Philanthropy Rises to the Fossil Divest-Invest Challenge

This week, a student-led climate movement got a powerful new ally. Seventeen philanthropic foundations with combined assets of two billion dollars, took the extraordinary step of publicly announcing their decision to divest from fossil fuels and invest part of their assets into a clean energy economy.
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This week, a student-led climate movement got a powerful new ally.

Seventeen philanthropic foundations with combined assets of two billion dollars, took the extraordinary step of publicly announcing their decision to divest from fossil fuels and invest part of their assets into a clean energy economy. Under the banner "Divest-Invest: Philanthropy", the foundation sector has now joined ranks with students who launched their drive less than three years ago on college campuses.

The fossil fuel Divest-Invest movement, with its strong symbolic connection to the anti-Apartheid campaigns of the 1980s, has since spread to churches, cities, hospitals, and pension funds, redefining climate activism in a way few could have predicted. As early supporters of this movement, we think it's worth stepping back briefly to reflect on how it came about, what underlies its theory of change, and why philanthropy should embrace a more active role.

I. The History of Divest-Invest

Fossil Fuel Divestment traces its roots to the summer of 2011, when hopes for a solution to climate change were at a 20-year low. A key UN climate conference held in Copenhagen in 2009 had ended without a meaningful agreement, and efforts to pass a comprehensive US climate bill collapsed in the Senate in 2010. The combination of setbacks left a demoralized climate advocacy community adrift in its wake.

Many views have been offered about the cause of these setbacks, but three figured prominently in the birth of Divestment. First was the difficulty the climate community faced in moving beyond public defense of settled science. An industry-funded climate denialist network kept advocates on defense, drawn into endless debate despite a clear scientific consensus.

A related obstacle was the climate community's reluctance to confront the industry waging war against it. Advocates pursued policy reforms and stressed the role of individual actions, like installing efficient lightbulbs, as if adequate scope existed to tip the balance in an intentionally rigged energy system. Meanwhile, the fossil fuel industry worked tirelessly to misinform the public, block a price on carbon, forestall renewable energy options, and deepen reliance on fossil fuel.

Finally, there was a failure to engage youth on its own terms. With the exception of a few campus power plant and pipeline campaigns, no concrete climate platform existed for youth to draw the kind of bright moral lines that the anti-war and anti-Apartheid movements had afforded.

Into this vacuum stepped Fossil Fuel Divestment. A meeting of student groups held in Washington in early June 2011, hammered out the first plan for a series of campus campaigns calling on universities to divest their endowments from coal, six of which were launched the following August.

Initially framed as Divest Coal, the first students discussed broadening the divestment demand to all fossil fuels and some did so, notably at Swarthmore University. A call for clean energy investment was also in the mix. By the following spring, Divestment campaigns had spread to an estimated 50 campuses. But they had yet to get their biggest boost.

That came in the summer of 2012, when author and climate activist Bill McKibben published a landmark article in Rolling Stone magazine, calling for Fossil-wide Divestment, and linking it to the "Carbon Bubble" first reported by the Carbon Tracker Initiative. The Carbon Bubble analysis showed that most of the world's known coal, oil, and gas reserves are "stranded assets" that cannot be burned if global warming is to be kept within two degrees C.

McKibben deftly linked Divestment to the threat posed by excess fossil fuel reserves: Divest from fossil fuels because the industry's business plan to market its existing carbon reserves is a prescription for planetary destruction. McKibben and, the climate group he co-founded, joined forces with the pioneering groups and student leaders. The result was a youth-led movement focused on direct confrontation of the fossil fuel industry along starkly moral lines.

Fossil Fuel Divestment thus grew into an advocacy space that had largely been left open. Instead of relying on governments to pass legislation or seal a global deal, the movement took direct action by engaging public and private institutions--initially universities, but soon churches, hospitals, pension funds, and cities. It set a replicable, concrete "ask": Divest from fossil fuels and Invest in climate solutions. And it provided an on-ramp for youth engagement, confronting head-on an industry that had blocked climate progress for more than two decades.

II. The Impact of Divest-Invest

By building a movement that defines the fossil fuel industry as a moral pariah, Divest-Invest seeks to break the industry's grip on our political process and help catalyze the global energy transition that the climate crisis demands.

Fossil divestment has never been primarily about the act of divesting itself, or even about doing direct economic harm to the fossil fuel industry. Instead, it uses divestment as a tool to confront the corporate powers that have taken our political system hostage.

