Life after divestment: how to spend the money saved from fossil fuel investments
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Version 0 of 1. It began in 2012 with Unity College in Maine. Then Stanford joined in, followed by Syracuse. Now, more than 20 US colleges have divested from fossil fuel companies. A month ago, Swarthmore students stepped up pressure for their administration to divest by occupying a campus building, a move mirrored by students at University of Mary Washington, Harvard and Yale. Why? As the divestment advocate Go Fossil Fuel Free puts it: “If it is wrong to wreck the climate, then it is wrong to profit from that wreckage.” But once an institution has divested, the question arises: what to do with the money? When the Rockefellers, The Gates Foundation, Warren Buffett and George Soros all sold Exxon, you know they didn’t just put the proceeds under the mattress. Whether they ultimately divest or not, colleges have a great option: they can invest in themselves. Last year, Swarthmore’s board of managers rejected divestment, for example, but committed millions of dollars to enhancing energy efficiency at the college. Related: How much fossil fuel has been used in your lifetime? Option 1: invest in energy efficiency This January, Swarthmore asked a group of experts – including myself; environmental educator David Orr; former JP Morgan managing director John Fullerton; Nikki Silvestri, executive director at nonprofit Green for All; and green building experts Bill Browning, Kevin Hydes and Greg Kats – to help the college figure out the best way to move forward. We advised it on which boilers to use, ways to embed sustainability into its curriculum, better investment strategies, and how to engage with underserved members of the local community. One campus publication asserted that the college was nearing the limit of energy efficiency. We disabused college officials of that notion. One building on campus had leaded glass windows. Beautiful, but leaky, single panes squandered the heat rising from the registers immediately below them. Many campus buildings had enough little cracks around their windows to amount to leaving a window open all year long. One potential solution comes from companies like Aether, which will now come to a university or corporate campus and implement comprehensive efficiency measures at no cost to the institution, taking their pay by splitting the savings that result. Numerous studies have found that green buildings can deliver better productivity, higher student performance and guaranteed returns. Swarthmore’s commitment to improving its efficiency is smart business, and will likely earn enough returns to pay several faculty salaries, garnering a far more secure return than a stock portfolio. The US Green Building Council reports that owners of existing buildings enjoyed a 19.2% return on investment for efficiency improvements. One conservative report calculated that investing $400,000 on efficiency in a 100,000 square-foot building would deliver $1.50 per square foot in reduced energy costs over a similar building without the efficiency. That $150,000 per year savings would pay back the extra costs in little over two and a half years. Thereafter, the savings stay with the college. The University of Hawaii at Manoa spends $24.5m each year on energy. Facing a $34m shortfall in 2016 and 2017 from rising energy costs, it plans to spend $66m on energy efficiency and renewable generation projects. Its projected return will be $7.7m per year, doubling the $3.4m it saved in 2014 from the efficiency measures it has already put in place. These are big numbers, but research by Gregory Kats, president of clean energy consultant and venture capital firm Capital-E, found a 3.3% increase in occupant productivity after energy efficiency improvements that also boost indoor air quality; 5.5% from efficiency that improves temperature control; and 3.2% from the installation of high-performance lighting systems. Given that worker salaries cost roughly 100 times the energy bill, this makes efficiency worthwhile even if you don’t care about saving on your utility bill or the impact on the climate. Option 2: invest in renewables Years ago, Swarthmore students began raising money so the college could buy wind power. By 2007, the school was 40% powered by wind. But the administration has preferred to buy renewable energy credits to offset the school’s use of fossil fuels, which is noble but costly. Such offsets pay to build renewable energy somewhere on the planet, but not necessarily near campus. Meanwhile, companies like Sun Edison will, for no money down, install solar at a school or business, charging a monthly fee that’s usually less than the amount the customer was previously paying in utility bills. A school such as Swarthmore, with an almost $2bn endowment, could also just buy its own system. Butte College became the first “grid positive” campus, generating