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January 31, 2013
Portfolios Can Thrive After Fossil Fuel Divestment
by Robert Kropp
As students on campuses across the country respond to climate change by calling on universities to
divest fossil fuel holdings, an analysis reveals that divestment could add little financial risk to
Spurred in part by an article published in Rolling Stone last summer, and looking to the
anti-apartheid divestment campaign of the 1970s as an example, students on campuses in the US are
organizing to pressure their colleges and universities to divest their holdings in fossil fuel
The Rolling Stone article, entitled Global Warming's Terrifying New Math, was authored by Bill McKibben of 350.org. "We know how much we can burn, and we know who's planning to
burn more," McKibben wrote. "Climate change operates on a geological scale and time frame, but it's
not an impersonal force of nature; the more carefully you do the math, the more thoroughly you
realize that this is, at bottom, a moral issue."
With help from organizations like the
Brooklyn-based Responsible Endowments
Coalition, which seeks to make sustainable investment a common practice at colleges, students
have met with some early successes. In November, the trustees of Unity College in Maine voted to
divest the institution's holdings in fossil fuel industries. "The time is long overdue for all
investors to take a hard look at the consequences of supporting an industry that persists in
employing a destructive business model," Unity College President Stephen Mulkey stated at the time.
However, as a recent
New York Times article pointed out, "No school with an endowment exceeding $1 billion has
agreed to divest itself of fossil fuel stocks." After 72% of Harvard students voted in favor of a
divestment policy, a university spokesperson said, "Harvard is not considering divesting from
companies related to fossil fuels."
Indeed, a report
published last year by the IRRC
Institute and the Tellus Institute found
that most endowments now lag behind mainstream institutional investors in the uptake of
environmental, social, and corporate governance (ESG) investment criteria.
administrators argue that fiduciary duty compels them to maximize returns, a position that ignores
the social impacts of corporate externalizing of costs as well as the crisis of climate change. But
even if one were to construct a portfolio today, would excluding fossil fuel industries from it
necessarily harm short-term returns?
According to a recent an
alysis by Patrick Geddes of Aperio
Group, the impact could be negligible. Geddes found that even a portfolio that excluded all
fossil fuel companies would incur significantly less financial risk than would the practice of
active stock selection.
"Screening negatively affects a portfolio's risk and return,"
Geddes concluded, "but…the impact may be far less significant than presumed."
products that exclude fossil fuel industries are available to investors. The Green Century Balanced
Fund does not invest in fossil fuel or nuclear power companies, but focuses on companies
committed to protecting the environment and disclosing their sustainability performances. Nearly
seven percent of the Fund's assets are in the Renewable Energy and Efficiency sector.
Fund is managed by Trillium Asset
Management, whose Sustainable Opportunities investment strategy avoids oil and gas investment.
Speaking before the Vermont legislature this week,
McKibben said, "Please join the growing number of colleges and governments divesting their holdings
in fossil fuel companies. These companies are the ones spending the big lobbying bucks to make sure
change never happens in DC and other capitals. Please help undermine their legitimacy by removing
the state's pension funds, the UVM endowment, and other holdings from their shares."
the mayor of Seattle said last month, why would they simultaneously spend millions building new
seawalls and invest in the companies making that necessary?" McKibben continued.
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