Nonprofit institutions with large endowments have been facing challenges from various stakeholders contesting the management of their investment portfolios. While these challenges are most commonly associated with institutions of higher education, pension funds and private foundations will increasingly face similar challenges regarding how the management of their endowments affects socially important policies. Together, these endowments represent hundreds of billions of dollars, and the market power they possess is very substantial.
In the case of higher education, students, faculty and some alumni are pressing these institutions to divest of their holdings in fossil fuel-based companies. These include coal, petroleum and, in some cases, natural gas companies. This advocacy is based upon an overall societal objective to decarbonize our energy system in order to hold greenhouse gas emissions at levels believed to be necessary to prevent an increase in global temperatures above 1.5°C. Above this level, there is widespread consensus in the scientific community that the climate will change in ways that will threaten the ability of the life-supporting biosphere to sustain the human population, which that will grow to something on the order of 10 billion by the year 2050. The threats from climate change are wide-ranging, from droughts and extreme storms to sea level rise and ocean acidification to migration of infectious diseases and rapid species extinction.
The challenge of climate change is real and the nonprofit institutions that manage vast portfolios must examine how their substantial investments affect the social, economic and environmental well-being of the human community. Simply put, the trustees of these major nonprofit endowments must examine the contribution to human well-being they make with the explicit choices in the composition of their portfolios.
Certainly divesting in carbon-based corporations is one avenue to consider. It is, however, our proposal that a positive investment strategy is a much more effective way to drive the message that climate change is real and requires action by nonprofit organizations who sit on large amounts of capital.
Thus, we propose, as a start, that nonprofit organizations with endowments greater than $1 billion commit to investing 10% of their endowment in corporations whose primary business activity is building and operating alternative energy systems based upon the endless supply of the sun’s energy and the wind. These alternative energy systems would include photovoltaic electric generation and associated energy storage technology, especially batteries.
The power of this investment strategy is immense. Consider the impact of a 10% investment from 100 institutions with endowments greater than a billion. At a minimum, this would produce $10 billion. Harvard alone would produce more than $4 billion. Investments of this scale would take this nation a long way toward decarbonization. More specifically, these investments would replace fossil fuel generation of electricity with the concomitant result that portfolio managers would cease to make any investments in fossil fuel companies. Thus, the proposed strategy would also accomplish the objectives of divestment.
And these investments are competitive. Investments in wind and solar projects are now returning 6% to 10%, which is fully in line with the range of investment objectives that trustees of nonprofits instruct portfolio managers to achieve.
Climate change represents a serious threat to the well-being of the human community. Leaders of nonprofit organizations cannot in good conscience watch this threat unfold as if it is someone else’s responsibility. It is also our hope that the managers of nonprofit funds in this country will set the example for all to follow, regardless of industry. It is the responsibility of all of us.
If you are managing massive amounts of capital and can achieve competitive rates of return by investing in alternative energy technologies that will help protect the life-supporting biosphere, the choice appears clear: Act Now!
Charles Desmond is CEO of Inversant, the largest parent-centered children’s saving account initiative in the Commonwealth of Massachusetts. He is past chair of the Massachusetts Board of Higher Education and was a higher education policy advisor to former Gov. Deval Patrick. Since 2011, he has served as a NEBHE senior fellow. Thomas C. Jorling is former CEO of the ecosystem nonprofit NEON Inc., former VP for Environmental Affairs at International Paper Co., former commissioner of the New York State Department of Environmental Conservation, and former professor and director of the Center for Environmental Studies at Williams College. Kier Wachterhauser is a partner at the law firm of Murphy, Hesse, Toomey & Lehane, LLP, in Quincy, Mass., where he specializes in labor and employment law, legal compliance and governance, and litigation.
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Divesting from Fossil Fuels Makes Sense Morally … and Financially
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