Universities are (Slowly) Feeling Their Way Forward on Divestment

The University of Sydney (University of Sydney).

by Carol A Adams, Monash University

Another Australian university has outlined plans to reduce the exposure of its investments to climate change, and is taking a contrasting approach to the Australian National University’s high-profile divestment plan announced in October.

The University of Sydney on Monday released plans to reduce the carbon footprint of its investment portfolio by 20% over three years.

That will see the university reduce its carbon footprint to 20% below the average of Australian, international and emerging markets, rather than divesting from a particular sector such as the coal industry.

The stated rationale for this is that “divesting entirely from all companies with an interest in fossil fuels could result in divesting from companies that are also committed to building renewable energy sources.

In addition, there are many companies that do not produce fossil fuels who are nonetheless heavy emitters”. This is an approach which the London-based Asset Owners Disclosure Project (AODP) acknowledges.

Universities exposed to climate risk

The Global University Index recently released by the AODP ranks and rates 278 universities on their efforts to disclose their investments exposed to climate risk.

The Project’s objective is to protect members' retirement savings from the risks posed by climate change. It does this by seeking improvements in disclosure and raising the bar on what is considered best practice. The AODP claims to examine “how asset owners are preparing for the repricing of climate-exposed assets and the physical impacts on climate change” (see page 20 here). This is indeed a serious issue.

I struggled somewhat to work out what was done by the AODP, how it was done and what the various ratings mean. All but the top five universities were rated D (meaning that their climate change risk management is “poor”, page 5) or X (no information disclosed by any means).

The top 12 places were taken by US universities, with Charles Sturt being the top Australian University, ranked 13th. The University of Sydney, which was ranked before it unveiled its current plans, is ranked equal-28th and scores a D rating.

A Vice Chancellor (who provided a comment on the basis that it would be anonymous) from a British university with a strong reputation for innovation and commitment to sustainability, but which received an X rating in the index, told me:

this seems a rather pointless league table, when most universities aren’t in it and of those that are almost all are harangued for not meeting even the basic criteria for the table. In reality while I guess universities recognise that climate change will have investment implications, and indeed may be looking at their investment portfolio in this context, as we are, the logical link from climate change via investments to future pension funding (which is what this organisation is focused on) is fairly obscure in the strategic priorities for most universities.

Time for action

Of course, the issue is broader than universities, although this does not get universities off the hook.
Research published by the Association of Chartered Certified Accountants and the Carbon Tracker Initiative has found that companies don’t typically disclose information on climate change risk that impacts on investors.

Simon O'Connor, CEO of the Responsible Investment Association Australasia told me:

Much of the discussion around investors managing climate risk has focused narrowly on the largest of Australia’s super funds. But beyond the large super funds, there are pools of capital across the economy that need to be considering the risks from a changing climate, and subsequent shifts in policy and technologies.
Universities are a case in point, as are a long list of public sector pools of capital - federal, state and territory - as well as funds managed by charities, corporates and individuals. In reality, too few investors are taking this issue seriously enough, as highlighted by the responses to the AODP universities survey.

There is no doubt that universities, like many other sectors, ought to be doing more. In the case of universities, it is ultimately likely to be students and staff who push for the leadership required to drive the significant change which will inevitably come.

If the AODP is to be a driver of change, I would suggest that it needs to state exactly what it is that universities should do and disclose, and to consider rewarding public commitments that are an important, not to mention difficult, step along the way.

The challenges are abundantly clear from the criticisms directed at the Australian National University, including from Prime Minister Tony Abbott, over its divestment decision. The University of Sydney’s approach cleverly sidesteps a backlash from the coal industry and its backers.

Last year, the University of Glasgow became the first in Europe to divest from fossil fuels. This is not an easy decision for an ancient institution (founded in 1451) with a range of stakeholders who will inevitably have diverse views.

But the University of Glasgow’s commitment is not reflected in its D rating (poor) by the AODP. Points were awarded points for “actual performance”, not commitments - even, apparently, where these commitments have been made public (a form of disclosure, I would argue).

Given the slow pace of change in integrating sustainability and climate risk in universities, it seems unlikely that Sydney University was influenced by its AODP rating. Its approach is a good example to follow. Continued slowness by universities leaves them exposed to reputation risk as well as climate risk.


This article was originally published on The Conversation. Read the original article.

Harvard Defies Divestment Campaigners and Invests Tens of Millions of Dollars in Fossil Fuels

Harvard - 7-fold increase in investments (Pic: P Weiskel/Corbis)

by Suzanne Goldenberg, The Guardian: http://www.theguardian.com/environment/2015/jan/14/harvard-invests-tens-millions-dollars-fossil-fuels-face-divestment-campaign

Harvard has newly invested tens of millions of dollars in oil and gas companies, rebuffing campaigners’ demands to sever the wealthy university’s ties to the companies that cause climate change.

