Support for the campaign to encourage investors to divest their holdings in fossil fuel companies and invest in climate solutions appears to be gathering pace. Perhaps inadvertently, ExxonMobil’s report on their exposure to potential stranded assets has helped catalyse a renewed debate about the moral and financial arguments for divestment.
In the last week 100 Harvard academics have written an open letter calling on the university to divest from fossil fuels and the Nobel peace prize winner Desmond Tutu has also called on “people of conscience to break their ties with corporations financing the injustice of climate change”. These announcements in turn have come hot on the heels of statements of support from the British Medical Association and the British Medical Journal. As Tim Ratcliffe, European coordinator for the campaign group 350.org put it, “It was a turning point when physicians spoke out against investments in the tobacco industry. This should serve as a wake-up call to investors to pull their money out of high-carbon assets”.
We were lucky enough at WHEB to have had Dr. Ellen Dorsey, the executive director of the US$170m Wallace Global Fund, come and speak at a lunch seminar for a group of influential UK foundations. Ellen is one of the leading advocates for divestment in the US having divested 99.6% of their endowment from fossil fuels (they are working on the remaining 0.4% which is invested in only a small handful of companies). For Ellen, this is both a moral issue arguing that it is time to make the fossil fuel industry ‘a moral pariah’, but that there is also sound investment logic to avoiding investing in ‘extreme forms of energy’ and instead investing in companies providing solutions to climate change. So far the foundation has put over 10% of their assets into such sustainability-themed funds . This of course is entirely consistent with WHEB’s strategy where the FP WHEB Sustainability fund has no exposure to fossil fuel companies and is totally focused on sustainability themes.
The Wallace Global Fund is also supporting what they are calling a ‘Divest/Invest Philanthropy’ campaign to encourage other foundations to follow their lead. In January, 17 foundations with US$2bn in assets launched the campaign with another ten foundations following since. Recently the group sent 2500 letters to other US foundations calling on them to reconsider their exposure to the fossil fuel industry and use their assets to grow the clean energy economy.
So far in the UK, the Joseph Rowntree Charitable Trust has publicly supported the campaign. Divest/Invest discussions are underway with other UK and European foundations about expanding the campaign to Europe with an announcement planned in advance of Ban Ki-moon’s Climate Summit in September in New York.
Ellen is keen though to emphasise that the Divest/Invest campaign is just one small part of a much bigger divestment movement that involves student groups (over 400 US universities and colleges have active divestment campaigns), cities and local governments, faith groups, hospitals and of course the philanthropic community.
One of the key questions that came up during our lunch seminar was not so much the legitimacy of the moral, or indeed even the financial logic of divestment, but more the practicalities of shifting assets. For the Wallace Global Fund, the whole process took about a year and began with a reframing of their ‘theory of investment’ as both a way of delivering financial returns but also in delivering impact; as Ellen put it, “avoiding our investment activity undercutting the work of our grantees”. They involved their mainstream investment consultants as well as specialist consultants with sustainability expertise before implementing their new approach by hiring and firing managers. The total portfolio is guided by both positive and negative screen, with a portion carved out for targeted impact investments. To their surprise, the new model actually saved the foundation substantial resources and has so far delivered ‘excellent’ performance with the portfolio up nearly 30% since they switched their model in 2012. Two years is clearly too short a time to reach a definitive conclusion but Ellen emphasized that the overall values alignment is there, the operational costs saw substantial savings, and the returns are good. In short, the experience has been very positive.