University Endowments – Fidicuiary Duties – Whose Money is it — What Are “Societal” Responsibilities?

by Hank Boerner – Chairman, G&A Institute

Many of our nation’s colleges and universities — which are “Social Institutions” – have long had established endowments. Some are truly wealthy — these are pools of assets designed to serve future generations.  Other types of  various types of social institutions” are similarly wealthy. Endowment assets are managed in-house or by outside professional money managers.   Over the years, the college and university endowments have been in focus for sustainable & responsible investors (SRI advocates) — as they are right now.

For example, Harvard University has an endowment fund reported to have  US$36 billion in Assets Under Management (AUM) — the largest of these “funds-for-the-future” of the higher education community in the USA.

The students and other stakeholders would like to see “more responsible” investing by the Harvard endowment, such taking the decision to divestment shares of traditional fossil fuel companies in the portfolio. (think: “ExxonMobil“). Among the arguments, gaining ground. including beyond the university endowments discussion, is that these public companies have “reserves” (such as coal, oil, natural gas) that are important parts of their capital markets valuation, and with climate change and the development of renewable fuel sources and other factors, the reserves on the balance sheet will over time become “stranded assets” – thus, devaluating the business enterprise. That is, the coal or crude oil in the gorund will not be harvested and sold…they will be stranded and of little or no value.  And therefore, as fiduciaries, responsible for the fund in the future, a collision course is set up:  the fund needs in 2050 will be diminished as the value of the corporate holdings moves downward.

And so, students of the Harvard Law School have filed a lawsuit seeking to compel the endowment fiduciaries (the trustees) to divest holdings in fossil fuel enterprises.  Interesting:  their case is based on 17th Century transactions (back when whale oil and wood were the primary energy sources).  In 1640, Harvard College was established as a seminary and documents were filed with the Massachusetts Bay Colony.  Under those documents, the 21st Century students argued that they had standing (to bring the action) under “special interest” provisions.

The endowment leadership responded:  “The endowment is a resource, not and instrument to compel social and political change…” (The New York Times). Harvard President Drew Gilpin Faust has spoken on fossil fuel divestment.  In October 2013, a statement to the Harvard community said in part:  “[I] and members of the Corporate Committee on Shareholder Responsibility have benefitted from conversations [with students] who advocated divestment…while I share their belief in the importance of addressing climate change, I do not believe, nor do my colleagues on the Corporation, that university divestment from the fossil fuel industry is warranted or wise…”

The president also said that “…especially given our long-term investment horizon, we are naturally concerned about ESG factors that may affect the performance of our investments now and in the future…”  Harvard policy is engagement and collaboration, rather than “ostracizing” companies based on their product (such as fossil fuels). The Harvard Management Company brought on a VP for sustainable investing. (You should  read the full statement here: http://www.harvard.edu/president/fossil-fuels to understand the university’s official position on these issues).

Alice M. Chaney, who with six other Harvard students filed the lawsuit to compel Harvard Corporation (the governing body of the university) to divest fossil fuel companies, said the following: “We allege that Harvard’s investment in those companies violate its duties as a public charitable institution by harming students and future generations.” (Cheney is a law school student and member of the Harvard Climate Justice Coalition.)

The students — organized as “Divest Harvard” — have been campaigning on the issue.  The first step was a survey of students in 2012 — 72% at the college and 67% at the law school voted in favor of divestment.  Since then 200 faculty members, 1,000+ alumni, and 63,000 community members have signed divestment petitions, the group says.

The legal arguments:  the Harvard Corporation’s public charitable obligations include managing its endowment so as to protect the ability of Harvard students to learn and thrive. The Corporation also has a responsibility not to act in ways that threaten the health and welfare of future generations. (You can read her statement at: http://billmoyers.com/2014/11/22/suing-harvard/)

The pressure on universities to divest holdings in companies based on ESG issues is a long-time tradition.  American university interests were deciding factors, I believe, in the American and global campaigns to abolish Apartheid practices in South Africa in the 1980s and the aid to combatants in the civil war in Darfur more recently.  (The drive was to get investors out of the stock of US companies “supporting” the Sudan government which was making war on its own populations.)