The university’s refusal to withdraw an $32.7bn endowment from fossil fuels has frustrated campaigners and resulted in a law suit brought by seven Harvard students. The university - the world’s richest - is due to appear in court next month.

Now it emerges Harvard increased its holdings in publicly traded oil and gas companies by a factor of seven during the third financial quarter of 2014, the latest data available.

The new investments increased Harvard’s stake in oil and gas companies - including those involved in the Deepwater Horizon oil disaster and fracking - from $11.8m (£7.8m) to about $79.5m, according to an analysis of Securities and Exchange Commission (SEC) filings by campus divestment activists.

Jim Recht, assistant professor of psychiatry at the Harvard Medical School and a supporter of the divestment campaign, described the new oil and gas holdings as “blood money” and said they indicated Harvard’s unwillingness to review its policies despite the growing awareness of the dangers of climate change.

“That’s blood money,” he said. “It is making money out of something we see as fundamentally illicit.”

The biggest single investment was $57.4m in Anadarko Petroleum, which was involved in the Deepwater Horizon disaster and last year agreed to a $5bn fine for the clean-up of toxic waste sites. Other investments were in companies involved in fracking including Concho Resources Inc ($9.6m), Pioneer Natural Resources Inc ($9.3m), Range Resources Corporation ($2.2m) and WPX Energy ($979,000).

The SEC filings cover only a small fraction of Harvard’s $34bn endowment, said Chloe Maxmin, a co-founder of Divest Harvard, who analysed the investments. Most of the $34bn is not held in direct investments, and is not included in the SEC filings - which means fossil fuel holdings could be even greater.

Those new investments - and Harvard’s refusal to consider changes to endowment policies - have spurred new protests from students as well as faculty.

In a petition made available to the Guardian, five Harvard faculty members,including Recht said the new investments put the university out of step with a small but growing number of universities and philanthropic institutions, such as Stanford and the Rockefeller Brothers, that have reviewed or taken steps to eliminate fossil fuel holdings.

“In striking contrast to these other institutions, Harvard has newly invested tens of millions in publicly traded fossil fuel companies,” the five Harvard faculty members wrote.

“Can putting tens of millions in companies like Anadarko be regarded as responsible sustainable investing - investing that befits a charitable corporation dedicated to scientific truth and ethical education? Such investments ... signify an investment policy that is profoundly indifferent to its consequences,” the letter said.

“We are among a growing number of concerned faculty who question the idea that
investment returns are justified at any cost, including the enormous cost our students and future generations will need to pay for what the fossil fuel industry is doing now and - more importantly - for what it is planning and lobbying to do, with writing checks to political organizations a key part of that planning.”

Drew Gilpin Faust, Harvard’s president, has rejected fossil fuel divestment as not “warranted or wise”. In October 2013, she wrote: “The endowment is a resource, not an instrument to impel social or political change.”

Jeff Neal, a spokesman for Harvard, said in an email that the university acknowledged the “serious threat” of climate change. “We agree that threat must be confronted, but sometimes differ on the means. Harvard has been, and continues to be, focused on supporting the research and teaching that will ultimately create the solutions to this challenge,” he said.

Harvard’s unwillingness to reconsider its investment policies has frustrated campaigners. Seven students last year brought a lawsuit against the university, which the five faculty members supported in their letter as a “new and necessary type of thinking”.

The lawsuit argues that Harvard’s continued investment in fossil fuels is an abdication of its responsibilities to current and future generations of students.

“We are saying that investment in fossil fuels amounts to mismanagement of public charitable funds,” said Alice Cherry, one of the law students bringing the suit. “The language of the charter says that Harvard needs to protect the education and advancement of youth so that’s something we think is inconsistent with fossil fuel investments.”

The suit faces a high barrier, however. Harvard has sought its dismissal on the grounds that the students don’t have the standing to sue on behalf of future generations.

James Engell, an English professor and one of those who signed the letter, said the campaigners saw little evidence Harvard was considering a change in its policies.

“It is an interesting indication that Harvard went ahead about bought close to $80 million late last year in fossil fuels. It just shows that their attitude has not changed at all and they feel that for whatever reasons these are good investments,” he said.

“It sends a message that they are sticking to their policy.”

These 3 Colleges Stopped Investing in Fossil Fuels: One Year Later, Their Endowments Are Doing Just Fine

Photo by Flickr / Light Brigading

by A.C. Shilton, Yes! magazine: http://www.yesmagazine.org/climate-in-our-hands/these-three-colleges-stopped-investing-fossil-fuels-endowments

You can hear the sounds of new construction from just about any point on Sterling College’s bucolic Vermont campus.

