Category Archives: Divestment

Fossil Fuel Divestment: Good Ethics & Good Earnings

Socially responsible investors today face a paradox: They are setting aside savings today for a brighter, more secure future for themselves and their children. But some of the companies in their 401k’s or mutual funds actually present a dire threat to that future and those children. If they attempt to divest, investment managers will normally warn that they can expect lower returns, or greater risks. So how much does an investor have to give up for the sake of a livable future?

When it comes to fossil-fuel divestment, the answer seems to be – nothing at all. A new study has shown that there is no significant difference whatsoever in long term risks and returns between comparable portfolios which include fossil fuels, and those which don’t. And if that’s true, it’s great news for ethical investors, university boards and foundation managers.

The movement for fossil-fuel divestment has been sweeping the country in recent months. Foundations like the Rockefeller Brothers have divested. So have sovereign wealth funds like Norway; cities like San Francisco, Portland and Seattle; and universities like Syracuse, Stanford and the University of Maine. Last year, Union Theological Seminary in New York also divested, leading the way among Christian and religious institutions.


Carbon emissions threaten to break 2-degree threshold

Their logic is simple: To avoid major ecological collapse around the world, we need to take serious steps to keep planetary warming to within 2 degrees Celsius above pre-industrial levels, or bear the impact of major ice-sheet collapse and sea-level rise, and climatic disruptions resulting in widespread hunger and accelerated species extinctions. Worse, passing the 2-degree threshold exposes the world to the risk of positive feedback loops, which could drive runaway warming beyond 4 degrees, with imponderable consequences. And virtually everyone agrees that the poor will be hit first and hardest.

The scientific consensus tells us that to remain within the 2-degree threshold, we must limit total additional global carbon dioxide emissions to 565 gigatons from here forward. However, major coal, oil and gas companies today own fossil-fuel reserves which – when burned – would produce 2,860 gigatons of carbon emissions – or more than five times the maximum that can be permitted globally. Furthermore, fossil-fuel companies invested $674 billion last year to discover even more carbon reserves, none of which can be produced without further severe harm to the Earth and its living creatures, including mankind.

So, if the scientific consensus is correct, fossil fuels would be a terrible thing for an ethical investor to put money into. Perhaps it’s obvious: An investor in these companies can only hope that these carbon reserves will in fact be sold and burned, and that those billions invested in further exploration will uncover even more reserves which will also be burned. By extension, this investor can only hope that the global carbon budget will be blown through many times over — an outcome that will assure that his or her children will inherit a world facing runaway climate disruption. From this perspective, there is virtually no better or worse fossil-fuel company: their fundamental business model requires them to do something that will bring calamity on others and on the entire creation.

If investors place any credence in science, if they think about the known facts, if they have any concern for the earth and for others, they won’t want to invest in these companies.

Okay then. But how much will it cost us to be ethical? Well, if you’ve been following the debate, you’ve seen some confusing numbers. The fossil-fuel proponents have produced reports going back 50 years which show that you’ll make more money if you stick with them. Climate activists have relied on numbers over the last ten years showing that you’ll do better if you divest from carbon-polluting energy. I have no reason to doubt the accuracy of either of these studies, but they’ve carefully chosen their timeframes. The former group places a lot of stock in the golden age of oil, back when I was a kid. The enviros like to focus on the new era where we all know what carbon pollution can do.

So I was delighted to find a report issued by Advisor Partners, a research firm that provides portfolio design information to investment professionals. The report traced investment performance for the Standard & Poors 500, which includes fossil fuels, and compared them with a fossil-free version of the same portfolio over a 25-year period, from 1989 to 2014. Twenty-five years is long enough to span several cycles – including oil booms and busts – but not so long as to include largely irrelevant ancient financial history. And they are clearly not trying to prove a point for anyone.

But the findings are striking: over twenty-five years, both the S&P 500 and the fossil-free alternative generated virtually identical returns in aggregate. There is no difference. If you had divested from fossil fuel stocks in 1989, by 2014 you wouldn’t have been richer, and you wouldn’t have been poorer. Period.

