Quinnipiac should join the fossil fuel divestment campaign

By on January 22, 2019

You may have heard about the fastest growing global divestment campaign in world history.

So far, according to the acclaimed American environmental activist, Bill McKibben, the fossil fuel divestment campaign has resulted in almost $8 trillion divested from portfolios and endowment funds since 2012. This means that this money was removed from fossil fuel stocks and bonds and redistributed into other investments.

It is time that Quinnipiac divests its endowment–more than $500 million–from fossil fuels. This is not a new or even radical idea.

Since 2012, institutional wealth funds of all shapes and sizes: municipalities like the New York City pension fund ($189 billion), and the City of London Pension Authority (yes, that London–$7.1 billion) have divested; educational institutions like Syracuse University ($1.18 billion) and the University of California system of schools ($350 million so far), have divested, according to recent articles by the Guardian and Fossil Free California.

Earlier this year, Ireland became the first sovereign nation to divest its sovereign wealth fund ($10.4 billion) from fossil fuels, according to the New York Times. Ireland followed a recommendation from the Norwegian Central Bank, which itself is considering whether or not to divest its $1 trillion sovereign wealth fund.

Religious institutions have shown faith in the fossil fuel divestment campaign: the World Council of Churches, the Unitarians, the Lutherans, the Islamic Society of North America, Japanese Buddhist temples and the diocese of Assisi, to name a few. Arguably, the most striking divestment pledge to date came from the World Bank itself, which will end its financial support for oil and gas extraction in 2019. Even global insurance giants like AXA, Allianz and Lloyd’s of London divested from coal and other “extreme fossil fuels,” such as tar sands, according to recent articles by the Guardian.

The fossil fuel divestment campaign is not the first of its kind. Divestment became a household concept in the 1980’s when academic institutions like the University of California, and sovereign nations like the United States, divested from South Africa and its companies as a way to strike back at the apartheid regime.

Former President Barack Obama has remarked that his first act of political activism was as a 19-year-old student at Occidental College, where he fought for Occidental to divest from South Africa. The divestment campaign against apartheid reached its climax in 1986, when Congress overrode President Reagan’s veto and passed the Anti-Apartheid Act by an overwhelming majority.

The Act prohibited new investment in South Africa and prohibited South African imports. Historians credit the divestment movement for helping cripple and eventually end the apartheid regime in South Africa.

Fossil fuel divestment is simple and two-pronged. The first objective is to promote a vigorous response to climate change, the greatest threat of our generation. This objective has important social, political and cultural impacts.

Divestment expresses the growing public demand for reducing carbon emissions. Those who divest acknowledge that they no longer support an economic model that relies on outdated energy technologies that accelerate climate change, and will weaken the future economic prospects of Quinnipiac students.

The landmark National Climate Assessment, mandated by Congress and compiled by thirteen federal agencies, recently concluded that climate change could shrink the United States’ gross domestic product by up to ten percent by 2100.

With that in mind, divestment presents an opportunity for President Olian to rapidly and decisively build a positive legacy for Quinnipiac. Divestment will signal Quinnipiac’s role as a leader in the fight against climate change, not a passive observer who permits fossil fuels to erode the economic future of its students. Quinnipiac will be known as a leader that stands for the future of the folks it serves, who also happen to be the ones most vulnerable to the impacts of climate change–its students.

The second objective is financial. Fossil fuel companies face incredible economic and political headwinds, which put downward pressure on stock prices. These risks include a declining market share due to competition from renewable energy technologies, and incredible litigation risks from ongoing lawsuits from the New York and Massachusetts attorneys general and the renowned “Children’s Climate Suit” in the district of Oregon federal court.

But arguably the most striking risk, the concept of “stranded assets,” would virtually eliminate billions of dollars from fossil fuel companies’ balance sheets.

The stranded asset concept is based on surprisingly simple science. In order to avoid the worst risks of climate change, we must keep global warming under 2 degrees Celsius when compared with pre-industrial levels.

The Paris Climate Accord echoed this goal. In order to achieve it, and avoid the dire consequences of not meeting it, approximately 60 to 80 percent of the planet’s oil, gas and coal reserves must remain in the ground, according to 350.org.

Unused. Unburnt. Stranded. Forever.

Major global financial institutions have acknowledged this risk.

Mark Carney, the Governor of the Bank of England, has warned that investors face “huge losses” due to the risk of stranded fossil fuel assets.

This poses a major problem for companies like Shell, BP or ExxonMobil, whose stock valuation is driven in large part by the total value of their oil and gas reserves.

What happens to ExxonMobil’s stock price if stockholders realize that 60 to 80 percent of its assets are worthless?

The counterargument to divestment is that it will hurt the investment returns of an endowment portfolio in the long run, otherwise known as “divestment cost.” Market forces, however, have upended that counterargument because divestment presents no downside risk for an investment portfolio.

For example, for the past five years, the S&P 500 stock market index, adjusted to exclude all fossil fuel stocks, actually outperformed the unmodified S&P 500 index. This trend is ongoing. Data from the prominent global equities index MSCI supports this trend. From November 2010 to December 2018, the MSCI Index ex Fossil Fuels, which is an MSCI stock market index that excludes companies that own oil, gas and coal reserves, was less risky (beta of 0.98) and outperformed the traditional MSCI World index based on an annualized return.

Another study conducted by the Aperion Group in 2016 found that over a twenty-five year period a fossil-free portfolio actually outperformed the benchmark portfolio by half a percent.

Divestment presents a win-win scenario for Quinnipiac.

The University can reject destructive climate policies, express support for the future of its students and incur no divestment cost for doing so. It is time that Quinnipiac becomes part of the solution to climate change and expresses solidarity with the future of its students.

According to a recent television interview with former President John Lahey, 70 percent of Quinnipiac’s $500 million endowment is invested in common stocks, also called public equities, which are bought and sold on the various global stock exchanges.

It is unclear what amount is directly invested in fossil fuel companies, but for a university whose goal is for its endowment to reach $1 billion by 2029, Quinnipiac should feel more than comfortable that it can reach this goal with a fossil free endowment portfolio.

The Investment Committee of the Board of Trustees, which manages Quinnipiac’s endowment portfolio, should acknowledge that divestment presents no downside risk to the endowment, and divest from all fossil fuel interests.

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