April 5 (Bloomberg) -- Former U.S. Vice President Al Gore broke from his prepared remarks two months ago at a Harvard University event honoring a deceased professor who had sparked his passion for the environment.
Apologizing for “sounding impolite and undiplomatic,” Gore praised a student group, which sought his support in a push to make Harvard sell investments in fossil-fuel companies. Gore equated the effort to a campaign that helped end apartheid after investors were pressed to shun companies linked to South Africa.
The world’s richest universities are facing a quandary. In less than a year, students at more than 300 campuses, including the eight Ivy League schools, have joined a fossil-fuel divestment movement led by activist group 350.org. They are demanding that over the next five years schools purge their endowments of investments in 200 publicly traded companies with the largest reserves of oil, gas and coal.
“Even if trustees are passionate about the environment, they’re going to have trouble approving restrictions on a university’s portfolio,” said David Salem, a former member of Middlebury College’s board of trustees, who is chief investment officer at Windhorse Capital Management in Boston. “The long-term costs are inherently unknowable.”
While universities lead when it comes to comprehending climate change, teaching and researching how man-made carbon dioxide emissions result in rising temperatures, endowments until now have been largely off-limits.
Of the more than 660 schools that have signed a commitment to eliminate net greenhouse gas emissions from their campuses, only a handful have embraced making a similar commitment in their portfolios.
There is much at stake for universities, which have more than $400 billion of assets under management. The wealthiest institutions redefined how endowments manage money, pushing into more exotic and hard-to-sell assets that for more than two decades delivered above-average returns. Yet the credit crisis may have undermined the so-called endowment model, generating uneven returns since record losses in 2009.
At the same time universities have become so much more dependent on endowments to subsidize operations, including financial aid, that there’s little incentive to restrict investments. Purging fossil fuels could require big and expensive changes to portfolios. Some of the world’s largest publicly traded companies, from Exxon Mobil Corp. to BP Plc, are on the list and the energy industry is vast, making up about 11 percent of the value in the Standard & Poor’s 500 Index.
“It’s not an easy decision,” said David Skorton, president of Cornell University, an Ivy League school based in Ithaca, New York, that has a $4.95 billion endowment. “I’ve got to think long and hard before I put at risk fund flows that will benefit poor students.”
There’s also no guarantee that more sustainable investing will yield decent returns. Of the four alternative energy investments that Yale University featured in its 2009 investment report, at least two are foundering after natural gas prices fell. The solar panel-making unit of Suntech Power Holdings Co., based in Jiangsu, China, went bankrupt while Mascoma Corp., a biofuel company in Lebanon, New Hampshire, failed to go public.
Tom Conroy, a spokesman for New Haven, Connecticut-based Yale, which has the world’s second-largest endowment at $19.3 billion, declined to comment.
The anti-apartheid campaign that led to the demise of the racist South Africa regime in 1994 is seen as the model for students, who over the years have sought to force universities to divest everything from arms manufacturers to companies with ties to Israel and Northern Ireland. Harvard, the world’s wealthiest school with $30.4 billion under management, acceded to demands to sell companies linked to the government in Sudan in 2005 after the Darfur massacres, and in 1989 it also blacklisted tobacco companies.
Gore has a financial stake in the divestment debate as co-founder of London-based Generation Investment Management LLP, which bills itself as a socially conscious asset manager. He faced criticism early this year when Al Jazeera, the cable channel partly funded by oil-rich Qatar, bought Current TV, of which Gore owns 20 percent, people familiar with the deal said in January. Gore didn’t return e-mails or calls seeking comment.
The latest movement traces its roots to Gore’s 2006 Academy Award-winning documentary “An Inconvenient Truth,” which chronicled his effort to educate the public on global warming. Students in Massachusetts, who met through the environmental group Sierra Club, formed a coalition in 2007 to advocate for a state law mandating limits on greenhouse gas emissions. Out of that came the 2012 group Divest Harvard.
In 2008, environmental writer Bill McKibben started 350.org, whose name refers to the 350 parts per million of carbon dioxide in the atmosphere that scientists say is the safe limit for humanity. The measure is now approaching 400 parts per million, the highest in Earth’s recent geological history and considered by many scientists to be the cause of warmer temperatures, melting polar ice caps and by some calculations more severe storm systems.