more than 100% of the energy it needs after investing $27.3m in solar energy on campus roofs, walkways and parking lots. That may sound like a lot, but the college expects to save between $50m and $75m over the next 15 years by eliminating its electricity bill, getting paid for excess electricity production, and avoiding future electricity rate increases. It hopes to use the savings to improve student offerings and increase enrollment. Investments in renewables grew 12% globally last year, according to a report released in January by the Institute for Energy Economics and Financial Analysis. Related: Australia divestment war shows investment is now the main climate change battleground “Globally, 2014 was the year of the renewable energy installation juggernaut,” said Tim Buckley, director of energy finance at the institute. “With the notable exception of Australia, where policy uncertainty served as an effective hand-brake, wherever you look around the globe, be it China, India, Europe or the US, the trend of a rapidly-expanding renewable energy industry is the same. 2015 will inevitably see this gather pace.” A study by Cambridge and PricewaterhouseCoopers, conducted for the National Bank of Abu Dhabi, found that solar energy is on track to achieve grid parity in 80% of countries within next two years. It’s time to divest Students with Swarthmore Mountain Justice appreciate the school’s interest in good housekeeping, but are continuing their sit-in at the administration’s building. I agree that divestment is a good idea. As I told Swarthmore administration members attending a workshop: “Even if you create savings with infrastructure investments, your portfolio will remain at risk as long as it continues to invest in fossil fuels. We’re watching you. You think your fossil-laden portfolios are a good investment. When that becomes clear that they are not, you will have to explain your lapse of fiduciary responsibility.” Pax World Management, a socially responsible fund, argues against the belief that fossil investments are necessary to underwrite education, saying that: “Several studies over the past three years, since the beginning of the Divest Fossil Fuel campaign, that have found that fossil fuel-free or low-carbon portfolios either outperformed or performed similarly to benchmarks on a risk-adjusted basis.” FTSE’s North American fossil fuel-free index has consistently outperformed the conventional benchmark index. In an analysis earlier this month, stock market index company MSCI found that fossil-free funds have earned a higher return than conventional ones in the last five years. Conversely, coal stocks are an increasingly risky investment. Bloomberg New Energy Finance estimates that coal stocks have lost 50-90% of their value since 2005. Peabody, one of the worlds biggest coal companies, lost $787m in 2014, and its shares plunged 84% in five years. Oil has done little better. A Financial Times article from 2013 described the performance of international oil and gas companies as “lamentable from a shareholder perspective” over the last decade. Since June 2014, big oil has lost $200bn. Related: 10 myths about fossil fuel divestment put to the sword There’s no question finance is a potent force. College divestment from South African companies, after all, played a role in ending apartheid. (Swarthmore divested in 1990, decades after students began calling for divestment in 1965.) In 1990, on Nelson Mandela’s first trip to the US after being released from prison, he spoke at the Oakland Coliseum, acknowledging the Campaign Against Apartheid – one of the leading campus divestment organizations – and thanking the American students who had held firm in the divestment campaign. As John Fullerton puts it, how money is invested – whether by companies, by colleges or by you – influences whether we trash the planet or save it. His description of the risk of carbon bubbles and stranded assets sets forth fundamentals that should guide investors in the age of climate crisis. The activism has only begun. Divestment does matter. Oxford’s Stranded Assets Programme report concluded that “divestment outflows, even when relatively meagre in the first wave of divestment, can significantly and permanently depress stock price of a target firm if they trigger a change in market norms”. Peabody Coal, in its 27 January filing with the SEC, warned: “Divestment could significantly affect demand for our product.” This comes on the tail of an International Energy Agency report which found that the world’s efforts to limit carbon emissions is working. For the first time in 40 years, global carbon emissions from the energy sector stalled and began to decline. We can save the planet from the scourge of climate chaos, but only if we act. Have you divested? The values-led business hub is funded by SC Johnson. All content is editorially independent except for pieces labelled “brought to you by”. Find out more here. |