(Image: Solar energy via Shutterstock)Fresh from victories in Seattle and San Francisco, grassroots activists advocating city and college divestment from fossil fuel companies are already thinking big about how to reinvest the billions of dollars they want to free up. While very little money has actually been divested to date, the campaign is building connections between climate activists and renewable energy advocates. Where one group is attacking a problem, the other is offering a solution. However the goal of delegitimizing dirty energy companies and funding renewable energy futures is fraught with problems, including the notion of fiduciary responsibility, investment risk and narrow conceptions of social and environmental responsibility.

Divestment Alone Not the Goal

To date, divestment activists have succeeded in convincing six colleges to begin the process of removing university funds from oil company stocks like BP and Shell. A handful of churches and foundations have also begun this process. The city of Seattle’s commitment to divest – the first of any big US city – includes a pledge by the mayor to immediately scour the city’s $1.5 billion short-term investment pool for fossil fuel securities, and to eliminate them. San Francisco’s recent vote was a nonbinding resolution urging the San Francisco Employees’ Retirement System to divest, and it’s unclear whether the pension’s board will follow through. Even so, many other cities and colleges are expected to vote on the issue by the fall.

Will it slow down the fossil fuel industry? Hardly.

Divestment from fossil fuel stocks is expected to have little effect on the values of company share prices or their abilities to raise capital and fund operations. Most large energy companies raise capital in the bond market, and most bond buyers are private investors. Many of the larger oil, gas and coal companies use internally generated profits to pay for new wells, pipelines and other infrastructure. Large global banks like JP Morgan and Wells Fargo provide lines of credit to oil companies like Chevron and Shell. Financing the fossil fuel industry is mostly a private affair guided purely by investors’ appetites for high yields.

“We’re not going to bankrupt them,” said Ophir Bruck about companies his student group is targeting for divestment. Bruck, a 3rd-year UC Berkeley student, pointed to the University of California’s enormous endowment and pension system, noting that each holds billions of dollars in coal, oil and gas company stocks and bonds. “Divestment is largely about hitting the reputations of these companies, their image as an industry, and in that sense removing their social license to operate. We want folks to associate their brand with the destruction of the earth’s climate system.” Students at various universities are therefore using divestment demands as a platform to engage boards of trustees and administrators in conversations about environmental destruction and social inequities, linking these to the profit motives of big oil.

Bruck believes divestment is just the first step and not even the most important one in a political fight to shift the economy from a CO2 energy base to renewables. “This is an opportunity for the university’s board to take leadership and spearhead this paradigm shift.” Bruck and other students are working with faculty members and groups like 350.org to devise options for reinvestment of university pension and endowment money into alternative energy and other ecologically sustainable activities. So far students at seven campuses within the UC system have voted to endorse the goal of divestment. Faculty at UC Santa Barbara voted on May 30th to endorse divestment.

Protests at dozens of other universities and colleges have already done some public relations damage to the world’s largest carbon energy companies like Exxon Mobil, BP, and ConocoPhillips. Carbon Tracker, an organization that traces fossil fuel assets across equities markets and through corporate holdings, maintains a listing of the world’s 200 largest coal, oil and gas companies. Divestment activists have adopted this list as a starting point for divestment, asking their college’s trustees to begin by dropping these particular stocks.

On May 11, former EPA chief Lisa Jackson even endorsed the national student campaign during a commencement speech at American University. “I salute this school and its students for facing head-on the issue of investments in fossil fuels and what that means to your individual futures,” she said to an audience that included dozens of divestment activists and their parents. Students at American University voted in April to endorse divestment, followed by a faculty senate vote, also in favor.



To date, only six colleges have formally voted to pursue divestment. Five are in New England. Hampshire College’s trustees committed in November 2012 to extract the Massachusetts school’s $31 million endowment fund from fossil fuel securities. Unity College of Maine also formally moved to divest in November of last year.

“You don’t just simply extract the fossil fuel companies from your portfolio and go on with the portfolio as it was,” explained Unity college president Stephen Mulkey after the vote. “You make strategic decisions about how to reallocate your investments.”

