University endowment divestment from fossil fuel stocks: effective?

Published on April 12th, 2013 | by

University divestmentA growing movement called “Go Fossil Free” at colleges across America is pushing University Endowment managers to divest from fossil fuel stocks.

Currently, over 300 colleges, 74 cities and states, and several religious institutions are participating, meaning that they’ve moved their investment portfolios that support their endowments entirely away from coal, natural gas, petroleum, and other fossil fuel stocks. According to the group, “if it is wrong to wreck the climate, then it is wrong to profit from that wreckage”. They’ve asked that investment managers pull their support from the 200 or so publicly traded companies that hold the vast majority of the world’s proven coal, oil, and gas reserves, and hope to accomplish the task within 5 years. While noble in purpose, it’s a somewhat risky effort, given how profitable big oil is. The question is…is it going to be effective? The answer is, “it depends”.

Precedent

First, precedent is good, but not at the scale of this endeavor. Historians have documented the power of divestment before, most notably in helping bring down the racist Apartheid government of South Africa. What’s commonly known by folks who follow this kind of thing is that widespread divestment of South African stocks helped bring significant pressure on the government there to begin negotiations that eventually led to the downfall of the Apartheid regime. Student organizers of the FossilFree campaign are looking to that precedent for inspiration:

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What’s not as commonly known is how long it took for the process to work for justice in South Africa. It’s not clear when the concept first emerged, but it reached a fairly substantial scale in 1962, when the United Nations passed a resolution aimed at encouraging member nations to pull their money from South Africa in the form of economic sanctions.

The first University to use divestment as a direct strategy was Michigan State University, in 1978. By 1985, 9.2 billion Rand left South Africa as a result of sanctions and divestment. The economic pressures continued to mount, despite all attempts by those in power in South Africa at stopping the leak. But the time horizon, from 1962, to Michigan State in 1978, to the fall of Apartheid, was long. Apartheid did not fall until well over a decade after Michigan State divested. Those hoping for an end to fossil fuels due to university divestment should dig in for a long, but winnable fight.

Will people go for it?

Second, the big question is about return on investment. Many universities rely on solid financial returns in their investment portfolios to help carry them through times when alumni donations may be lean, or enrollments down. The good news is that there are many options to invest in sustainable companies, and the even better news is that the returns are good.

Investing in fossil fuels seems highly profitable at first glance. Exxon takes the headlines on that. But a report by Ceres indicates that returns on fossil fuels are volatile, and that many investments are actually incredibly risky. Just think about BP for a moment. Cruising along at a good ROI, then wham. Billions in costs, huge long term brand damage, executive turnover, Board resignations…

Even without a carbon tax or cap and trade, the business of dirty energy has incredible downside potential. Investment banks are increasingly wary, making credit tight. Investors are piling money into socially responsible investing, with many of them using a screen like “no fossil stocks”. BP’s stock took a huge dive after their Gulf disaster, and the cost of doing business in dirty energy would seem to only continue to rise.

In addition, people are increasingly seeing clean energy as a great investment.

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About the Author

Scott Cooney (twitter: scottcooney) is an adjunct professor of Sustainability in the MBA program at the University of Hawai'i, green business startup coach, author of Build a Green Small Business: Profitable Ways to Become an Ecopreneur (McGraw-Hill), and developer of the sustainability board game GBO Hawai'i. Scott has started, grown and sold two mission-driven businesses, failed miserably at a third, and is currently in his fourth. Scott's current company has three divisions: a sustainability blog network that includes the world's biggest clean energy website and reached over 5 million readers in December 2013 alone; Pono Home, a turnkey and franchiseable green home consulting service that won entrance into the clean tech incubator known as Energy Excelerator; and Cost of Solar, a solar lead generation service to connect interested homeowners and solar contractors. In his spare time, Scott surfs, plays ultimate frisbee and enjoys a good, long bike ride.