Over shorter timeframes, the report found that the fossil-free investment portfolio varied from the S&P 500, but these variances canceled each other out over time. In the 1990’s the fossil-free portfolio did better. In the first decade of this century, the S&P 500 did better, as oil prices skyrocketed. Since 2010, the fossil-free index did better again, as oil prices fell again. In aggregate, there’s been no difference.

But investors also care about volatility – how much an investment rises and falls from day to day compared to broad market averages. Surprisingly, here again the fossil-free index held up remarkably well. On average, the “divestment portfolio” moved around 1.07% more than the S&P 500. For every dollar of fluctuation (up or down) in the S&P index, the fossil-free portfolio moved an extra penny. I never would have imagined this small a difference. If an investor has a very short time horizon, then maybe all volatility is bad. But the difference is so little that most investors should hardly ever notice.

So, ethical investors, doing the right thing may be easier than you imagined. Your 401K, your alma mater, you church or your city may be able to divest from fossil fuels with the confidence that their morals and their prudence are not in conflict, as they might have feared.

It’s often costly to do the right thing. In this case, the numbers tell a different story. You don’t have to choose between your retirement and your kids’ world. You can hold fast to your good ethics, and still make good money.

That’s good news, no?

Action: For more on fossil-free investment resources, please see our recent post on available options; or visit’s divestment website for a wealth of useful information.

Stanford Faculty Demand: Divest from Fossil Fuels to Avoid Cataclysm 

Stanford University, one of the most prestigious educational institutions in the world, took a courageous stand in May 2014. The board of trustees announced that they were divesting their $21 billion endowment from 100 coal companies.

Hundreds of faculty signed Stanford divestment appeal

Hundreds of faculty signed Stanford divestment appeal

“Stanford has a responsibility as a global citizen to promote sustainability for our planet,” said Stanford President John Hennessy at the time. “The university’s review has concluded that coal is one of the most carbon-intensive methods of energy generation and that other sources can be readily substituted for it.”

The Stanford community celebrated this important step. But many weren’t satisfied that the university had stopped with only coal, since virtually every fossil-fuel company investment decision must assume catastrophic levels of global carbon emissions. And so, on January 11, 2014, 447 members of the Stanford faculty signed a letter asking their institution to come completely clean. It’s concise, well-reasoned, and civil. We think it’s worth a moment to read.

Stanford Faculty Fossil-Fuel Divestment Letter

Dear President Hennessy and the Stanford Board of Trustees,

We the undersigned, faculty of Stanford University, acknowledge the urgency of the scientific community’s warning that the burning of fossil fuels puts our world at risk. To prevent wide-spread ecological and ice sheet collapse we must limit global warming to 2 degrees. Scientific consensus indicates that to stay within this 2-degree margin, we must cap carbon dioxide emissions at 565 gigatons. Because companies currently own fossil-fuel holdings sufficient to produce 2,795 gigatons of carbon dioxide, the risk is clear: 2,795 gigatons is five times the scientifically designated limit. In short, for companies to exploit these holdings – as they must, to turn a profit – would mean raising atmospheric carbon dioxide to cataclysmic levels.

Many of these fossil-fuel companies are publicly traded and investor-owned, supported in large part by institutional investors like Stanford. Professor James Engell of Harvard writes: “The fossil fuel companies are decent investments only under two assumptions: first, the oil and gas and coal they own in the ground shall be sold and burned; second, they shall continue to find more oil and gas and coal and shall sell that to be burned, too. Any investor in them must want this to happen, and any investor is putting up money to make this happen with all deliberate speed.”

We honor the May 2014 decision of the Stanford Board of Trustees to divest from coal, setting a precedent of responsibility and integrity commensurate with the University’s role in the world. Sixty-five percent of all carbon holdings are in coal reserves, and this significant act of divestment is proof of the university’s resolve to act to counter climate disruption. This resolve must now encompass the reality that, once coal is taken out of the equation, the remaining 35% reserves in oil and gas holdings still represent 978 gigatons of carbon, or nearly double the 565-gigaton cap. The urgency and magnitude of climate change call not for partial solutions, however admirable; they demand the more profound and thorough commitment embodied in divestment from all fossil fuel companies.

