Tuesday, February 4, 2014

#rejectiondenied (AKA a Summary of Our Divestment Proposal)

The University of Vermont Should Divest:

A summary of the science that sparked the movement: The maximum allowable increase in global average temperatures is 2°C. We have already increased temperatures by 0.8°C. The remaining 1.2°C allots civilization a carbon budget of 565 gigatons before we reach a climatic tipping point, generating feedback loops that will create a world completely unrecognizable to the one we live in and depend on currently. The fossil fuel industry has on its collective balance sheet 2,795 gigatons of carbon, five times more than is safe for civilization. The problem with the fossil fuel industry, in this case, is not that it engages in antisocial business practices like paying employees poverty-level wages to work in unsafe conditions--those are corporate governance issues that can be addressed from within the companies. The real problem is that this industry’s fundamental business model is to permanently strip humanity of the possibility of a stable climate.
                According to the most recent estimate, the climate change brought about by this industry’s insidious products kills over 5 million people each year[1], a figure whose growth will surely outpace all other forms of harm for the next century, Most damage goes on in developing nations, and in developed nations, the burden falls mostly on largely working class communities of color. These people are the least responsible for the warming and instability affecting them, yet they disproportionately feel the consequences. To convert the humanitarian crisis into economic language, the global instability brought about by climate change is anticipated to increase portfolio risk by 20% in the next 10 years[2], knocking 5% off global GDP annually, with that figure expected to grow to at least 20% at our current pace of inaction.[3]  These economic tolls are brought about by extreme drought, storms, and unpredictability, and by the conflicts sparked by their resulting resource scarcity.
Looking down the barrel of our future, our generation sees the fossil fuel industry’s plans to take society far past the realm of safety and stability, and we are gripped by a sense of sheer terror. Desperation is why divestment is the fastest growing movement on college campuses in decades. To avoid the worst of climate change, to have any hope for stability, we need to do everything in our power to prevent the fossil fuel industry from creating an inhospitable, unpredictable world.
                This is why we are calling on our institutions to divest their portfolios’ holdings in fossil fuels. Society needs to acknowledge that 80% of the carbon that the industry currently owns must remain in the ground, with absolutely no exceptions. We need the governments of the world to enforce that red line, but without dramatic measures taken by the public, they will not. The fossil fuel industry is one of the most powerful and aggressive lobbyists in existence, bullying governments across the world to give them almost $2 trillion in subsidies annually[4], in spite of their already-healthy profit margins, and in spite of the planetary consensus that we need to transition away from fossil fuels as fast as possible. Without an extraordinary public movement to support our politicians’ efforts to do the right thing, the fossil fuel industry will certainly bring us past the climate’s tipping point, prioritizing their profits above planetary health every step of the way. This is why we must divest from the industry.
                A report analyzing the political and financial implications of divestment was published by the University of Oxford last October[5]. It was the first academic study of its kind, and found that the impacts of divestment are extremely powerful. Successful divestment campaigns in the past have had an almost-100% success rate in pushing for restrictive legislation on the targeted industry, with an indirect impact of increased capital costs on top of the new legislation. “The outcome of the stigmatization process,” the authors write, “which the fossil fuel divestment campaign has now triggered, poses the most far-reaching threat to fossil fuel companies and the vast energy value chain.” When colleges and universities passed Apartheid South African disinvestment policies, the federal government took action.  When we passed tobacco divestment policies, the federal government took action.  Divestment is an established practice with a history of success, and so far has been used only in extreme circumstances.  In the case of fossil fuels, this is perhaps the most extreme circumstance we have seen yet, and we need everyone to take action.
                If we had a hundred years to address the issue through shareholder resolutions and individual sustainability efforts, we could handle the threat of climate change. However, at current pace, we are scheduled to pass the 2°C tipping point in just 15 years. We need an unprecedented transformation of our energy supply if we wish to pass a recognizable world over to today’s children. Dramatic change is needed. This is why we must divest.