Following another energetic student campaign, Vermont’s Sterling College voted to divest in February 2013. Sterling’s president said afterward, “It makes no sense for us to invest in companies that are wreaking havoc on our climate.”

Swarthmore College in Pennsylvania, long a center of environmental organizing, especially against the mountaintop removal practices of coal companies, hosted a convergence in February, pulling together students and activists from numerous colleges to strategize around divestment. Going after the financials of companies engaged in environmental destruction was already a tactic for Swarthmore’s anti-coal activists, who are credited with instigating the national divestment campaign now in full swing. Swarthmore’s endowment is currently valued at $1.5 billion, according to the school. Should Swarthmore’s activists succeed this fall in convincing their school to divest, it would be the biggest college commitment to date.

Jamie Henn, a spokesperson with 350.org, said divestment alone will not succeed in reversing climate change. “We have no illusion that we can bankrupt a company like ExxonMobil through divestment, but we can vilify them to the point where they begin to lose their political influence.”

“Our goals with this campaign are to turn climate change into more of a moral fight, weaken the political power of the fossil fuel industry and to make an economic impact by moving money out of the fossil fuel industry and towards climate solutions.”

Judy Pope of 350 Bay Area, a California group that is independent of 350.org but which works on similar campaigns, said divestment has the potential to politicize investments and pull more people into the climate change movement. “I like divestment because it’s something the ordinary person can grasp. We saw that with the campaign against South African apartheid. What it did was galvanize thousands of people to act and yanked legitimacy out from under the regime.”

Oil, gas, and coal companies spend millions yearly on lobbying, and millions more on public relations to bolster their legitimacy. Chevron’s “We Agree” ad campaign has attempted to link the company’s image with various causes, from fighting AIDS and funding schools, even to investing in renewable energy, all while the company books record profits and funds internal alternative energy research at minimal levels. Exxon Mobil has rolled out ads promoting fracking and claiming that groundwater contamination is not linked to the practice of using injectants to squeeze gas from shale deposits. Chevron’s federal lobbying bill this year alone is $3.6 million. Exxon Mobil has spent $4.8 million in the first five months of 2013 to influence federal lawmakers and officials.

Pope’s 350 Bay Area team is working with community colleges, city pension systems and has even started to approach the massive California Public Employees Retirement system about divesting from fossil fuel companies. “Even if a portion of that turned to clean energy, it would be amazing,” said Pope.

A preliminary scan of the CalPERS investment portfolios shows that the nation’s biggest public pension system held $5.7 billion in fossil fuel company stocks, and $1.4 billion in corporate bonds, as of 2011. That’s 10 percent and 14 percent of the total equity and bond holdings of the pension system, respectively.

Reinvestment in Local Clean Energy

So far most college trustees and pension board members have received divestment demands with respectful skepticism at best. They ask activists where they would rather the money be invested and claim that dropping fossil fuel securities exposes endowments and pensions to higher risks, perhaps in violation of their fiduciary duties to prudently manage public and educational dollars.

This is where the divestment movement matches up with the goals of people like Al Weinrub. Weinrub is the coordinator of the Local Clean Energy Alliance, a network of 90 organizations in the San Francisco Bay Area that advocate for, and develop renewable energy. Weinrub, and dozens of colleagues in local government and NGOs, have worked for years on different proposals that would boost clean energy generation and create local jobs in California and beyond.

The most ambitious of these is community choice aggregation (CCA), an energy procurement law (approved in California in 2002 and approved in many other US states) that allows local governments to purchase electricity on the open market. Cities and counties can require energy vendors to meet goals such as low-carbon emissions and local energy sourcing to create jobs. CCAs can also choose to become energy developers, using ratepayer dollars to invest in local, publicly owned wind turbines and solar arrays, or simply to pay for efficiency upgrades that reduce overall consumption. CCA has already taken off in several US states because it cuts private utility companies out of the ratepayer revenue stream and lowers utility bills. The greening potentials of CCA remain largely unrecognized, however.