The alternative—for Stanford to remain invested in oil and gas companies—presents us with a paradox: If a university seeks to educate extraordinary youth so they may achieve the brightest possible future, what does it mean for that university simultaneously to invest in the destruction of that future? Given that the university has signaled its awareness of the dangers posed by fossil fuels, what are the implications of Stanford’s making only a partial confrontation with this danger?  In working with our students we encourage the clarity necessary to confront complex realities and the drive to carry projects through to completion. For Stanford’s investment policies to be congruent with the clarity and drive in its classrooms, the university must divest from all fossil fuel companies. To this end we respectfully ask President Hennessy and the Board of Trustees to recognize the need for comprehensive divestment from fossil fuels. When it comes to the future our students will live to see, there is a scientifically documented, morally clear, technologically innovative right thing to do: divest from fossil fuels and reinvest in a sustainable future.

Sincerely yours…

Signed by 447 members of the Stanford University faculty, including the President emeritus of the university, winners of the Nobel Prize in chemistry and physics, and the (Nobel-equivalent) Fields Medal for mathematics.

Fossil-Fuel Divestment: I Did it for My Soul

“For where your treasure is, there your heart will be also.” Matthew 6:21

Some years ago, I was assigned the task of cleaning up a struggling company burdened with millions in unpaid debts. Along with numerous business contracts and operations, I was handed a portfolio of life insurance policies on former executives of the company. If any of them should happen to die, I would have my hands on millions in insurance proceeds that could be used to address pressing company problems.

Well, it happened that one day, word came that one of those executives had fallen seriously ill, perhaps near death.  This man was struggling for his life. But for me, those tantalizing insurance proceeds blinded me to the unfolding mortal drama. I had money at stake, and a job to do. His death – shockingly, in retrospect – would be my gain. I had money invested in a man’s death.

As I look back on this sordid episode, the teaching of Jesus becomes clearer to me than ever: “Where your treasure is, there your heart will be also.” Stated another way, what we invest in will shape the deepest core of our identity, what the Bible calls our souls. They shape what we love, and what we fear; and what we believe. They get us up in the morning, and keep us awake in the wee hours.

Investments shape souls. Jesus tells us so.

After coming to my senses, I swore that I would never invest in death again. I am too morally fragile to tether my fortunes to the harm of others. My soul cannot bear the danger.

Over the years, this commitment has kept me away from the “merchants of death” and conflict minerals, and steered me toward ethical products of many sorts. In recent years, however, a more sinister and pervasive threat has come into focus. Climate scientists in 2014 warned that energy companies like Exxon, Shell, PetroChina and Chevron – which derive their value from enormous reserves of recoverable fossil fuels – will have to leave about 80% of those precious reserves in the ground, if the world is to have a chance of avoiding global climate mayhem.

The divestment campaign is gaining strength.

The fossil-fuel divestment campaign gaining strength globally.

That means that four out of every five barrels of oil, or tons of coal, or cubic feet of natural gas that these companies have discovered and developed must eventually be written off.

The market value of fossil fuel reserves today – including the 80% that can’t be burned – is valued at around $27 trillion, a sum which dwarfs the famous U.S. national debt. This means that there is a very, very bad day of reckoning ahead for someone. Either all of humanity will endure unspeakable suffering or worse, or those who invest in the fossil-fuel companies will suffer huge losses.

It became clear to me that investing in fossil fuels is no longer a retirement strategy, or a way of mitigating market risks. It is a decision whether or not to align my soul with unfathomable harm to virtually all of humanity and to all of God’s beloved creation. If I’ve got my own personal slice of those carbon reserves (whether by buying a share of ExxonMobil or by investing in a mutual fund that does), I make money, or avoid losses, only if the entire creation groans and suffers under the weight of climate calamity.

