock at any price?” but it’s so far outside the reality of investing, it’s hard to even know how to begin talking about it. There are frequently stocks that nobody wants to buy, but that’s because of some new information that makes them worthless (like the company was a scam). It would be like having a perfectly good $20 bill that the store won’t take “just ’cause”.
So long as fossil fuels continue to generate profits, there will be someone willing to buy the stock.
The decision to divest from fossil fuels is mostly about principals. A person or institution who owns stock in a fossil fuel company stands to gain from doing so, either through direct dividend payouts that split the profits of the company among its shareholders, or indirectly through growth in the price of the stock as they hold it. If you view fossil fuels as an inherently evil thing, you might feel dirty taking money from a company that deals in them, and that’s fine. Investing doesn’t just have to be about profits.
But for a great many dollars in the market, investing *is* just about profits. This isn’t just individual hedge fund guys. Pension funds, mutual funds, sovereign wealth funds, trusts, etc. all invest money with minimal oversight from the people who actually have a claim on that money. Many have legal obligations to invest according to certain rules or to maximize returns given some level of risk. So long as it’s a good financial investment, these entities will happily buy up divested fossil fuel stocks. The price of those stocks may dip as they’re divested, but they’ll never fall that far below whatever fundamental valuation the fossil fuel business can support.
It’s tempting to entertain a hypothetical of “what if there was a company widely acknowledged to be profitable, but no one would buy its stock at any price?” but it’s so far outside the reality of investing, it’s hard to even know how to begin talking about it. There are frequently stocks that nobody wants to buy, but that’s because of some new information that makes them worthless (like the company was a scam). It would be like having a perfectly good $20 bill that the store won’t take “just ’cause”.
Assuming “Fossil Fuels company” refer to a company you bought shares.
>Can the fund/person/company demand that the fossil fuel company gives them their money back?
Generally speaking, then the answer is going to be no. If nobody else wants your company (as a shareholder you part-own the company), you’re essentially holding the bag.
Note that it was the seller who has your original money – and the seller would only be the company if they were issuing new shares. Otherwise, once they’re bought, you’ll then most likely have bought your shares from another shareholder.
You “getting your money back” would only involve someone offering to buy the shares – whether it be the market or the company. And it would also be very likely at market rate. So if no-one is looking to buy shares, that price is going to be on the low side.
Assuming “Fossil Fuels company” refer to a company you bought shares.
>Can the fund/person/company demand that the fossil fuel company gives them their money back?
Generally speaking, then the answer is going to be no. If nobody else wants your company (as a shareholder you part-own the company), you’re essentially holding the bag.
Note that it was the seller who has your original money – and the seller would only be the company if they were issuing new shares. Otherwise, once they’re bought, you’ll then most likely have bought your shares from another shareholder.
You “getting your money back” would only involve someone offering to buy the shares – whether it be the market or the company. And it would also be very likely at market rate. So if no-one is looking to buy shares, that price is going to be on the low side.
Assuming “Fossil Fuels company” refer to a company you bought shares.
>Can the fund/person/company demand that the fossil fuel company gives them their money back?
Generally speaking, then the answer is going to be no. If nobody else wants your company (as a shareholder you part-own the company), you’re essentially holding the bag.
Note that it was the seller who has your original money – and the seller would only be the company if they were issuing new shares. Otherwise, once they’re bought, you’ll then most likely have bought your shares from another shareholder.
You “getting your money back” would only involve someone offering to buy the shares – whether it be the market or the company. And it would also be very likely at market rate. So if no-one is looking to buy shares, that price is going to be on the low side.
> but no one wants to buy them (because it’s…bad)
I’d argue this is a flawed premise. In any large group of humans, there will be plenty of individuals who care a lot for money, and not at all for what’s “bad”.
Say BigOilCo makes $5 billion in profits and has 10 billion shares. $0.50 per share, so if you buy 100 shares, you get $50 in your bank account, every year, Forever [1].
How much would you pay right now to get $50 a year, forever? $200? $1000?