Frustrated by climate-change doubters and legislative gridlock in Washington, McKibben led a 21-city tour in November targeting college campuses. He laid out demands for universities to divest from fossil fuels, giving students a blueprint for pressuring school leaders. McKibben found audiences receptive a month after Hurricane Sandy devastated parts of the east coast including New York City.
“All these campuses have been boasting about how green they are,” said McKibben, a former writer at the New Yorker. “If you’re going to green the dining hall, you need to green the endowment too.”
McKibben’s “Do the Math” tour, featuring musicians and speakers, was built around an analysis by the London-based group Carbon Tracker Initiative, which has been adding up reserves held by publicly traded oil, gas and coal companies since its founding in 2009. The argument is that those companies are overvalued because all their reserves couldn’t be burned without destroying the planet.
McKibben is also a visiting scholar at Middlebury College in Middlebury, Vermont, which is in the midst of its own divestment debate. While the college only has about $90 million directly invested in fossil-fuel companies, it would have to reinvest about 78 percent of its almost $880 million endowment because much of its money is mixed with other investors in larger funds that might have some exposure, according to Ronald Liebowitz, Middlebury’s president.
“The first thing I learned is that this is not so easy,” said Liebowitz, who declined to identify the fossil-fuel companies Middlebury currently owns.
The four schools that have announced they will purge their portfolios have curriculums built around environmental education or a history of activism: the College of the Atlantic in Bar Harbor, Maine; Sterling College in Craftsbury Common, Vermont; Hampshire College in Amherst, Massachusetts; and Unity College in Unity, Maine. Combined they have endowments totaling about $70 million in assets.
Brown University, an Ivy League school in Providence, Rhode Island, and the University of Vermont have joined the Investor Network on Climate Risk, a group of more than 100 pensions, governments and asset managers exploring sustainable investing.
While students have been pressuring Harvard to make more socially conscious investments for more than a year, going so far as forming their own fund for alumni donations, Divest Harvard took a new tack. The group collected more than 700 signatures to get a referendum question on an undergraduate student government ballot in November calling for the sale of fossil-fuel companies. The measure was supported by 72 percent of voters.
Students also started regularly converging on the office of Harvard President Drew Faust demanding a meeting. In February two Harvard trustees met with four students from the divest campaign, where the two sides agreed to disagree.
“Our most effective impact on climate change is not going to come through any kind of divestment activity,” Faust told reporters in December. “It’s going to come through what we do with our teaching, our research, the people we support, the students who may be the head of the EPA or all kinds of organizations.”
Not much is known about Harvard’s holdings because little of it is invested directly in publicly traded securities, which the university is required to disclose. Filings with the U.S. Securities and Exchange Commission show the endowment owns shares in at least six companies identified by the campaign for divestment, including Rio De Janeiro-based Petroleo Brasileiro SA. Those stakes were valued at $42 million as of Dec. 31, according to the filing.
“The university has traditionally maintained a strong presumption against divesting stock for reasons unrelated to investment purposes,” Kevin Galvin, a Harvard spokesman, said in an e-mailed statement.
The university has taken some steps. In December, Harvard followed the lead of some schools such as Brown by creating a so-called social choice fund to segregate donations from the endowment. In February, it created a vice president of sustainable investing.
Jane Mendillo, head of the university’s endowment who has been accumulating greater stakes in natural resources such as timberland, released a statement in December saying she is concerned about sustainable investing.
While the amounts are unknown, Harvard also owns or has owned stakes in other companies targeted for divestment, including Houston, Texas-based ConocoPhillips and Irving, Texas-based Exxon Mobil, according to reports from a group the university set up to review shareholder proposals on its stakes in publicly traded companies. Galvin declined to comment.
“As long as Harvard is invested in these companies, we are going to continue our campaign,” said Chloe Maxmin, 20, a sophomore from Nobleboro, Maine, who is coordinator for Divest Harvard. “It is intellectually inconsistent to be investing in fossil-fuel companies that offset everything that you’re doing on campus and everything you’re teaching us.”
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