The University of Vermont Can Divest:

                All things considered, fossil fuel divestment is a textbook-example of the systems theory concept of a leverage point: it requires a relatively small amount of effort, and creates an enormous impact. Our proposal to screen out the stocks of 200 companies[6] is miniscule compared to the existing universe of investment mechanisms we currently use, and available research has overwhelmingly found that divestment is a safe investment decision.[7]
                That said, it may well be difficult at this point in time to fully exclude all securities related to fossil fuels from our endowment. This is particularly true for less transparent, commingled funds. However, it is certainly possible to screen out our direct holdings in the stock of those 200 companies, and fossil-free alternatives for our more complicated investments will arise in due time. After all, in just its first year of existence, the fossil fuel divestment campaign received endorsements from the Presidents of the United States, the World Bank, and a collection of foundations managing close to $2 billion in assets.[8] (Not to mention the countless colleges, municipalities, religious institutions and individuals that have divested their portfolios.) The market is already beginning to respond to the increased demand for fossil-free strategies that this movement is generating.

How the University of Vermont Should Pursue Divestment:

                Given that divestment is a politically effective, necessary strategy to shift the way the world treats the fossil fuel industry, and the research that has found that it is a harmless proposal for the average portfolio, here are the steps Student Climate Culture recommends the UVM Board of Trustees take to divest our endowment of fossil fuels:
1.       Become more familiar with the proposal and its nuance, from all sides. Read the cited studies, let Student Climate Culture present to the Board, and invite a fossil-free investor to speak about how it’s done. 
2.       Request that Cambridge Associates phase out holdings of the 200 companies in directly-held public equity over the next 2 years by placing screens on existing funds, or replacing them with fossil-free alternatives.
3.       Request that Cambridge Associates research, develop and implement a proposal to replace carbon-intensive accounts in the Real Assets class with fossil-free alternatives that behave in a similar manner.
4.       For indirectly-managed accounts, request that Cambridge Associates engage with the fund managers about the feasibility of side-letter agreements regarding the exclusion of fossil fuel company stocks. If this is unsuccessful, transfer to a fossil-free commingled account when the opportunity arises.
5.       Commit to a fossil-free endowment being achieved by 2020.
a.        “Fossil-free” is defined as the exclusion of the stocks of the 200 identified companies.
b.       If it can be shown that, over a period of five years or greater, the fossil fuel divestment policy has significantly impeded endowment growth, then the policy may be revised.

           These recommendations are intended to be a broad overview of our suggested path to a fossil free endowment. We lack the resources to be able to research and compare existing strategies at a professional level, and do not claim to hold such a level of expertise. We believe Cambridge Associates should construct a much more detailed plan on how to a fossil-free portfolio with as little impact to our portfolio as possible, and analysis of the impact the process will have on the endowment.
           It is essential that we bring our investments in line with our values, and that we refuse to profit from an industry whose products are destroying our need for safety and stability. We believe UVM can act in a way that meets both our future need for climatic stability and current need for endowment stability. We are only asking for the chance to do so.

[1] DARA International’s Climate Vulnerability Monitor: http://goo.gl/AZeCF5
[2] Mercer:  Climate Change & Its Implications for Strategic Asset Allocation: goo.gl/yS1rEj
[3] Stern Review on the Economics of Climate Change: http://goo.gl/Ojs9jq
[4] These subsidies are equivalent to 2.5 of global GDP, according to the IMF: http://goo.gl/Uj8gF
[5] University of Oxford’s Stranded Asset Program: http://goo.gl/a5R561
[6] A list of the 200 companies can be found in this report by the Carbon Tracker Initiative: http://goo.gl/HOYqed
[7] Here are 6 independent financial analyses that found fossil fuel divestment has a neutral or positive impact on returns, and a minute impact on risk: http://goo.gl/S0K6F2, http://goo.gl/rWz5g2, http://goo.gl/b7uhGg, http://goo.gl/6TMluS, http://goo.gl/xzOMgm, http://goo.gl/gG5gbS.
[8] President Barack Obama’s endorsement: http://goo.gl/X1mB9T; President Jim Yong Kim’s endorsement: http://goo.gl/2fhxVL; major foundations’ divestment commitments: http://goo.gl/A8LLhq.