Nonprofits Have No Good Reason to Invest in Companies That Hurt the Environment

Around the country—and the world—endowed institutions are coming under pressure to divest holdings in oil, gas, and other fossil-fuel companies as part of the global effort to forge climate solutions.

Close to 50 U.S. colleges, local governments, religious institutions, and foundations have made divestment commitments. Norway’s sovereign-wealth fund, the biggest in the world, with $800-billion in assets, has said it will soon divest its coal assets.

But university administrators and trustees are not keeping pace with the momentum. Both Harvard and Brown last month voted against divestment from fossil fuels.

Harvard’s rejection is significant because it sends a signal to other wealthy endowed institutions, including foundations, museums, and hospitals. I hope Harvard will reconsider in time to show leadership in contrast to its late and limited divestment in companies that operated in South Africa in the apartheid era.

As part of their fiduciary duty, all endowed institutions should consider both the moral and financial implications of remaining invested in fossil fuels.

Divestment worked during the apartheid era to revoke the social license of corporations to do business with an oppressive regime.

Now we need it to revoke the social license of the companies that are causing global temperatures and seas to rise. Climate change is endangering vulnerable communities now and undercutting the future viability of our economy and humanity itself.

The financial argument is also clear: The science tells us we cannot burn two-thirds of proven fossil-fuel reserves and maintain a stable climate. As the financial markets recognize public and government pressures, the so-called carbon bubble will burst just as the real-estate bubble did in 2008.

True, it may not be next quarter, but when the markets understood that the underlying price of real estate was far less than the trading value of mortgages, they moved quickly. All institutional investors with significant holdings in fossil companies are at risk. Endowment fiduciaries should take notice.

To do that, we all need to discard some divestment myths.

The most glaring is the false notion that investors have to choose between their values and the bottom line.

Not so.

The new energy economy is full of sound investments that regularly outperform the market. They can be found in surprising places, across many regions, in all asset classes. They are found in infrastructure and energy efficiency, clean energy and technology, and sustainable agriculture and consumer products.

Conventional fund managers often trot out tired ideas about the “volatility” of clean-energy investments.

But little is risky about investing in a solar array or wind farm tied to a 20-year power- purchase agreement. Similarly, investment-grade climate bonds are available in every part of the economy—$164-billion in 2013 alone, according to the Climate Bonds Initiative, a nonprofit group.

Some critics of fossil-fuel divestment like to say that apartheid divestment was a less risky commitment because it was much smaller in scale. But that is not true.

At one point in the 1980s, between one-third and one-half of the companies in the S&P 500 did business in South Africa. Fossil-fuel energy companies make up 9 to 12 percent of the S&P 500.

Probably the worst fallacy that Harvard’s president, Drew Faust and others have been deceived by is the idea that those of us who use fossil fuels are as complicit as the coal, oil, and gas industries in perpetuating our dependence.

Continuing to drive your car is not on par with the systemic rigging of the system that fossil-fuel companies and their political supporters have wrought. That is like blaming the child born to a drug abuser for her own addiction.

And though she does not outwardly say it, President Faust appears to think that divestment is a breach of the institution’s fiduciary duty.

But this straw man has been repeatedly knocked down by a host of authoritative voices, including those who shaped the Uniform Prudent Investor Act, which many states follow. It says: “There is no duty to maximize the return of individual investments but instead a duty to implement an overall investment strategy that is rational and appropriate to the fund.”

It is time to modernize the definition of fiduciary duty for the 21st-century climate reality. It is not acceptable to invest in the fuel sources that are undercutting the vital earth systems on which humans depend.

Philanthropies, as well as universities, have a fiduciary duty to promote current and future prosperity. It would be one thing if there was a choice between profits and values in this case. But there is not. And those that hide behind financial risk and underperformance just aren’t doing their homework.

I have divested my personal and foundation assets, and I am investing in companies that will form the new energy economy.

I am doing that because I want to apply what I learned at Harvard: I went to Harvard’s Business school when I was young (in my 30s) and to the John F. Kennedy School of Government in 2008, when I was “old” (in my 50s)—just when Drew Faust began her tenure as president. While I was at the Kennedy School, Dean David Ellwood promoted to all of us the idea that anyone involved in public service has to be thinking about “acting in time.”

Now is the time for philanthropy to direct its power toward creative investments scaled to meet the challenges of the global climate crisis.

Together we can use philanthropy’s resources, power, reputation, and credibility to support a broader movement to divest of damaging energy sources and invest in clean ones. The time to act is now.

Lisa Renstrom is a trustee of Bonwood Social Investment, a foundation that supports social-change efforts, especially groups working to curb global warming.