To this end, the moral power of the Apartheid-era framing has been enormous. It has mobilized broad sectors of society around the ethical aspects of climate change. Faith groups, universities, and hospitals are now sending a clear message of conscience that holding fossil energy stock is no longer acceptable.

The movement has also galvanized economic self-interest. Its focus on the fossil fuel industry's financial Achilles' heel--the risk that fossil fuel stocks may be massively overvalued--has already altered the investment community's thinking. The systemic global economic threat posed by overvaluation of fossil stocks was openly debated last week at the World Economic Forum in Davos.

The Divest-Invest movement recognizes that divestment alone is not enough. The Invest side is focused on climate solutions, and the need for a massive increase in clean tech investments--as much as one trillion dollars annually in one recent analysis--to lead the global energy transition. It is helping move institutions to make those investments.

III. A Time for Philanthropy to Act

Given the transformative role it is playing, Divest-Invest is a movement deserving of the broadest possible philanthropic support. And given what it has achieved with only modest grant monies, one can imagine its potential impact with the force of real resources behind it.

But beyond providing greater grant funding, philanthropy should also heed the movement's call to divest our assets from fossil fuels. The Divestment movement makes a powerful moral charge: No mission-driven or cause-based organization should hold positions in industries that pose a direct threat to its mission or to the public good.

In response, the 17 foundations that launched "Divest-Invest: Philanthropy" are calling on their peers to: "Assess; Consult; Commit." Assess the extent of fossil energy holdings in your investment portfolio. Consult with trustees and staff on a strategy for shifting assets out of the problem and into the solutions. And Commit, to an endpoint and timetable commensurate with the urgency of the climate crisis. See

To date, three main arguments have been made against the call to divest: 1) Fiduciary duty is a barrier to action; 2) Selling stocks relinquishes influence over the industry via shareholder actions; and 3) Divesting from fossil fuels means a sacrifice in market performance. We consider them in turn.

Fiduciary duty. The claim that prudent financial management somehow trumps impact on mission is not just wrong on the facts, it stands the notion of fiduciary duty on its head, putting profit over values. Philanthropy should embrace a fiduciary definition that upholds mission by marrying wise financial management with positive social impact. As a community that uses complex metrics to measure the impacts of our grants, how can we justify applying a purely economic measure to our investments without looking at social impact as well?

Shareholder Engagement. Some have argued that selling fossil energy stock means losing influence via shareholder engagement. In fact, shareholder actions require only modest amounts of stock, so are not an excuse for inaction on divestment or re-investment. To be sure, there are supportive shareholder actions, such as calling on companies to limit capital expenditures and disclose stranded assets. But after three decades of sounding the climate alarm, do we really believe the fossil fuel sector will alter its core business model in time to avert the climate crisis?

Performance. Divesting from fossil fuels need not adversely affect portfolio risk or performance. The best analyses we have seen, in backcast studies by Impax, Aperio Group, and Boston Common Asset Management, all show essentially zero risk in being out of the top 200 fossil fuel companies. To the contrary, staying in fossil fuels may present the greater risk, given the existence of the "Carbon Bubble" and the valuation of fossil energy stock based on stranded fuel reserves.

And on the Invest side, imagine what philanthropy can do if we deploy even five or ten percent of our assets to finance the "clean trillion" in investments needed for a global energy transition. We could help establish green loan funds, and invest in green bonds, green banks, and energy projects that transform our local economies. We can bring our finance and program staff together and innovate, asking our investment professionals for the same clear vision for catalytic change that we do from our grantees.

Finally, we must not forget our unique moment in history. Who in our community who could proudly defend, today, a decision not to have divested from South Africa 30 years ago? In hindsight, the moral case seems too clear. How then might we envision defending, 20 years from now, keeping our millions invested in business-as-usual fossil energy, at precisely the moment scientists are telling us there is no time left to lose? The threat of runaway change is too imminent to delay the kind of energy transition that Divest-Invest demands.

The foundations that have come forward this week in launching "Divest-Invest: Philanthropy" believe the clear answer is that we must act now. Students and faith groups are once again lighting the way. Let's join them and rise to meet the climate challenge while there is time.

Dr. Dorsey is executive director of Wallace Global Fund; Mr. Mott directs Wallace Global's environment program.

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