In San Francisco the city is readying the launch of its own CCA program that includes a plan to build local solar and wind generation projects to meet much of the city’s needs in the near future. Advocates note that under this plan, called CleanPowerSF, not only would the city go green in its energy consumption, it would likely create thousands of local jobs. Initially, however, San Francisco’s renewable energy will be purchased from generators far outside the city and greened partly through the purchase of renewable energy credits.

A major stumbling block in the way of actually building solar, wind and other renewable projects for San Francisco concerns the financing arrangements. “If you want to do a local buildout of renewable energy that’s significant, you need a billion dollar-level of investment,” explained Weinrub. Although San Francisco’s voters authorized the sale of bonds to fund clean energy investments, the city’s financial managers fear loading up on too much debt to build the project. The blueprint for a local renewable buildout, authored by the respected consulting firm Local Power, Inc. was sidelined by city managers who believe it is too risky.

Weinrub and other clean energy advocates frustrated by these financial hurdles have spent the last year searching about for innovative sources of funding in addition to utility revenue bonds. Divestment might just play a roll they think. “How do you raise a billion dollars over 10 years to fund a local clean energy buildout?” asked Weinrub. “Well, when we talk about divestment, what are we going to reinvest in?”

The San Francisco Board of Supervisors’ decision in April to urge the city’s pension funds to divest from fossil fuel companies provides a potential answer to both the question of how to redeploy divested dollars and how to possibly fund ambitious green energy programs like CleanPowerSF.

“Since the alternative to fossil fuel-based electricity requires massive investment in new infrastructure, what better way to finance this investment than through the divestment of fossil fuel holdings?” asked Weinrub in a recent blog post distributed to his network’s members. “For example, a robust Community Choice program in San Francisco to build local renewable energy assets calls for about $1 billion of financing over the next 10 years. The divestment of fossil fuel holdings by the San Francisco Employee Retirement System ($583 million) could provide half that amount.”

$260 Billion In Search of Green Opportunities?

Other state and city pension systems and hundreds of university endowments could collectively free up hundreds of billions if they move ahead with divestment. The nation’s 831 largest colleges and universities are estimated to possess $406 billion in assets in their endowments, according to the National Association of College and University Business Officers.

US public pension systems collectively own $939 billion in corporate stocks, and another $349 billion in corporate bonds, according to the most recent US Census survey of pensions.

It’s possible that as much as 10 to 15 percent of these holdings are directly in coal, oil, and gas companies, meaning that public pensions hold perhaps $150 billion to $200 billion in fossil fuel securities, while university endowments possess another $40 billion to $60 billion in oil, gas and coal investments.

A few hundred billion dollars untethered from fossil fuel holdings could play a transformative role in America’s energy sector, say activists. Projects like San Francisco’s clean energy program, to more traditional investments like solar rooftop arrays, soak up a very small amount of capital compared with fossil fuel projects.

Few colleges and universities have policies to screen investments for social and environmental criteria. According to David Hales, president of Second Nature, only about 5 percent of US institutions of higher education use some kind of environmental screening when making investments. Only 4 percent of colleges and universities use “negative screens” to divest from specific companies or sectors.

Recent reports from mainstream financial analysts have begun to cast doubt on the continued profitability and security of fossil fuel investments. For example, HSBC bank released a report in January 2013 warning that fossil fuel company stock prices may collapse in the near future as governments act to avert catastrophic climate change. The bank bases its assessment on research published originally in the journal Nature that modeled the chances that different levels of CO2 emissions between now and 2050 would cause a more than 2 degree centigrade rise in global temperatures. Two degrees is seen as an extremely dangerous rise in temperature that must be avoided. The Nature report, and subsequent research built off it by the International Energy Agency, concludes that upwards of one-third of the proven reserves of coal, oil and gas must be kept in the ground to avoid catastrophic climate disruptions.

