Institutional Pathways to Fossil Free Investment

Colleges and universities, philanthropic foundations, and other endowed institutional investors could see better financial returns and lower their portfolio risk by divesting from fossil fuels, according to a new report released this morning by Tellus Institute, Responsible Endowments Coalition, Sustainable Endowments Institute, and 350.org.

According to Joshua Humphreys, a fellow at Tellus Institute and the lead author of a recent report

Based on the real-world experiences of numerous endowments and institutional asset managers running fossil-free portfolios, we have identified multiple pathways to divesting from fossil fuel companies. Additionally, increasing opportunities are emerging across asset classes for diversified endowments to re-allocate their portfolios into sustainable investments that mitigate climate risk and finance the low-carbon economy of the future. 

Modeled on the anti-apartheid campaigns of the 1980s, the new fossil fuel divestment movement has spread to over 300 colleges and universities across the country. Five colleges, Unity, Hampshire, Sterling, Green Mountain, and College of the Atlantic have already committed to go fossil free.

The report, Institutional Pathways to Fossil-Free Investing: Endowment Management in a Warming World, outlines three pathways to a fossil free portfolio:

  1. divestment from the top 200 largest fossil fuel companies, 
  2. divestment with a 5% sustainable reinvestment, and 
  3. “total portfolio activation” for sustainability and climate responsible investment. 

Said Phil Aroneanu, US Campaigns Director for 350.org, one of the organizations coordinating the divestment campaign,

If it’s wrong to wreck the planet, than it’s wrong to profit from that wreckage, especially when there are other viable alternatives. We’ve heard from dozens of college boards of trustees who’ve said, ‘We’d support divestment, but are worried about its financial impact.’ This report should put those fears to rest.

The report clearly makes the case that a college or university could divest without sacrificing financial performance. Last week, the Associated Press came to the same conclusion, citing analysis by the research firm S&P Capital IQ that showed that by one measure, endowments would have been better off had they divested 10 years ago.

In fact, divestment can help protect a portfolio’s returns by providing downside risk protection against the increasing uncertainties surrounding the valuation of fossil-fuel securities as governments pass climate-related policies that could force companies to keep their coal, oil and gas reserves underground. 

The report also outlines how a college or foundation endowment could reinvest in proactive sustainable investments and climate solutions or use endowment assets to finance innovative campus programs, such as green revolving funds for energy-efficient improvements.

Takeaway: Read about my own conversion @ Conversion: Fossil Free EndowmentsWhile the 350.org campaign is now focused on college and foundation endowments, it should soon spread to public pension funds. See CalPERS’ sustainable investment report, Towards Sustainable Investment – Taking Responsibility as well as the agenda for the Sustainability & Finance Symposium to be held at the University of California, Davis, on June 7th. Hope to see several readers there. 

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