This article originally appeared on the NRDC blog Switchboard.
(Photo: Tim Sackton/flickr CC 2.0)
A group of Harvard students recently filed suit against the college’s president, fellows and others for “mismanagement of charitable funds.” The suit asks the court to compel the university — which boasts a $36 billion endowment, the largest of any university in the world — to divest from fossil fuels.
Harvard is just one of many colleges across the country where students, alumni and some faculty, motivated by the urgency of the climate crisis, have been pressuring administrations to move investments out of fossil fuels.
The divestment debate
Carbon pollution from fossil fuels is the primary driver of climate change. Scientists estimate that rises in sea level, deadly floods, droughts, heat waves and other harmful impacts of climate change could become irreversible unless fossil fuel companies keep the majority of their known reserves in the ground.
Harvard, like many other universities, has rejected calls for divestment, using the same excuse as other schools: Their concern for the financial stability of the university, among other things, makes divestment impossible. But studies from asset management firm Impax have demonstrated that fossil-fuel-free investments make money — just as much, if not more than conventional investment strategies. If fund performance isn’t the issue, why the reluctance to divest? Are US universities, just like the U.S. Congress, so hooked on fossil-fuel funding that they fear alienating certain deep-pocketed interests? If celebrated institutions of higher education can’t shake free of fossil fuel influence, what hope is there for the country’s somewhat less high-minded political system?
It’s time for universities to consider what they stand for, as they did with apartheid in the 1980s and with tobacco in the 1990s, and divest from fossil fuels. That industry is standing in the way of clean-energy progress, and using its power and influence to ensure that its polluting products continue to dominate the global energy system and destabilize the climate. These actions pose serious risks to the environment, human health, the nation’s economy and its national security — risks that are disproportionately borne by those who have contributed least to the problem.
“People of conscience,” urged Desmond Tutu in a video released just before the UN Climate Summit in September, “need to break their ties with corporations financing the injustice of climate change.”
Harvard, my alma mater, has $34.6 million invested in the top 200 fossil-fuel companies. This represents less than 0.1 percent of the university’s endowment. Yet Harvard President Drew Faust, in an open letter to the community explaining her position on divestment, claimed that divestment would risk “significantly constraining investment returns.”
At the City University of New York (CUNY), which is reportedly considering divestment, a political science professor also fell back on the same argument, telling The Wall Street Journal that divestment would come “at the expense of financial stability.” CUNY has about $10 million of its $241 million endowment in fossil-fuel securities.
Fossil fuels are risky investments
Convention dictates that fossil-fuel companies should be part of an investment portfolio, just as convention dictates that US taxpayers should subsidize the industry, at a rate that now adds up to about $8 billion every year. But financial experts have found that a strong investment portfolio doesn’t need fossil fuels.
Impax, in two back-to-back reports, found that if fossil fuels had been removed from a global benchmark index fund for the past five and six years , performance would have improved. And if those holdings were replaced with renewable energy and energy efficiency stocks, the fund’s performance would have been even better.
The global index provider FTSE Group, working with the Natural Resources Defense Council (NRDC) and the asset management firm BlackRock, developed the groundbreaking ex Fossil Fuel Index this year, which seeks to exclude companies that produce oil, coal and natural gas. When FTSE comparedthe historic performance of the new index to its benchmark index over the past eight years, the returns were very similar; the ex Fossil Fuel Index, however, showed less volatility than the benchmark.
Other analysts simply see fossil fuels as too risky. Oil and gas companies are pushing deeper into the ocean, operating in politically unstable areas, using environmentally harmful fracking methods in people’s backyards and cutting corners on safety, just to keep their business model alive. John Streur, the president of Portfolio 21 Investments, which eschews fossil fuel companies in its investment strategy, wrote in his blog that he avoids these stocks “because our research tells us that these companies pose too much risk to the environment and society, and that they face too much risk based on their business operation profile.”
In other words, investing in companies that base their profits on a risky, polluting, outdated energy system may not be financially prudent.
Rockefeller and others have committed to divestment
About 180 institutions have committed to divestment from fossil fuels in recent years, including colleges, philanthropies, pension funds and local governments. Hampshire College, the first college to divest during the anti-apartheid movement, also became the first to divest from fossil fuels. Just before the UN Climate Summit in September of this year, the Rockefeller Brothers Fund announced it would divest from fossil fuels. Stanford recently announced it would divest from coal; the University of Dayton, a Catholic university in Ohio, also committed to divestment, saying its “values of leadership and service to humanity call upon us to act.”
As NRDC pursued our divestment strategy, our finance team — a hard-nosed bunch who don’t like risky investments — wasn’t about to put the organization’s assets in jeopardy. One of the reasons NRDC worked with FTSE to help develop a new divestment tool was to satisfy those concerns.
With the advent of FTSE’s fossil-free index (now a family of several indices), divestment is no longer an arcane process. Institutional investors, endowments, family offices and retail investors have an objective, transparent benchmark against which they can measure the performance, risk and return of their divestment strategies.
These recent developments demonstrate that divesting from fossil fuels is not only the morally correct action, but also one that need not compromise an institution’s financial stability.
Other excuses for not divesting, in which university leaders echo arguments espoused by the oil and gas industry itself, have been thoroughly debunked elsewhere. The fact that only a handful of universities have committed to divestment shows just how strong the hold of the fossil fuel industry is not only on the global energy system, but also on the vaunted US higher education system. Universities are the institutions the public trusts to light the way forward for the next generation — they should not be beholden to an industry that relies on the pollution of the past.
Divestment is about demonstrating there is another way forward. Universities should be the ones up front, holding the solar lantern.
This article was cross-posted to Live Science’s Expert Voices: Op-Ed & Insights.
The views expressed in this post are the author’s alone, and presented here to offer a variety of perspectives to our readers.
