Swarthmore Should Follow Yale’s Lead, Divest to Protect Our Endowment From Fossil Fuels

On April 12th, Yale’s Chief Investment Officer David Swensen announced the school’s decision to partially divest its endowment from fossil fuels. Swensen cited not ethical reasons, but financial prudence, as the top motivator behind the decision. Yale’s divestment came after Swensen asked their investment managers to consider the potential risks that investments in coal and oil pose to their endowment. One of the firm’s founders said they agreed climate change and carbon pricing were “unknowable risks and fossil fuel producers with significant carbon footprints were declining businesses, a profile the firm preferred to avoid.” Yale’s divestment is only the latest example of college and university endowments divesting in exactly the way Swarthmore’s Board of Managers claims is impossible.

Yale’s decision to withdraw $10 million of their remaining investments in the fossil fuel industry came after months of conversation with Yale’s external investment managers about the risks of continuing to invest in coal and oil. Swensen noted that “a few managers held positions we felt were inconsistent with our principles. Thermal coal miners and oil sands producers are two of the obvious industries that would suffer if regulation imposed the social cost of the carbon emissions on producers.” Two of Yale’s external managers maintained investments in industries incompatible with Yale’s principles, but Swensen prompted both managers to sell their holdings in oil and coal.

Yale saw a 11.5 percent return on their endowment in fiscal year 2015. Yale’s endowment is highly regarded as one of the best performing college endowments in the country. That Yale’s Chief Investment Officer has ruled divesting from fossil fuels financially prudent should not be taken lightly by Swarthmore, and makes clear that there is a strong financial case for divestment on financial grounds as well as moral political ones.

Swensen said that Yale’s endowment currently maintains only minor exposure to the oil and coal industries. But as the Yale case exemplifies, divestment is a process, not a leap that is taken overnight. Swarthmore could easily start taking small steps like asking our managers to move investments away from risky fossil fuels and identifying managers with funds in line with our financial and moral principles. This could begin the process of eliminating the financial risk posed by fossil fuel investments and taking the crucial step of revoking our support from an industry that is incompatible with a sustainable future.

This month, a slew of divestment victories means Swarthmore stands increasingly alone in refusing the call to divest. This past Monday, the University of Ottawa also joined the ranks of institutions committing to divest from fossil fuels. On April 12th and 13th, a total of 43 students were arrested for sitting in for divestment at University of Massachusetts at Amherst and Harvard, prompting UMass President Marty Meehan to state, “I want to make UMass the first public university in the country to divest our direct holdings from all fossil fuel companies.” On April 15th, one year after students were arrested for taking nonviolent direct action for divestment, the University of Mary Washington passed a motion to maintain a portfolio that is 98% divested from the largest 200 fossil fuel companies. Students have since begun sit-ins and taken direct action at Columbia, Vassar, NYU, Northern Arizona University, University of Montana, and James Madison University.

In order to successfully avert runaway warming and to meet the goals laid out at the Paris Climate talks, more than 84% of current fossil fuel reserves must stay in the ground. This means there is a “carbon bubble,” and that there will be a severe devaluation of fossil fuel stocks as we make the necessary transition away from fossil fuels. We are already witnessing this effect. Peabody Coal, the world’s largest private sector coal company, filed for bankruptcy early this month citing an “unprecedented industry downturn.” If carbon assets are not stranded in the very near future, then the future holds approximately 4.5 degrees of warming or more, according to the IPCC. Not only will this mean a devastating loss of human life, but it will also almost certainly entail a collapse of the global economy—and Swarthmore’s endowment along with it.

While members our Board of Managers questions the effectiveness of divestment as a tactic, the fossil fuel industry takes it quite seriously. Prior to filing for bankruptcy, Peabody Coal listed the fossil fuel divestment movement as a significant risk to their profitability in their annual Form 10-K report, warning that fossil fuel divestment “may adversely affect the demand for and price of securities issued by us, and impact our access to the capital and financial markets.”

Yet somehow, despite a community mandate from the majority of the student body, a historic faculty resolution in favor of divestment passed last May, as well as a letter signed by Noam Chomsky and six other honorary degree recipients. Swarthmore’s Board has continued to stand on the wrong side of history by remaining invested in fossil fuels. This may be less surprising in light of the connections Swarthmore Board members have with the fossil fuel industry. Rhonda Cohen is a director of Glenmede, a financial manager founded on the Sun Oil Company fortune. Cohen, along with Harold Kalkstein and Sam Hayes have past and present connections to over $3 billion in investments in fossil fuel companies.

