Environmentalists rally in Boston, US, to demand state legislators support a bill that would require divestment from the state’s fossil fuel holdings. Photograph: Paul Weiskel/Corbis
This Q&A is part of the Guardian’s ultimate climate change FAQ
Divestment is the opposite of investment – it is the removal of stocks, bonds or funds from certain sectors or companies. The global movement for fossil fuel divestment (sometimes also called disinvestment) is asking institutions to move their money out of oil, coal and gas companies for both moral and financial reasons. These institutions include universities, religious institutions, pension funds, local authorities and charitable foundations.
Evidence shows that proven fossil fuel reserves are more than three times higher than we can afford to burn in order to stay below the generally agreed threshold for dangerous climate change. Fossil fuel companies are currently banking on extracting these reserves and selling them – and are actively prospecting for more. By supporting these companies, investors not only continue to fund unsustainable business models that are bound to make climate change worse, but they also risk their financial assets becoming worthless if international agreements on climate change are met. These investments are creating a “carbon bubble” worth trillions of dollars based on assets that could prove to be unusable. The Bank of England is conducting an investigation into whether these over-valued assets could plunge the world into another economic crisis. Although the impact of divestment on share prices may be relatively small, the reputational damage can have serious financial consequences.