The whirr of saws and plink of hammers ricochet off the nearby Lowell Mountains as students - 26% more than were enrolled just two years ago - shuffle to class through a carpet of fall leaves.

Things have never been better at this small college, which specializes in environmental education. An entire Sustainable Agriculture and Food Systems Center, which will house a new major on the same topic, is in the works. And not a dime of the money used came from investments in fossil fuels - because the college sold off all its stock in that industry last year.

On college campuses nationwide, the key argument against divestment - or removing all investments from oil, coal, and natural gas companies - has been that it’s not economically feasible; that divesting would be an abdication of fiduciary responsibility.

Not “warranted or wise” were the exact words Harvard President Drew Faust used in October 2013 to excuse the Ivy League institution from taking its $30 billion endowment out of environmentally devastating corporations.

But evidence is mounting against that argument. Several colleges and universities have completed the process of divestment. None has declared financial ruin. In fact, many, like Sterling, are seeing improved returns on their investments.

Meanwhile, the call to divest has never been stronger. During the week of the People’s Climate March in September, individuals and institutions pledged to divest more than $50 billion from fossil fuels.

And earlier this week, 350.org launched its campaign for a Global Divestment Day, an event planned for February 2015 that the organization hopes will lead to even greater financial pressure on fossil fuel companies from universities, organizations, and religious institutions.

With evidence and enthusiasm on the side of divestment, schools like Harvard may need to rethink their portfolios. 

Three days

Sterling College’s move to divest came at the behest of the school’s trustees, many of whom were already familiar with the issue. The school’s president, Matthew Derr, said that Sterling had a relatively small percentage of its investments in fossil fuel companies. But he felt divestment was the right thing to do because of the school’s environmental mission.

The financial committee broached the topic with the students and faculty to make sure there was campus-wide buy-in before moving forward. Then, Sterling hired Trillium Asset Management, a Boston-based firm that focuses on sustainable investing, to manage the transition.

“We sold everything in three days,” says Matt Patsky, Trillium’s CEO, who estimates that about 13 percent of the college’s endowment had been invested in fossil fuels in some way. “We sold all those funds and bought them a portfolio of individual stocks and individual bonds that were fossil fuel free.”

Patsky says that he rolls his eyes when he hears about schools promising to divest over the next five, 10, or even 15 years. “Why five years?” he says. “We know from history it can be done in a much shorter period of time.”

Not long after Sterling College completed its divestment, the school announced that, for the first time in its history, its endowment had surged over $1 million. It’s tempting to want to credit that success to its newer, cleaner portfolio, but that isn’t the whole picture. “They also had an aggressive capital campaign,” says Patsky.

Sterling is a pretty unusual school though. It’s tiny, with just 123 students. And it’s a work college, where students are required to hold on-campus jobs, thereby offsetting overhead costs. It might be tempting to call the school a divestment anomaly - but it’s not.

Other schools that have divested are seeing the same kind of results. On October 31, 2013, Naropa University in Boulder, Colorado, finished its divestment process. This time, students were the driving force behind the campaign.

“We're a values-driven school and we believe in leading by doing,” says Todd Kilburn, the school’s chief financial officer. “We value our role in being the tip of the spear on this issue.” Unlike Sterling, Naropa is a medium-sized school, with both graduate and undergraduate programs. It also has a bigger endowment, around $6.25 million.

San Francisco-based Veris Wealth Partners helped Naropa manage its transition, which was completed in less than one year. Almost exactly a year later, Patricia Farrar-Rivas, the CEO of Veris, said: “It hasn’t had a significant change on their portfolio.”

But what about a really big school? De Anza and Foothill Community colleges work together as a single “college district” that serves more than 600,000 students each year in the southern part of the San Francisco Bay area.

The private foundation that supports the two schools is among the largest in California, with $33 million in assets. Unlike Naropa and Sterling, which are private and are attractive to students because of their strong environmental commitments, the state-mandated mission for De Anza and Foothills is clear: to offer affordable education to the community.

While both of the community colleges have campus-wide sustainability management plans in place, it is neither institution’s main focus. “My first goal is a fiduciary one,” says Robin Lyssenko, interim executive director for the Foothill-De Anza Foundation. “I wouldn't be here if I didn’t believe that providing open access education was important.”

In 2012, students approached the foundation about divesting, but the foundation requested more information. Six months later, the students came back armed with data and a resolution passed by the student body. Lyssenko and the board were impressed.