The urgency of climate change means we must do everything in our power to move away from the carbon economy that is poisoning our planet and harming frontlines communities. Not only do we have a moral obligation to divest, but as Yale’s actions would suggest, a fiduciary one as well. Sparked on our campus five years ago, the movement to divest from fossil fuels has since catalyzed the divestment of funds totaling over $3.4 trillion by more than 500 institutions worldwide. We call on the Board of Managers to follow the example of these institutions and begin to divest our endowment of fossil fuels. Swarthmore must revoke its support of a destructive and outdated industry and invest in a just and sustainable future.

Works Referenced

http://yaledailynews.com/blog/2016/04/12/yale-begins-divestment-from-fossil-fuels/

http://leave-it-in-the-ground.org/wp-content/uploads/2016/02/Post-Paris-Carbon-Budget-LINGO.pdf

Professor Smithey: Carbon charge no alternative to divestment

by Lee Smithey
This op-ed appeared in The Phoenix Thursday 25 February 2016

This past weekend, the Board of Managers at Swarthmore College approved an internal charge on greenhouse gas emissions. We should mark what appears to be an initial step toward developing a carbon pricing model. However, while welcome, the plan is no alternative to divesting the institution’s $1.9 billion endowment of fossil fuels.

I have had the privilege of both co-authoring the white paper that underpinned the faculty resolution calling for divestment and joining the working group that developed the proposal for the new carbon charge plan. As I write this column, it is not yet clear to what extent the Board adopted the working group’s proposal, but let’s assume for now that congratulations are in order all around! The plan was designed to collect a fee from each department to begin registering the social cost of each metric ton of carbon (or its equivalent in various gases) that the college emits (limited for the moment to the physical plant, electricity use, and emissions associated with planned construction) in order to fund sustainability projects. It also calls us to bend our intellectual energies toward better understanding the social costs of carbon through our teaching, learning, and research and then apply our growing knowledge to the pricing scheme. Why is all this important? It urges us down the long road of building sustainable infrastructures that will be necessary, if we survive the climate crisis.

However, the carbon charge leaves invisible the role of investment capital in sustaining an industry that is playing a dangerous profit-fueled game with our futures, a game that we underwrite and legitimize with our investments. It leaves unexamined the strange fiction that the only appropriate metric for assessing financial investments is financial return, a position that wouldn’t bear scrutiny in most, if any, Swarthmore classrooms. Yet, it is enshrined in the Board of Managers’ 1991 guideline that the “Investment Committee manages the endowment to yield the best long term financial results, rather than to pursue other social objectives.” Do we really believe that our current investments have no impact on social conditions?

Alone, the carbon charge assumes that we, consumers of fossil fuels, are solely responsible for the dilemma in which we find ourselves as a species. Don’t get me wrong, we do bear responsibility, and the new initiative is a step in the right direction. However, we also know that corporations go to great lengths, through marketing and lobbying, to shape the political, social, and economic landscapes in which they operate. Rest assured that while we try to diminish our consumption, fossil fuel companies on the Carbon Underground list will be using our investments to make the task as difficult as possible.

The new carbon charge plan also assumes there is a glide path of declining consumption that can keep global temperatures below 2 degrees Celsius (never mind 1.5 degrees). Sustainability initiatives funded by the carbon charge should be undertaken for the long term common good, but to address the climate crisis, they would have been more appropriate thirty years ago, when the public became aware of global warming. Unfortunately, the fossil fuel industry actively suppressed climate science, we let those decades pass, and we find ourselves in a catastrophically difficult situation.

Now, robust intervention is necessary. The mitigation scenarios that could keep global temperatures within 2 degrees Celsius require carbon sequestration technologies that don’t yet exist and a global price on carbon to have been agreed in 2010 … yes, 2010! Consequently, we need direct regulation of the extraction of fossil fuels accompanied by massive support for research and development of alternative energy, humanitarian aid, and preparation for climate impacts in vulnerable areas.

Through divestment, the college can join other institutions and use its privileged status to signal to world leaders that they can and must take bold steps to regulate the extraction of fossil fuels. Millions of vulnerable people are at severe short term risk (estimated by DARA and the Climate Vulnerable Forum at 6 million per year by 2030). Even the college itself is under threat.

Our students have already done the heavy lifting by launching and building an effective global campaign. We know this because our college representatives at the COP21 summit in Paris reported back that UN President Ban Ki Moon cited the importance of the divestment campaign as part of “a rising global tide of support for a strong, universal agreement,” declaring, “All of us have a […] duty to heed those voices.” Faculty, students, many alumni, and at least six distinguished honorary degree recipients understand President Moon’s perspective, and I expect some managers on the board do as well. After all, the optional Green Fund that the board established for new donations signals that the 1991 guideline is not water tight.

