WELLCOME TRUST DEFIES CAMPAIGNERS TO INCREASE FOSSIL FUEL INVESTMENT

WELLCOME TRUST DEFIES CAMPAIGNERS TO INCREASE FOSSIL FUEL INVESTMENT

Fossil fuel divestment campaigners have been running global campaigns to see to it that fossil fuel extraction is reduced and other alternative source of energy sought. These campaigners have had their reasons to cite for this move. Several organisations have managed to comply and have minimized their activities related to fossil fuel extractions.

On the contrary, there have been organisations that have stuck to their course of action and have even gone ahead to optimize the extraction, manufacture or distribution of fossil fuels and fossil fuel related products. The Wellcome Trust is a perfect example of such organizations (Guardian, Wellcome Trust defies campaigners to increase fossil fuel investment 2016).

The Wellcome trust had sold its £142 million stake it had in Shell after the UN Paris talks in December but had went ahead to increase its investments in companies such as Rio Tinto and BHP Billiton (Guardian, Wellcome Trust defies campaigners to increase fossil fuel investment 2016). This move has been taken in the negative light by the campaigners who absolutely believe that this move is a wrong one. Scientists have made it known that for climate change to get limited to 2C, then fossil fuels are to remain in their reserves (Guardian, Wellcome Trust defies campaigners to increase fossil fuel investment 2016).

Despite being in an agreement with the fact that climate change is among the greatest existing challenges to global health, the Wellcome Trust has not managed to buy the idea of selling out its shares in the fossil fuel companies.

A detailed analysis of the trust’s annual financial data reports sourced from Reuters have had the following revelations;

  1. Wellcome Trust made an increase in the quantity of its fossil fuel stocks in BHP Billiton, Rio Tinto, BP and BG by a value approximated to lie between 5.2% and 27%. This increase happened between 2014 and 2015 (Guardian, Wellcome Trust defies campaigners to increase fossil fuel investment 2016).

  2. The trust made an increase in its stakes in BHP Billiton, Rio Tinto and BP by 35%, 25% and 12% respectively. These shares were purchased from mid-2015 to the end of 2015 (Guardian, Wellcome Trust defies campaigners to increase fossil fuel investment 2016).

  3. There was also an increase in the amount of shares the trust possesses in BG which is a major multinational dealer in gas and oil. Shell prospects to takeover BG with its 300% bid (Guardian, Wellcome Trust defies campaigners to increase fossil fuel investment 2016).

  4. Wellcome trust held stakes worth £142 million in Shell in the month of September in 2014. The trust however sold out the stakes by the month of August 2015 (Guardian, Wellcome Trust defies campaigners to increase fossil fuel investment 2016).

  5. The trust has a £22 million stake in Ophir Energy, a company that actively supplies gas and oil in Africa, and a £9 Million stake in Nostrum Oil and Gas in Kazakhstan (Guardian, Wellcome Trust defies campaigners to increase fossil fuel investment 2016).

Analysis shows that the trust lost approximately £175 Million on the investments made in fossil fuel companies from the beginning of the year to the month of August, 2015. The share prices of this trust in these companies have also drastically fallen.

  1. Analysis provided by Corporate Knights reveals that the company would have an £238 Million extra value if it had taken to divesting in the year 2012.

Even with coal investment performing quite poorly, the trust increased its stakes massively in BHP Billiton. BHP Billiton has coal stakes equivalent to the US, EU, India and Russia’s annual emissions combined (Guardian, Wellcome Trust defies campaigners to increase fossil fuel investment 2016).

While the trust continues to get unending criticism from divestment campaigners who all argue that the company is on “ the wrong side of history” by making more investments that will foresee increased extraction of fossil fuels, its owners believe otherwise. A statement released through the trust’s spokeswoman reveals that the company sees the investments as minimal and that they intend to be strong contributors towards the reduction of carbon emissions too. With the trust having managed to earn more than £ 10 Billion on its long-term portfolio since September 2008, they intend to direct £5 Billion towards their health improvement mission in the next 5 years (starting from 30th September 2015) (Guardian, Wellcome Trust defies campaigners to increase fossil fuel investment 2016).

In order to have a clear understanding of the existence of the differences between the trust and the divestment campaigners, the analysis of the existing pros and cons of fossil fuels can be made. This goes together with making an in-depth analysis of the future possible occurrences that would be realised if fossil fuels continue being used as the main source of energy.