A review of the foundation’s assets showed that about 1 percent of its $33 million in holdings was invested in some of the worst fossil fuel offenders. Eight months later, the foundation’s portfolio was clean of them.

“To date, I don’t think there’s been an impact on our investments because of it,” says Lyssenko. In fact, the endowment recently broke $35 million - though that’s partly due to several successful fundraising campaigns.

The mechanics of divestment

It turns out that divesting is not nearly as calamitous as Harvard’s president might have us believe. Any time you take stocks out of your portfolio you create a “tracking error,” which means that your portfolio will track differently than the overall index.

If the S&P 500 is your baseline, taking out certain stocks will change how your portfolio performs in relation to that baseline. In the simplest terms, the more stocks you take out, the bigger your tracking error is going to be.

A tracking error isn’t necessarily a bad thing - a fund with a tracking error can do better than the overall index. But it tends to make investors nervous because there’s always a chance that things will go the other way. There’s a way to fix that though: Investors can reinvest the cash or proceeds from stock sales in ways that offset this tracking error.

When index managers are diverting funds from fossil fuels, they’re able to look at which ones have performed similarly to fossil fuels in the past - and reinvest in those. For example, a stock’s “beta estimate” quantifies a stock’s volatility over time.

Say you take Exxon Mobile out of your portfolio and it has a beta estimate of .79; you could replace that stock with Target, which historically has had a beta of .78. By doing this you can tweak your divested portfolio so it tracks similarly to the overall index.

Divesting also offers the benefit of letting schools reinvest in things that fit with their beliefs. At Sterling this meant reinvesting in companies that produce solar power, an LED light bulb manufacturer, and even in a company that produces carpets from recycled materials.

Naropa was already invested in green real estate and sustainable forestry and land conservation companies prior to its divestment process, but it added even more weight to those investments, as well as adding more healthy living-focused companies to its portfolios. 

Fringe Benefits

Sometimes the reward you get on your investment isn’t just a monetary one. “This really strengthened our student and administration relationship,” says Todd Kilburn, chief financial officer of Naropa University. “The students felt like we really listened to them ... I think it has really built trust.”

“Divesting made our entire board of trustees, not just the financial committee, much more intimately aware of our investments,” says Matthew Derr, president of Sterling College.

“The divestment movement really gave our board members a chance to see our students in action,” says Robin Lyssenko, interim executive director for the Foothill-De Anza Foundation. “They really realized how incredibly passionate, articulate, and well-organized our students are.”

If trading Exxon Mobile stock for shares in sustainable businesses seems like a bad financial move, consider this: A 1997 paper in the Journal of Investing analyzed the long-term performance of portfolios that had been modified to exclude a variety of unsavory investments.

It found that portfolios adjusted for all social issues - with the exception of military-related companies - performed better than their non-adjusted counterparts.

This is partly because socially questionable stocks often have high volatility. Oil is a perfect example. Depending on world events, oil prices can be up, down and around the corner before noon (oil is also currently having a terrible quarter, which is great for those that have divested, but may not always be the case).

All of this data makes Harvard’s reluctance to divest (even as students and faculty engaged in a week-long hunger strike this fall) seem, well, silly. Sure, Harvard has the largest endowment of any university in the nation, but risk is risk, regardless of dollar amount.

Instead, what’s most likely causing Harvard’s noncommittal response is pressure from its trustees and big donors, many of which (like hedge fund manager Kenneth Griffin, who gave $150 million earlier this year) have assets tied up in the fossil fuel industry.

If a university like Harvard dumped its massive volume of stocks, prices might be affected. And that would be a problem for large shareholders like Griffin, an outspoken supporter of the Keystone XL pipeline.

But advocates of divestment say this isn’t so much about money as about creating a sense that oil companies are social pariahs.

Ultimately, “The incremental risk of divesting is really, really minimal,” says Liz Michaels, director of environmental, social, and governance investing and socially responsible investing at the Aperio Group, a firm based in Sausalito, California, which specializes in hand-picking stocks for investors. “Despite that, there’s some decision-making that has to go into it.”

At Sterling, that process was easy. “When it was brought up, it wasn’t so much of an ‘aha!’ moment as it was a ‘duh!’ moment,” says President Derr. He adds, “We knew we were willing to forgo the concept of maximum return to be in line with our mission.”

What the school’s administrators didn’t know, however, was how easily divestment could help them meet their responsibilities to both students and the bottom line - no fossil fuels required.

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A.C. Shilton wrote this article for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas with practical actions. A.C. Shilton is a south-Florida based freelance journalist and winner of multiple Florida Press Club awards. She is Outside Magazine’s online Eat & Drink columnist and contributes regularly to a number of national and regional magazines.