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Fossil fuels divestment: is it lawful?

journal contribution
posted on 2023-05-18, 23:51 authored by Benjamin RichardsonBenjamin Richardson

An ebullient global campaign against investment in fossil fuel industries is attracting a diverse entourage that includes community activists, universities and even some mainstream financial institutions. The movement is coagulating around anti-fossil fuel networks, such as’s Fossil Free, and the Fossil Fuel Divestment Student Network as well as numerous local hubs of activism such as Divest Harvard and Fossil Free UNSW. Frustrated by government prevarication, the campaign avows to curb greenhouse gas emissions by pressuring investors to shun fossil fuel industries such as oil firms and coal miners in the hope that they adopt more environmentally benign practices or go out of business altogether. ‘Divestment’ conventionally means withdrawing financial ties from a company, usually by selling stocks or bonds, but may extend to other financial sanctions such as a bank declining a loan.

The foregoing campaign is opposed by many financiers, and governments too, for reasons that include the belief that divesting is financially irresponsible, it cannot leverage positive change and that it is unlawful or legally dubious. The British government in February 2016 warned municipal councils against fossil fuels divestment and threatened to financially punish those who defy it. A number of United States universities, which have faced concerted pressure from students to divest, have similarly resisted for the foregoing reasons. The legal context is ambiguous, partly because of the paucity of case law or legislative guidance on whether and how climate change risks and impacts can be criteria in financial decision-making. Legal opinions tend to be couched with many qualifications, such as one given to the Interfaith Center on Corporate Social Responsibility – the leading faith-based investor network in the United States – that the law likely ‘preclude[s] a fiduciary from eliminating the entire [fossil fuel] industry [from its portfolio] without considering each investment [that would be affected] on a case-by-case basis’.

This article assesses the legality of fossil fuels divesting. Divesting is a form of socially responsible investing (‘SRI’), and therefore the analysis draws on understandings of SRI’s legal context. The article focuses on the major Anglophile jurisdictions because they are either globally preeminent financial markets (United States (‘US’) and United Kingdom (‘UK’)) or host large fossil fuel sectors such as oil sands (Canada) and coal mining (Australia). The discussion is not directly applicable to civil law systems, such as Germany or Japan, where some different legal doctrines and procedures govern investing. Neither the merits of fossil fuel investing nor its impact on corporate behaviour are assessed: the focus is strictly on understanding the legal scope to practise fossil fuels divestment.


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University of New South Wales Law Journal










Faculty of Law


University of New South Wales

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Copyright 2016 UNSWLJ

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  • Restricted

Socio-economic Objectives

Environmental policy, legislation and standards not elsewhere classified

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