At some point, it becomes ridiculous: For the low low price of $100 right now, you can get $50 a year forever. Still too high? How about $40? You’ll make back your investment in a year. Doesn’t work for you? Let’s try $20…
Eventually the price gets so low, it’s a crazy good deal. How strongly do you feel about the environment? Do you have the moral strength to stand by your principles if it means passing up an opportunity to turn thousands of dollars into millions of dollars? A few million people have the ability to trade stocks, do *all of those people* share your opinions about the evils of fossil fuels, and have that level of inner strength?
The price doesn’t really have to get *that* low for people to be willing to bend. There are plenty of rich folks and large investment funds who don’t give a flying fig about the morality of investing in drilling for oil, and will happily buy oil company shares if their fancy computer models tell them oil companies’ stocks are even slightly underpriced relative to the rest of the market. I don’t see that changing anytime soon.
If you want fossil fuels to go away, technology and infrastructure is the answer. Figure out how to make electric cars or other alternatives better and cheaper. Build better rail networks because trains are the most energy efficient mode of transportation.
[1] Actually, only as long as the company is still in business at its current level of profitability.
> but no one wants to buy them (because it’s…bad)
I’d argue this is a flawed premise. In any large group of humans, there will be plenty of individuals who care a lot for money, and not at all for what’s “bad”.
Say BigOilCo makes $5 billion in profits and has 10 billion shares. $0.50 per share, so if you buy 100 shares, you get $50 in your bank account, every year, Forever [1].
How much would you pay right now to get $50 a year, forever? $200? $1000?
At some point, it becomes ridiculous: For the low low price of $100 right now, you can get $50 a year forever. Still too high? How about $40? You’ll make back your investment in a year. Doesn’t work for you? Let’s try $20…
Eventually the price gets so low, it’s a crazy good deal. How strongly do you feel about the environment? Do you have the moral strength to stand by your principles if it means passing up an opportunity to turn thousands of dollars into millions of dollars? A few million people have the ability to trade stocks, do *all of those people* share your opinions about the evils of fossil fuels, and have that level of inner strength?
The price doesn’t really have to get *that* low for people to be willing to bend. There are plenty of rich folks and large investment funds who don’t give a flying fig about the morality of investing in drilling for oil, and will happily buy oil company shares if their fancy computer models tell them oil companies’ stocks are even slightly underpriced relative to the rest of the market. I don’t see that changing anytime soon.
If you want fossil fuels to go away, technology and infrastructure is the answer. Figure out how to make electric cars or other alternatives better and cheaper. Build better rail networks because trains are the most energy efficient mode of transportation.
[1] Actually, only as long as the company is still in business at its current level of profitability.
> but no one wants to buy them (because it’s…bad)
I’d argue this is a flawed premise. In any large group of humans, there will be plenty of individuals who care a lot for money, and not at all for what’s “bad”.
Say BigOilCo makes $5 billion in profits and has 10 billion shares. $0.50 per share, so if you buy 100 shares, you get $50 in your bank account, every year, Forever [1].
How much would you pay right now to get $50 a year, forever? $200? $1000?
At some point, it becomes ridiculous: For the low low price of $100 right now, you can get $50 a year forever. Still too high? How about $40? You’ll make back your investment in a year. Doesn’t work for you? Let’s try $20…
Eventually the price gets so low, it’s a crazy good deal. How strongly do you feel about the environment? Do you have the moral strength to stand by your principles if it means passing up an opportunity to turn thousands of dollars into millions of dollars? A few million people have the ability to trade stocks, do *all of those people* share your opinions about the evils of fossil fuels, and have that level of inner strength?
The price doesn’t really have to get *that* low for people to be willing to bend. There are plenty of rich folks and large investment funds who don’t give a flying fig about the morality of investing in drilling for oil, and will happily buy oil company shares if their fancy computer models tell them oil companies’ stocks are even slightly underpriced relative to the rest of the market. I don’t see that changing anytime soon.
If you want fossil fuels to go away, technology and infrastructure is the answer. Figure out how to make electric cars or other alternatives better and cheaper. Build better rail networks because trains are the most energy efficient mode of transportation.
[1] Actually, only as long as the company is still in business at its current level of profitability.
Latest Answers