For those in civil society with cultural and economic capital, divestment remains an important tool in our toolbox, and we have a responsibility to use it. As we publicly demonstrate to our political leaders how to say no to fossil fuel companies, we should press them for an ambitious global carbon price, restrictions on fossil fuel extraction, and a plan to freeze the development of new reserves.

Noam Chomsky, Arlie Hochschild, John Braxton, Lotte Bailyn, Lorene Cary and Barbara Hall Partee Call on Swarthmore’s Board of Managers to Divest

TO: Board of Managers of Swarthmore College

We are writing to you as proud recipients of honorary degrees from Swarthmore College. Whether it was divesting from Apartheid, refusing to bow to McCarthyism, developing leaders in the civil rights and peace movements, or admitting women from its founding, Swarthmore has been a powerful voice for justice at critical moments in history.  Right now, we are at one of those points.

Scientists say that we must substantially reduce global carbon emissions within the next several years in order to avoid runaway climate change with devastating effects. While the Paris accords represent a significant step towards the goal of reducing greenhouse gasses in the atmosphere, the absence of firm commitments by the parties means that we still have a long way to go if we are to prevent the rise in global temperature from reaching 2 degrees Celsius. To keep the increase to less than 1.5 degrees Celsius, which the Paris accord set as a desired goal, will be even more difficult.

Climate change is without doubt one of the most important moral, economic, and political issues of our time.  We call upon you to exercise intellectual and moral leadership by implementing a plan to divest from fossil fuels over the next few years. Hundreds of other institutions including Oxford University, Stanford University, the city of Seattle, multiple Nordic national pension funds, and even the Rockefeller Fund—which was built off the profits of Standard Oil Company—have divested funds totaling $1 trillion.  If they can take that stand, surely Swarthmore can also.

None of us can wait for someone else to end the addiction to fossil fuels that is causing the climate chaos that is just beginning.  Ending Apartheid required the force of many different streams in the movement.  But Nelson Mandela and Bishop Desmond Tutu have stated that one key stream was the delegitimizing of Apartheid that resulted from the divestment campaign.  Swarthmore played a significant role in that campaign.  It is time for Swarthmore to stand up and do the right thing once again.

Sincerely,

Noam Chomsky, John Braxton and Arlie Hochschild

As of February 19t 2016, honorary degree recipients Lorene Cary, Lotte Bailyn and Barbara Hall Partee have signed onto the letter.

Response to Investment Committee Announcement

STATEMENT IN RESPONSE TO RECENT INVESTMENT COMMITTEE ANNOUNCEMENT

12/7/14

Yesterday, after nearly 100 students delivered over 800 student signatures calling for divestment, the Board of Managers announced that our Investments Committee “acted to include our investment managers in the ongoing conversation” about the College’s climate initiatives: “the investment managers of our endowment have been asked to detail their methods of evaluating direct costs of climate change…and related [carbon] regulatory policies on future returns.”

We know that the climate crisis and climate regulations significantly threaten the viability of fossil fuel investments. If our Investments Committee begins to evaluate these threats, this can only lead to fossil fuel divestment.

The financial risk posed by unburnable carbon is clear. If we take the necessary action to avoid catastrophic climate impacts and leave 60% – 80% of current carbon reserves in the ground, roughly $20 trillion in assets will be stranded. Fossil fuel companies could be devalued by 40% to 60%, the investment bank HSBC estimates. U.K. Energy Secretary Ed Davey warned that fossil fuel stocks could be the “sub-prime assets of the future.” And UN Climate Chief Christiana Figueres ‘79 notes that either “we will move to a low-carbon world because nature will force us, or because policy will guide us,” and that continued investment in fossil fuels despite this threat constitutes a “blatant breach of fiduciary duty.”

We applaud our Investments Committee for beginning the process of evaluating the effects of climate change and climate regulation on our endowment’s financial health. But the answer is clear: a growing chorus of political and financial leaders have sounded the alarm, warning of the significant financial risk posed by the carbon bubble.

The Board’s fiduciary duties obligate them to take action to protect action to protect the endowment from the risks posed by the carbon bubble. We look forward to working with the Board and our College’s financial advisors to create a plan for fossil fuel divestment.

Thank you all for marching with us yesterday and calling on the Board to what is right. We’ve reached this milestone because of your commitment and support. Onward.