Beth Dorsey, CEO of Wallace Global Fund and leader of the Divest-Invest Movement, commented on the Harvard University leadership’s opposition to divestment:  “In the last great divestment campaign, Harvard said ‘no’ before it said ‘yes’ and I think if just a matter of time.  Unlike the anti-apartheid movement, this is not just an ethical issue.  There is a powerful financial reason as well…”

As the lawsuit in the Commonwealth of Massachusetts / Suffolk County courts winds on, and the Divest Harvard protests continue, half a world away, the world’s largest Sovereign Wealth Fund – the US$800+ billion AUM Norway Government Pension Fund — just announced it will divest holdings in coal mining companies.  the list of companies will be made public on December 1.  The SWF will not divest oil and gas companies.  (Consider: the wealth of the wealth fund is primarily based on taxes on the country’s North Sea fossil fuels.)

While you think about that last tidbit, consider that the descendants of John D. Rockefeller — the 19th Century Titan of Industry who assembled the giant Standard Oil Company — have decided to divest their fossil fuel investments (in September 2013)! Great and great-great grandchildren Peter O’Neil, Neva Rockefeller Goodwin and Stephen B. Heintz are in the lead for the Rockefeller Brothers Fund, which has $860 million AUM.

Said Stephen Heintz:  “John D. Rockefeller, founder of Standard Oil, moved American out of whale oil and into petroleum.  We are quite convinced that if he were alive today, as an astute business man looking out to the future, he would be moving out of fossil fuels and investing in clean, renewable energy…”   (More about this in The Guardian coverage of the announcement at: http://www.theguardian.com/environment/2014/sep/22/rockefeller-heirs-divest-fossil-fuels-climate-change)

The Rockefeller family announcement was an important part of a “momentum moment” for fossil fuel divestment proponents.  The influential World Council of Churches joined the divestment movement. American cities are adopting similar policies (as many did in the anti-Apartheid movement).  Advocates are working under the umbrella of the Divest-Invest Movement.  To date some 800 institutional investors have pledged to withdraw more than $50 billion in fossil fuel investment over the coming 5 years.

ExxonMobil’s position?  In October The Wall Street Journal headline read:  “Exxon Blasts Movement to Divest From Fossil Fuels…the oil giant seeks to counter the campaign…”  The article by Ben Geman said that the company published a “lengthy attack about the divestment movement, positioning the argument that [the movement] is at odds with the need for poor nations to gain better access to energy, as well as the need for fossil fuels to meet global energy demand for decades to come…” The author is Ken Cohen, VP for Public and Government Affairs (writing in the company’s blog.)

“Almost every place on the planet where there is grinding poverty,” he wrote, “there is energy poverty.  Wherever there is subsistence living, it is usually because there is little or no access to modern, reliable forms of energy.”

And so, the battle lines are formed — advocates vs. university, asset owners (and managers) vs big fossil fuel companies, institutions and fiduciaries (in Exxon’s view) vs. the people of poor nations.

The positions (and actions) of two important institutional investors could create a tipping point:  Harvard University (with considerable wealth, influence, prestige, powerful alumni, world-class faculty, a powerful publishing arm and on and on) and the Norwegian Sovereign Fund, which invests in literally thousands of public companies…and soon will have $1 trillion in AUM to leverage in pursuit of its social / societal issues policies and investment actions.

Stay Tuned to the Fossil Fuel Divestment Movement…and the push back by giants of the fossil fuel industry and their allies in the US Congress and other power centers.

 

 

 

 

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Climate Change? Global Warming? This is About Science…What Are Scientists Thinking?

by Hank Boerner, Chairman, G&A Institute

Climate change.  Real or not?  Global warming. Really?  The argument goes back and forth — is Mother Earth warming? Or perhaps cooling? (Skeptic: Look at this winter weather. What warming?) Is climate change the result of human activities over the past century and longer back than that as individuals and industry and governments pumped ton after ton of emissions up into the atmosphere?

Are the results reversible if human caused?

Today, the prestigious American Association for the Advancement of Science (AAAS) released an important report — What We Know, its assessment of current climate science “that emphasizes the need to understand and recognize possible high-risk scenarios…”

What most of us know as Average Joe’s and Jane’s is that we are experiencing — severe droughts. More severe storms. Melting icebergs. Rising seas. Heat waves. Serious drought. More wildfires than usual in wilderness areas.

