The energy industry ignores the fossil fuel divestiture movement at its own peril
Will major North American universities divest their holdings in oil and gas companies?
Harvard University’s iconic emblem is the Veritas shield – a crimson crest emblazoned with three open books bearing the letter arrangement “VE-RI-TAS.” In April of this year, a group of students on the Harvard campus refashioned the shield to reflect their distaste of the fossil fuel industry, changing the contents of the books to read “DI-VE-ST.”
That group of students at Harvard is one of hundreds that have formed on campuses across the United States and Canada demanding that their universities’ endowment funds divest of holdings in coal, oil and natural gas companies. Harvard has become one of the movement’s key battlegrounds: not only is Harvard the richest university in the world, with a $31-billion endowment fund, but its divestiture would be a symbolic victory for leaders of a much wider movement.
An organization called 350.org is leading the fossil fuel divestiture movement, organizing campus-based groups of students, alumni and professors who put their collective efforts into pressuring their institutions to sell off their holdings in energy companies. David Keith, who splits his time between his Calgary-based company, Carbon Engineering, and his professorship at Harvard, describes the divestment movement as the fastest-growing and most passionate campus movement he has seen since Vietnam.
Aided by feature articles in Rolling Stone and a movie broadcast on Al Jazeera, 350.org has spread its message in over 180 countries – that 350 parts per million is the safe upper limit for carbon dioxide concentration in the atmosphere, and the current global average is 400 ppm. Since the movement launched in 2008, six American colleges have divested but Harvard, as well as all major Canadian universities, have yet to sell off its stakes in fossil fuel companies. Chapters of 350.org have formed on 300 campuses in the U.S. and have recently launched in Canada, at the University of British Columbia, University of Toronto and McGill University.
To date, the movement has been largely ignored by the energy industry, despite the fact that oil and gas companies spend tens of millions of dollars on scholarships, campus recruitment campaigns and the naming rights for university lecture theatres, laboratories and department chairs. Energy executives ignore the 350.org campaign at their own peril; even though 350.org targets their companies’ stock price, its real intention is to erode the hydrocarbon industry’s social license to operate.
On June 11, 1987, students in Illinois picketed a meeting of the University of Chicago endowment fund’s board of trustees. They had been rallying on campus all year but saw the June 11 trustees’ meeting as the last chance of the academic year to demand that the university withdraw any funds it had invested in South African companies, or in companies doing business in South Africa during the apartheid era. The University of Chicago eventually acquiesced to their demands, and other American universities did too, as the ’80s witnessed the world’s most successful divestiture movement.
Since then, divestiture campaigns across North America have tried to tap into the spirit and fervor of the apartheid divestiture movement – and the 350.org movement is no different. The group’s website says that divestiture “was a key part of how the world ended the apartheid system in South Africa, and we hope it can have the same effect on the climate crisis.” A study published this year by the University of Oxford on the campaign describes the fossil fuel divestiture movement as the fastest-growing divestiture movement of all time – faster even than the anti-apartheid movement.
Frank Atkins, an associate professor of economics at the University of Calgary, says 350.org’s self-comparison with the anti-apartheid movement is a bit rich. “This is not the same as the apartheid divestiture at all,” Atkins says. “Back then everyone, except for South Africa’s government, believed that apartheid was wrong and that we needed to do something about it. Here, we have a tremendous difference of opinion.”
The other key difference between the fossil fuel and apartheid divestiture movements, Atkins says, is the end game. During the apartheid era, the goal was to isolate a specific country, and that was accomplished through a combination of divestitures, political sanctions and trade embargoes. The energy industry is far more complex, and therefore difficult to isolate: it is comprised of companies all over the world and is supported by capital markets from Hong Kong and Singapore to New York and London. “If people start dumping this debt and this equity, what would happen is bargain hunters would just come along and buy it up,” Atkins says.
Perhaps part of the reason the energy industry hasn’t been alarmed by 350.org is because executives don’t perceive it as a credible financial threat. Martin Molyneaux, the vice-chairman of FirstEnergy Capital Corp., says the kind of mass divestiture 350.org envisions would not limit energy companies’ access to capital. “The overall, global capital market is so much larger than these holdings,” Molyneaux says. The University of Oxford study on the fossil fuel divestitures show that endowment funds at American universities only have about two per cent of their portfolios invested in fossil fuel equities, compared with about four per cent in the U.K. — where the 350.org movement is also gaining momentum. “What you have to remember is that a lot of these university endowment funds have holdings at the lower end of the risk spectrum,” Molyneaux says. Most endowment funds are heavily levered towards debt instruments and blue-chip equities, of which energy makes up only a small component.
To further complicate matters, universities typically do not invest directly in stocks and bonds. Most universities, including Harvard, UBC, the University of Calgary and McGill, invest in funds and pools that are externally managed. “[Energy divestiture] is relatively straightforward conceptually, but it’s really, really hard to execute on,” Molyneaux says. Far from hurting the stock price of energy companies, the 350.org movement would limit the number of funds and pools in which university endowments could participate, which would ultimately limit the potential returns of those funds. Molyneaux believes the threat 350.org poses to the energy industry isn’t financial, but social. “The rhetoric is actually more impactful than the small percentage of endowment funds that would actually do something like this,” he says.