Because this “unburnable” carbon energy mass is counted as an asset for the world’s biggest fossil energy companies, keeping it in the ground will likely reduce their corporate valuations, sending their stock and bond prices tumbling. This poses a risk for those with significant investments in companies with big carbon energy holdings. Carbon Tracker makes the same point, calling the current valuation of fossil fuel companies the product of a “carbon bubble.” When the bubble bursts, investors could lose trillions of dollars in their scramble to exit.

On the flip side, HSBC’s analysts are promoting renewable energy and energy efficiency as two major investment opportunities in light of the climate crisis and financial risks of fossil fuel companies. Other investors like Goldman Sachs – hardly a member of the green movement – are now taking similar positions with big monetary stakes in solar and other renewable energy companies. In May, Goldman Sachs inked a $.5 billion dollar lease-financing agreement with SolarCity, one of the larger solar electricity generators in the United States.

Even so, the entire investment management business is poorly set up for those who want to truly go green. Swarthmore College’s administrators have pushed back against divestment campaigners claiming that divestment will reduce the value of the college’s endowment, forcing tuition hikes. According to Swarthmore’s treasurer, dropping fossil fuel securities alone wouldn’t reduce investment returns, but it would require costly changes in the way that Swarthmore manages its money. It’s a valid point: The investment management industry has countless ways to actively and passively place money into diversified sets of stocks and bonds that include fossil fuel companies. There are few products or managers who can extract fossil fuels from the mix, and doing so might cost more unless it becomes a widely demanded service.

Risky Business

Investment managers are still averse to risk, especially for public pension systems that have seen their funding levels dip in recent years, forcing either significant cuts in other government priorities, or unpopular tax hikes. Fossil fuel investments have been seen as a key sector to remain invested in so as to distribute risk and harvest large earnings on the recent fracking boom.

In response to an inquiry about the divestment campaign sweeping across the United States, Sabrina Fang, a spokesperson for the American Petroleum Institute defended fossil fuel companies as smart investments for pensions and colleges.

“The development of oil and natural gas in America has done more to create jobs and generate revenue than any other industry during these difficult economic times, including helping to fund higher education, by outperforming other investments.” said Fang. “This is allowing colleges to provide aid to students who may not otherwise have an opportunity to attend college.”

Fang referred to a study that was funded by the oil industry through API. Its authors analyzed investment returns from oil and gas companies over one-, five-, and 10-year periods, comparing them to other assets in college and university endowments. The authors concluded that “U.S. shares of oil and natural gas companies outperformed both the overall performance of these endowments and every other asset class examined here.” In other words, divestment from oil, gas and coal stocks would seem to reduce investment returns for pensions and endowments, and increase the risks facing less diversified portfolios.

A recent analysis of the impact of divesting from oil, gas and coal stocks on a diversified portfolio conducted by the Aperio Group shows, however, that the actual increased risk is small. In fact it’s so small, it may not matter.

Aperio’s analyst ran an investment model for a standard portfolio of stocks that excluded 15 of the largest fossil fuel companies to see how much it would increase the risk of below average returns. According to Aperio, doing so increases an investor’s risk by 0.0006 percent. “In other words, the portfolio does become riskier,” concluded the report’s authors, “but by such a trivial amount that the impact is statistically irrelevant. In other words, excluding the ‘Filthy Fifteen’ has no real impact on risk.”

Excluding virtually the entire oil, gas and coal sector of the economy from a portfolio increases risk by one tenth of one percent and adds a theoretical return penalty of 0.0034%, or less than half a basis point, claims Aperio.

The mainstream investment management industry is already piling aboard climate change because it’s seen as providing new market opportunities to sell advice and products. In September, the Association of Climate Change Officers, a trade association that counts Waste Management, Pfizer, and the Air Force among its members, is hosting an “Endowments, Pensions & Climate Change Conference.”

Weinrub and other climate change and energy activists are trying to push the conversation beyond these narrow boundaries, however. “It’s crazy to say oil stocks are low risk,” said Weinrub. “If the concept of risk is just reduced ultimately to this market concept, it eliminates all other risks that could be much more grave.”