Divesting In Carbon-Based Assets – Another Perspective
February 25, 2013 - 7:50am
As the debate about climate change continues to boil, a new call is in the offing to persuade colleges and universities to divest endowment holdings in fossil fuel related companies. There is little doubt we must create a more coherent energy policy and reduce the burning of fossil fuels to mitigate climate change. How best to achieve that end is at present perplexing and void of sound strategy or agreement.
By signing on to the American College and University President’s Climate Commitment (ACUPCC), more than 650 institutions have said “we want to do our part to reduce our carbon footprint, but equally important we want to educate our students in ways that embolden their efforts to lessen their own carbon footprints as they take their places in the global economy.”
Luther College was an early ACUPCC signatory. Since 2003, the college has reduced its total emissions by 33 percent. Energy related emissions have declined 37 percent through major investments in efficiency, switching to natural gas as the sole heating fuel, establishing a 1.6 megawatt wind turbine, and leasing a utility scale 280 kilowatt solar photovoltaic array to power a 100 student geo-thermal residence unit. Emissions from campus fleet vehicles have been reduced through the purchase of hybrid cars, adding electric maintenance vehicles, and using pickups powered by compressed natural gas. Change on the Luther campus is palpable and apparent as we strive to achieve a 50 percent reduction by 2015.
Divesting in some of our endowment holdings is not part of our carbon reduction plan. Why? We are fiduciaries entrusted with assets from donors who didn't commit those assets to a specific cause, regardless of the worthiness of the cause. Luther’s mission is to educate, not advocate. It is widely known Luther is committed to sustainability, and to reduce its carbon footprint is a part of its mission. The endowment that supports the total institution should not be committed to a single cause.
If an individual donor wants to give to a dedicated fund committed to a single cause like green energy, etc., and stipulates that the funds should be invested in a socially responsible way, those funds can be segregated in ways that meet the donor's objectives without broadly impacting the total asset allocation strategy of the endowment.
The size of our endowment (~$123 million) requires that we invest assets in funds managed by independent investment advisors. Advisors are chosen because they represent the best of class from an investing strategy that balances risk and return. We don't have the ability ... even if we wanted to ... to screen individual stocks or classes of stocks that advisors purchase.
Less than six percent of Luther’s endowment is in fossil fuel related companies. But we must be prudent. If, as some suggest, 30 percent of the value of some of the world stock exchanges is in coal, gas and oil reserves, what happens if governments legislated to keep those reserves in the ground to limit further release of carbon in the atmosphere? Recently, global banking giant HSBC released a report suggesting large oil and gas companies could lose 60 percent of their market value if governments proceed with tough carbon targets and force companies to leave reserves untapped. Such a scenario requires careful thinking about one’s endowment portfolio and the associated asset allocation strategies. Fiduciary responsibility requires nothing less.
Richard L. Torgerson, President
Luther College, Decorah, Iowa