That’s exactly the point. “It’s not really about hurting their bottom lines,” says Daniel Kessler, the Oakland-based communications director for 350.org. “It’s about questioning their social license to operate.” Kessler says 350.org is well aware university endowment funds own a very small amount of energy companies’ debt and equity, but says the organization’s long-term goal is to make owning positions in these companies socially unacceptable.
Kessler points to tobacco and cigarette companies as examples of past successes by similar campaigns. The divestiture movement that 350.org more closely resembles is the tobacco divestiture movement, which gained steam in the 1990s. The anti-tobacco movement did have a noticeable financial impact on cigarette makers but, perhaps more significantly, it made tobacco company donations to political campaigns, to academic studies and to charitable organizations taboo. Kessler says he hopes 350.org will have the same long-term effect on the petroleum industry.
A 2000 study from the Washington, D.C.-based Investor Responsibility Research Center Institute showed that between 1996 and 1999, institutions in the U.S. divested more than $1.5- billion worth of tobacco holdings. The University of Washington became the first state-run university to divest its tobacco holdings in 2000, though other American, and then Canadian, schools followed suit. Both McGill and the University of Toronto divested all their holdings in tobacco companies in 2007, and are now under pressure from their local 350.org chapters to divest their holdings in fossil fuel companies.
The Oxford study on divestitures compares the fossil fuel divestiture movement with both the anti-apartheid and anti-tobacco campaigns, but it also considers similar campaigns against weapons manufacturers, casinos and the pornography industry. The campaigns had mixed financial impacts on their target industries, but in each case divestment campaigns successfully lobbied for restrictive legislation. At this point, there’s no reason to believe the fossil fuel divestment campaign will be any less successful. If, in the case of 350.org’s campaign, that legislation takes the form of a carbon tax, the study warns, “Then they will materially increase the uncertainty surrounding the future cash flows of fossil fuel companies. This will indirectly influence all investors – those considering divestment due to moral outrage and those who are neutral – to go underweight on fossil fuel stocks and debt in their portfolios.”
At the end of the 1980s, Harvard University decided to partially divest itself of companies doing business in South Africa. Then in 1990, the university announced that it would divest all its holdings in tobacco companies. In 2010, Harvard sold off all its positions in Israeli-based companies after a concerted divestment campaign called for a boycott of Israel as a result of tensions and blockades in the Gaza Strip and West Bank. In the face of the 350.org movement, the world’s richest university has taken a surprisingly different tack.
Harvard president Drew Faust published an open letter to “members of the Harvard community” on her office’s website describing why her university endowment fund would not divest its fossil fuel holdings. University administrators across the continent have read it, and often quote it as the most complete defense of a university endowment fund’s mission to date. In the letter, Faust says that the endowment fund’s first and foremost purpose is to fund education and research and that Harvard’s research has led to some major breakthroughs in, among other subjects, renewable energy and fossil fuel productivity. In other words, the university’s research has been key in lowering global carbon emissions and has been aided by participation with the energy industry, but that research relies on the highest possible returns from its endowment.
As one of the world’s most prestigious universities, Harvard is a critical battleground for 350.org. Smaller universities like Unity College, Sterling College, and Hampshire College have all committed to divesting their holdings in fossil fuel companies. Groups like 350.org would see Harvard’s divestiture as having a domino effect that could lead other large institutions to follow suit. So far, however, its refusal to divest has had the opposite effect across the continent.
In Canada, the 350.org campaign has yet to spread to the University of Calgary or the University of Alberta. McGill University rejected a fossil fuel divestment petition from Divest McGill in March of this year, saying that the group had “failed to demonstrate that social injury… had occurred due to the actions of the companies that were the subject of the petition.” A 350.org group at the University of Toronto published a 200-page paper in October 2013 calling for the university’s $1.6-billion endowment fund to divest of fossil fuels, though the university has not yet received a formal petition. One of the first 350.org groups in Canada was formed at UBC, and that group has been active on campus and at demonstrations across Vancouver. UBC treasurer Peter Smailes has been in regular contact with the local 350.org group, but says, “I don’t expect any move toward divesting.” He says Faust’s open letter to the Harvard community exemplifies how he expects UBC will respond to the divestiture movement.
Whether Harvard, UBC and McGill continue in their staunch refusal to divest their holdings in fossil fuel companies does very little to disarm 350.org’s threat to the petroleum industry. Faust’s letter to the Harvard community does not provide a defense of hydrocarbon extraction – if anything, it asserts that the petroleum industry’s emissions cause a problem in the atmosphere and that the university’s role is to research methods to mitigate those emissions. That’s hardly a defense of fossil fuel companies, and it is certainly not a defense of the industry’s social license to operate. 350.org’s threat will continue regardless of which universities ultimately decide to sell off their positions in coal, oil and natural gas companies.
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