Scientists tuned in to climate change have been warning about the gases emitted – the Greenhouse Gasses – that have been poking holes in or dissolving the very important ozone layer that protects humankind and all life from the dangerous ultraviolet rays our wonderful sun sends forth.

The statement from the 120,000-member association is that scientists have developed a solid understanding of how the climate is responding how the climate is responding to the build up of GhG emission and also the uncertainty that exists about the long0term impacts of same.  But many scientists and climate experts agree with the view that we are most likely at a dangerous tipping point in the human experience.

Highlights of the “What We Know” effort as voiced by an AAAS panel and associated scientists: :

–There is (or should be) little issue about climate change in our modern society. It is happening here and now.
–On this, a clear majority of climate scientists agree.
–We are at risk of pushing our climate system toward abrupt, unpredictable, and potentially irreversible changes…with very damaging impacts.
–The sooner we are the lower the risk / and cost / and just how much we human can do.
–Scientists may recognize the build up of Greenhouse Gasses (GhGs), but they also recognize the [considerable] uncertainty about the long-run results.

And so, on the last point, the AAAS is embarking on a new initiative to expand the public dialogue about the risks of climate change.

With the brand and reputation behind the campaign (AAAS is the largest general scientific society in the world), the general public and especially policy makers will be hearing more from the scientific community about the issues going forward.

Nobel laureates, academics, scientists, other experts will be speaking out and encouraging all Americans to think about climate change as a risk management issue…one of the most important in our lives even with many other personal and societal issues usually going on around us..

You can do your part. Read the AAAS report. Help spread the word on What We Know. Don’t brush off or ignore the naysayers and climate change deniers. Engage in the discussion. Share available scientific knowledge with them. If you are an investor in a fossil fuel company, press board and management on what the corporate leadership is doing to address the climate change issues (risk management is part of the board’s job).  Ask about the risks for the company (you are an owner– entitled to ask!). Ask political candidates in this 2014 election year where they stand on global warming…or if that makes them or you uncomfortable, on climate change issues. .

The AAAS will be making a new web site available to help in the knowledge-sharing mission. We’ll let you know when we know the URL. Information is available at the association’s web site: www.aaas.org

What are your thoughts on climate change? Global warming? How we can address the issues? Share those thoughts!

Closing thought from this writer:  On this small blue marble hanging out in space, when it comes to climate change, we are all in this together, the scientists are saying today. I recall that over the years, looking down from space, the astronauts would remark how fragile (and beautiful) our Spaceship Mother Earth is. . We have to all work all together to keep it that way!  (Isn’t that what the sustainability movement is about?)

Coal’s Future Getting Darker

The support for coal  throughout the world is in great flux.  There are negative messages flying about driven by the desire to decrease the impact on climate change and the overall environment by decreasing the use of this high carbon fuel.

Today’s story in Eco Business.com  – Coal at risk as global lenders drop financing on climate  – focuses on the financing of future coal power plants and related coal projects:  “First it was President Barack Obama pledging in June that the government would no longer finance overseas coal plants through the U.S. Export-Import Bank. Next it was the World Bank, then the European Investment Bank, dropping support for coal projects. Those banks have pumped more than US$10 billion into such initiatives in the past five years.”  

The Guardian (UK) also has a pointed story that only adds to the confusion.  This gamble on carbon and the climate could trigger a new financial crisis.    “At a time when governments are supposedly preparing for a global climate change deal that will cut carbon emissionsenergy multinationals are investing in carbon assets like there’s no tomorrow.”

While the future of coal has been shaky for years, there was no viable cost-effective  substitute until fracking caused the boom in natural gas production.  A classic battle is looming  between efforts to  protect the environment and the loss of an industry and jobs.  While there are deniers, the conflict is growing.U.S. is not waging ‘war on coal’: Energy Secretary Moniz .

Balance these events with efforts by representatives of “coal producing states” fighting for an industry that supplies thousands of jobs in their home communities.  W.Va. entourage meets with new EPA director .  While coal-fired power plants in the US just may go the way of the dinosaurs in the near future. Usage around the world is not expected to decrease as rapidly and might even increase, especially in emerging economies.

The coal issue is a perfect example of  what will become an increasing conflict between a greener more sustainable energy policy and job protection for the status quo.  We will be watching these issues very closely. For coal interests it is not over until it is over!