The Bible tells us, in Romans 8, that the whole creation “waits with eager longing” and has been “groaning together in the pains of childbirth,” waiting for a day when something really special begins to happen. And what, specifically is the world is waiting for? You don’t have to look hard: It’s waiting for “the revealing of the sons of God.” You know, women and men like us, who have been adopted as “sons,” who have been given “the spirit of sonship,” who come into the Creator’s presence and boldly call him “Father,” and follow him with the allegiance of family.

Now, Christians have many views about how and when the redemption of the Creation will ultimately unfold. But all of us can agree on this: What God promises to do ultimately, he requires his children to work for in their own time. Yes, God is reconciling all things to himself in a broken world, but he’s appointed his children as “agents of reconciliation.” It’s no good telling ourselves that we can abuse the creation now, since God will renew it at some future “restoration of all things.” Of course, it’s possible that this may be true, but a dreadful surprise almost certainly awaits those of us who knowingly flout God’s purposes in reliance upon divine intervention at a later time

And that brings me back to my promise not to invest in death.  If my Father’s suffering creation really is waiting for the intervention of someone like me, what if I show up with a heart molded by treasures invested in the creation’s harm? In a world on a strict carbon budget, what if I’ve made a bet with my life-savings that we’ll blow through that budget – not once, but five times over? What if my retirement or my prosperity depends on catastrophe for everything that waits for my help?

“God can still save his world,” perhaps you say? Well, certainly. But what about me? What about my soul?

There are lots of good reasons why Christians are choosing to get out of the fossil-fuel business. I did it for myself. For my truest self. I did it for my soul.

Okay, let’s go carbon-free. But how?

It’s one thing for an individual saver to decide to get out of harmful energy investing. But, I’ve found, doing it is another matter entirely. First of all, before selling your existing investments, you’ll have to consider the tax effects. Some will have unrealized taxable gains in their existing holdings, which will be triggered upon sale. So in April a year from now, you may be faced with taxes you weren’t expecting, unless you have offsetting losses.

And then, for small investors like most of us, we can’t just call our investment department like the Rockefellers do (yes, they’re divesting!), and give the order. Most of us will look for sustainable mutual funds, whether we do them on our own or with the company selected by our employer for our 401(k) or 403(b). And here’s the problem: They can be expensive, they can lack diversification, and some aren’t that well-rated. But there are a number you can choose from, and the Forum for Sustainable and Responsible Investment has compiled lists of sustainable mutual funds and account managers with fossil-free indexes that you can use to start your own research. I narrowed down my list based on my own needs and long talks with my advisor, and settled on three:

  • Parnassus Endeavour Fund (PARWX): Large-cap US equities; growth stocks; no energy shares; 1.07% gross expense ratio (GER); Morningstar 4x; 5-yr. return 16.29%
  • DFA Sustainability Core 1 (DFSIX): Mid-cap US equities; growth & value stocks; selections based on proprietary environmental assessment; 0.33% GER; Morningstar 4x; 5-yr. return 15.94%
  • DFA International Sustainability Core 1 (DFSPX): Large-cap non-US equities; growth & value stocks; selections based on proprietary environmental assessment; 0.52% GER; Morningstar 3x; 5-yr. return 6.66%

For me, the process took several months. I had to overcome my own misgivings, and a degree of skepticism from advisers. I had to prayerfully consider the potential impacts on savings I had cultivated over decades. But in the end, I made the changes.

My choices were sensible by financial metrics. But as a follower of Jesus Christ, I realized that there were far more important issues in play than risks and returns. I think that’s what Jesus had in mind when he asked: “For what does it profit a man to gain the whole world and forfeit his soul?” (Mark 8:36)

Yes, gain and loss may well hang in the balance. But for me, so does my truest self. And I’m not going to forfeit that for anything – least of all, for harmful oil profits.

Note: Some other sustainable funds:

  • Green Century Balanced (GCBLX)
  • Green Century Equity (GCEQX)
  • Pax World Growth A (PXGAX)
  • Portfolio 21 Global Equity R (PORTX)