Below are the reasons that have contributed to the massive use of the fossil fuels all over the world:

  1. The existence of already developed technology

The technology used to harness fossil fuel energy can be termed as well developed since for many years these fossils have powered our planet hence making engineers capitalize of extraction equipment (Maehlum 2012).

  1. They are cheap and readily available

Fossils fuels are basically cheaper sources of energy as compared to the renewable sources of energy such as harnessing of wind and solar energy (Maehlum 2012).

  1. They are efficient for use

Fossil fuels are capable of providing larger amounts of energy at a cheaper cost. This makes their use widespread for use in homesteads and industries (Maehlum 2012).

  1. They form the basis for the production of other sources of energy

Fossil fuels extracts are used to power machinery used in the production of electricity. Companies producing these fuels largely defend themselves on this basis (Ridley 2015).

The following are reasons that are commonly cited against the use of fossil fuels

  1. They contribute towards global warming

They main component of fossil fuels is carbon, which is responsible for the occurrence of global warming which is already affecting our planet (Maehlum 2012).

  1. They are non-renewable sources of energy

Scientists have been able to determine that the amount of these fuels available in reserves is finite. The entire dependence on these fuels would translate to a time of lack hence disaster upon their depletion (Maehlum 2012).

  1. Their extraction leads to environmental pollution

Oil rigs have been associated with major spills that lead to the death of many living organisms leading to an imbalance in the ecosystem. Metals found in the refined fuels are also hazards to human health as well as causing abnormalities in plant growth.

  1. There are accidents related to the use of fossil fuels

Burst petroleum pipes are prone to catch fire, a fact that leaves those living near the pipes prone to death in the case of such an occurrence (Maehlum 2012).

Divestment companies have the following arguments to defend their move to discourage against the reliance on and production of fossil fuels:

  1. Companies should align their investments with their values

Mutual funds like those dealing with retirement benefit plans tend to make heavy investments in coal, oil and gas companies. Attention is not turned towards companies that are out to cause change in the current climate situation. Individuals and organisations wanting to have their investment reflect their ethics are accepting the call to divestment (Management 2015).

  1. Financial reasons related to risks, dividends and stranded assets.

  1. According to MSCI, the global index provider, the energy sector leads the list of the most risky sectors in world’s global scene (Management 2015).

  2. Dividends

Fossil fuels have quite huge capital expenditures and tend to leave less cash for dividends to be shared out among investors (Management 2015).

  1. Stranded assets

Should the governments step in to restrict the extraction and use of fossil fuels due to carbon emissions, organisations and individuals who have heavily invested in this sector face the threat of having their assets devalued or stranded.

  1. Political reasons related to the reduction of corporate influence

The influence that the fossil fuel industry has on governments due to the sector of the economy that they control cannot be underestimated. The divestment campaigners intend to have governments set free from these corporate companies who may be controlling the government and impacting negatively on the growth of the countries (Management 2015).

  1. Reinvestment in cleaner energy solutions

Upon the divestment from the use of fossil fuels, funds will be allocated to development of other renewable energy sources. These sources are bound to be more efficient and will conserve the environment.

The future of fossil fuels

With the advent of other sources of energy, the fossil fuel industry faces a sure demise threat. The renewable energy industries are slowly rising up to provide alternative sources of energy (Management 2015).

Following the massive electrification in the transport sector, the consumption of fossil fuels in the form of refined petroleum is set to go down quite rapidly. The introduction of fast bullet trains and electric cars leaves the petroleum refiners with less options on where to sell their products. It is important to note however that the use of fuel on transportation cannot be extremely terminated since not all areas in the world can have complete electrification (Terzic 2009).

The use of fossil fuels for electricity production is unlikely to phased out however since the fuels produce quite a massive amount of energy that serves billions of people in the world. This could a reason for some organisations to stick around to ensure that they generate revenues from provision of fuel for this purpose (Terzic 2009).

Coal is the major fuel used for the production of electricity in the world. By the year 2008, coal accounted for 41% of the fuels used in electricity production in the world. It contributed to 50%, 78% and 59% respectively in The United States of America, China and India respectively. In China and India, the projections for the use of coal continues to increase (Terzic 2009).

In the U.S.A, the use of coal in the production of electricity is gradually decreasing but is however being replaced by the use of natural gas. This does not change the fact that carbon emissions are bound to occur. The USA gas prices are quite volatile as compared to other regions such as the European Union who majorly rely on Russia for their natural gas imports.

