Listen to Your Mother

Divestment: Getting Fossil Fuel Out of Our Portfolios
by Catherine Lowther

In 2008, 350.org Bill McKibben and a group of Middlebury College students started 350.org to address global climate change. In 2012, the fossil fuel divestment campaign was launched, based on the concern that, as McKibben puts it, “If it’s wrong to wreck the planet, then it’s wrong to profit from that wreckage.” Divestment is modeled on the campaign to divest from apartheid South Africa, and it has grown to become a global movement.

Reasons to Divest

There have always been ethical reasons to divest. An investment is a loan that earns interest. Why would we loan money to a company that is selling products that accelerate climate change? Now there are also growing financial reasons to avoid investing in fossil fuel companies. Fund managers evaluate financial risks as it is their responsibility to protect the funds entrusted to them and help them grow. Over the past five years, the value of coal and oil shares has been falling, and more fund managers are divesting.

An analysis by MSCI found that funds free of fossil fuel companies earned an average of 1.2 percent more per year than conventional funds. In addition, new regulations and climate change policies are putting a price on carbon emissions, making it expensive to continue burning carbon and leading to untapped oil, coal, and gas becoming stranded assets. Coal mines and coal-fired power plants are closing across the US, and share prices of coal and oil are falling. According to Damian Carrington, writing for The Guardian newspaper, “The coal price has crashed by 60% since 2011, as gas, renewable energy and climate policies have damaged demand.” Matt Patsky, CEO at Trillium Asset Management in Boston, found that “Harvard Management Company has lost an estimated $21 million dollars over the past three years by ignoring calls to divest and continuing to hold the world’s largest owners of coal, oil and gas reserves. The losses have accelerated recently with an estimated $14 million drop in just the past six months ending March 31st (2015).”

Divestment Growing

A recent report by Arabella Advisors shows that the number of institutions divesting from fossil fuels increased from 181 in September 2014 to 436 just one year later. There have been a number of large, high-profile divestments over the past year and a half. The Rockefeller Brothers Fund divested its $860 million fund from fossil fuel companies. The government of Norway divested its $850 billion pension fund from coal. Stanford University divested its $18 billion endowment from coal. The Guardian divested its $1.2 billion fund from fossil fuels. Syracuse University is divesting its $1.18 billion endowment from fossil fuels. And there are many others. This site lists the colleges, cities, religious institutions, and foundations around the world that have divested or committed to divest: gofossilfree.org/commitments/.

Divestment at Goddard College

As a faculty member in the Goddard Sustainability Program and chair of the Goddard Sustainability Committee, I presented the board of trustees with a proposal to divest the college’s endowment from fossil fuel companies in the fall of 2014. No student demonstrations were necessary because the college already supported divestment. There were questions about where to move the funds, whether there would be transfer fees, and whether the same returns could be expected after divestment.

I contacted the presidents of five colleges that have divested their endowments to gather information for our divestment process: Sterling and Green Mountain in Vermont, Hampshire in Massachusetts, and Unity and College of the Atlantic in Maine. They all reported that they did not pay any transaction fees, and their endowments have performed as well as or better than the market since divestment. Four worked with fund managers to design their own portfolios.

What You Can Do
by K.C. Whiteley

Divesting Vermont’s pensions from fossil fuels will protect us from current and future financial losses. At the same time, divestment will speak volumes, declaring that Vermonters reject the business model that fuels climate change. There’s much you can do to personally divest, as well as help push for divestment in the Vermont legislature.

Bills in the Legislature

When Vermont’s 2016 legislative session starts up, two divestment bills—S. 28 and H. 299—are waiting to be taken up in the Senate and House Government Operations Committees. Both are described as an “act relating to divesting State retirement funds from the 200 publically traded companies that hold the largest carbon content fossil fuels reserves.” Go HERE to and put in the bill numbers to see where they reside and who the sponsors are. If legislators hear from constituents who are interested in this issue, testimony will be heard and the bills will gain traction. Talk to your legislators: in Vermont we still have a legislature that is responsive to the public.

Personal Divestment

There are also many ways you can divest personally. Often we don’t even know what our banks invest our money in. Switch your credit cards from banks that hold and fund fossil fuel production to more socially responsible banking institutions. Talk to your friends and neighbors about this and track the money trail of your investments. For more ideas on how you can divest and a list of investment alternatives, see greenamerica.org/fossilfree/.

Resources and Information

350vermont.org

Shelley Alpern, “Talking to the Hand: Why Engagement with Fossil Fuel Companies Offers So Little Promise.”

Damian Carrington, “Coal Crash: How pension funds face huge risk from climate change,” The Guardian, June 15, 2015

Patrick Collinson, “Fossil fuel-free funds outperformed conventional ones, analysis shows,” The Guardian, April 10, 2015

Alex Morales. “Stranded assets: Will efforts to counter warming render energy reserves worthless?,” Washington Post, December 5, 2014

Based on this and additional research, the board voted to move the endowment funds into socially responsible, fossil-fuel-free accounts at Trillium Asset Management. On January 12, 2015, Goddard completed the divestment process, making it the third college in Vermont to divest.

Divesting the State Employees’ Pension Fund

The Vermont pension fund holds about $4.1 billion in retirement funds for state and municipal employees and teachers. Of this, about $7 million is invested in coal companies and $32 million in oil and gas companies. The Vermont Pension Investment Committee (VPIC) manages the fund.

The Vermont Sierra Club and 350Vermont have been campaigning to convince VPIC to divest the pension fund. On July 28, VPIC held a meeting to discuss divesting the pension fund, and members of the Sierra Club and 350Vemont, pension holders, and members of the public were allowed to attend and make comments. VPIC members said they believed in climate change, but they were concerned that returns might be lower if they divested, and they needed to fulfill their fiduciary responsibility to pension holders.

During the comment period, Eric Becker, CIO of Clean Yield Asset Management in Norwich, Vermont, said that he estimates that the Vermont pension fund has lost “$9 million a year to date just on U.S. energy companies, as the price of oil has plunged.” Others pointed out that divested funds have continued to earn competitive returns. In spite of being presented with this information, VPIC voted not to divest. The Vermont Sierra Club and 350Vermont are exploring what to do next.

The Third Way

Vermont state treasurer Beth Pearce has advocated maintaining fossil fuel stocks as a way of keeping Vermont’s place at the corporate table, that shareholder status in fossil fuel companies is an effective engagement strategy. Shelley Alpern, director of Social Research and Advocacy at Clean Yield Asset Management, has spent decades as a shareholder activist with “strikingly little result.”

She recommends a shareholder strategy she calls a “third way” that falls somewhere between engagement and divestment where “institutions can substantially divest and still keep a seat at the table. Only a very small amount of stock is required to file a shareholder proposal.”

This strategy was adopted by the Unitarian Universalist Association in 2014 and is the approach taken by Alpern’s firm. Alpern summarizes, “It is the clearest way we know to unequivocally reject the moral failure and investment risks inherent in fossil fuel extraction, without losing all voice.”

 

 Catherine Lowther has been a faculty member at Goddard since 1997 where she developed the BA in sustainability and manages the Sustainability Entrepreneurs’ Grant Program. She has grown organic food for most of her life and has lived off the grid for more than 30 years. She can be reached at catherine.lowther@goddard.edu.