Nuclear energy production is an upcoming source of energy with several plants being under construction. Nuclear energy is however not prone to phasing out the use of fossil fuels since many regions are against anything that is termed as “nuclear”

An analysis of the Wellcome Trust ethics based on the S-T-A-R

The STAR technique of handling business ethical issues provides symmetrical analysis. This is based on a comparison of the state of the current situation as is against the state as should be. There are the set objectives of the business which it aims to achieve. These objectives can either be achieved by a business following the ethical requirements or working in their own way, which may be against the ethical requirements. This in turn translates to the existence of the actions which are liable to criticism from the observers who have the ethical code in mind.

A closer look into the Wellcome Trust’s state of affairs reveals that their actions are different from the defined actions that a business expected to be operating ethically bears. The Wellcome trust has been on a constant trend of maximizing their investments in companies dealing with fossil fuels.

Based on the UN talks held in December, 2015, the company is currently going contrary to the global health objectives set for organisations to follow. Carbon emissions pose a threat to the health of human beings, thus the objectives set were inclined towards ensuring that organisations conduct business activities that don’t increase the amount of carbon present in the atmosphere.

The divesting campaigners in this situation are viewed as the definers of the business ethical code. They have a mission set out to see to it that organisations direct their resources direct their resources towards the production of sustainable renewable sources of energy.

The trust’s objective is to generate income by investing in the energy sector

Business Objective:

The Wellcome Trust is currently optimizing all their investments made in the fossil fuel industry

Business Condition:

The UN Paris talks held in December 2015 passed a global objective to have global health as a major issue that energy producing countries have to take care of

Ethical Condition

WELLCOME TRUST DEFIES CAMPAIGNERS TO INCREASE FOSSIL FUEL INVESTMENT

Organisations should divest since the threats posed by having to use fossil fuels are heavily felt and affect the universe at large.

Ethical Action:

The Wellcome Trust continues to increase its stakes in the fossil fuel industry. The major moves reflect that its investment portfolio is majorly comprised of stakes held in fossil fuel industries.

Wellcome Trust’s Action:

Where The Wellcome Trust stands

The Wellcome Trust has managed to make bold business related moves in risking to purchase more stakes in the fossil fuel industry. If the projected situations do not occur and cost them in the case that there is a shift to the use of renewable sources of energy, then they will be bound to earn more revenues by controlling the flow of fossil fuels.

The obvious is however not avoidable that renewable sources of energy are slowing phasing out the non-renewable fossil fuel, though complete phasing out is not possible, and this shows that the Wellcome Trust faced is at a risky position. If governments are to have themselves set free of the control from oil corporates, the Wellcome Trust is also likely to face a negative turn of events.

Finally, based on the business ethics for which the divestment campaigners are considered as the definers of the ethical code, the Wellcome Trust is on the “wrong side of history”. This leaves the Trust at a critical position and their venture is basically very risky with a high possibility of losing out too.

References

Guardian, The. 2015. «The argument for divesting from fossil fuels is becoming overwhelming.» The Guardian. March 1. Accessed May 9, 2016. http://www.theguardian.com/environment/2015/mar/1/argument-divesting-fossil-fuels-overwhelming-climate-change.

—. 2016. «Wellcome Trust defies campaigners to increase fossil fuel investment.» The Guardian. January. Accessed May 9, 2016. http://www.theguardian.com/environment/2015/dec/28/wellcome-trust-defies-campaigners-to-increase-investment-in-fossil-fuels.

Maehlum, Mathias Aarre. 2012. «Fossil Fuels Pros and Cons.» Energy Informative. October 16. Accessed May 9, 2016. http://energyinformative.org/fossil-fuels-pros-and-cons/.

Management, Green Century Capital. 2015. «Top Four Reasons to Divest from Fossil Fuel Companies.» Green Century Funds. September 16. Accessed May 9, 2016. http://greencentury.com/copy-top-four-reasons-to-divest-from-fossil-fuel-companies/.

Ridley, Matt. 2015. «Fossil Fuels Will Save the World( Really).» The Wall Street Journal. March 13. Accessed May 9, 2016. http://www.wsj.com/articles/fossil-fuels-will-save-the-world-really-1426282420.

Study.com. n.d. «What are fossil fuels?-Definition, Advantages& Disadvantages.» Study.com. Accessed May 9, 2016. http://study.com/academy/lessons/what-are-fossil-fuels-definitio-advantages-disadvantages.html.

Terzic, Greg Aliff and Branko. 2009. «Delloite LLP.» The Future of Fossil Fuels, January 12.