This guide is a world first, step-by-step tool for philanthropists who want to transition away from fossil fuels and toward climate solutions.
The guide includes a range of divestment options and a step by step roadmap which will take you from mission alignment and policy development to implementation and reporting. The guide also shows how to bring your key stakeholders along on the journey — whether they be your board, management, staff, investment committee, asset consultants, fund managers or advisers.
Read how early adopter foundations have delivered good returns by lowering their exposure to carbon risk, and discovered along the way that the process can be easier and less costly than anticipated.
688 institutions across the world with assets under management of US $5.2 trillion have now committed to the divestment campaign — 23 per cent of these institutions are foundations.
Don’t be daunted by the complexity of the topic. No one has figured it out completely but it doesn’t mean we can shy away from this problem — taking small steps forward is better than running away from the issue.
RS Group Principal, Annie Chen
The divestment landscape
Learning about your choices
You may have heard people say there are many different ways to approach divestment — all you need is to find the right methodology for your organisation. This is easier said than done when you do not have full knowledge of the range of methodologies on offer, nor the means to determine their suitability. This is why the DivestInvest Philanthropy Guide has been developed — to provide you with the information, the steps and the confidence to develop the best strategy to reflect your organisation’s values and approach to investment.
It is also worth highlighting some oft-repeated advice proffered by many foundations which have already undertaken the divestment process — if you believe this is the right thing for your organisation, to align important operational procedures with your values, then don’t wait for the perfect solution — make the commitment to start the process.
Three main approaches
Let’s begin by considering the three main approaches:
- Full divestment from fossil fuels
- Partial divestment or portfolio decarbonisation
- Engagement with invested companies on their climate change mitigation strategies and their plans and actions to transition to a zero carbon economy.
If you believe this is the right thing for your organisation, to align important operational procedures with your values, then don’t wait for the perfect solution — make the commitment to start the process.
Reading a range of policy statements is a good way to see how others approach divestment. Sample statements and some specific examples from organisations illustrate the three different approaches to consider.
We will “divest from direct investment in the prospecting, extraction, transport, sale and burning of fossil fuels and maintain our investments as fossil fuel free.”
- The Wallace Foundation Fund “will avoid investments in companies that play key roles in the exploration, production, and retailing of fossil fuels, especially coal”.
- The Rockefeller Brothers Foundation Fund “pledged to a two-step process to address its desire to divest from investments in fossil fuels with immediate focus…on coal and tar sands”.
- The RS Group has decided to “divest from all exposures to coal, oil and gas exploration and production companies”.
- City of Melbourne:
- “commits to not directly investing in any fossil fuel or fossil fuel aligned companies into the future.
- requests management write to the Trustees of Council’s default superannuation fund, Vision Super, and request a Fossil Free Investment option be available to members”.
- resolves that [responses from banks regarding] “their exposure and support to the fossil fuel sector…are to be taken into consideration when deciding to award the transactional banking
- Monash University “has confirmed it has no direct investments in companies whose primary business is production of fossil fuels…[and]…has now been successful in proactively excluding companies whose primary activity is coal production from more than 90 per cent of its indirect investment portfolio with the remaining 10 per cent of the portfolio unlikely to contain coal investments but the University will actively work with fund managers to exclude companies whose primary activity is coal production from its indirect investment portfolio.”
- “We will divest from all companies where 20 per cent or more of overall revenue is derived from the prospecting, extraction, transport, sale and the burning of fossil fuels.”
- “We will divest from all companies engaged with the prospecting, extraction, transport, sale and the burning of thermal coal and coal seam gas.”
- “We will measure the carbon intensity of our entire equity portfolio and reduce this by 30 per cent over three years.”
- Norwegian Government Pension Fund guidelines on the observation and exclusion of companies includes a criterion which “targets mining companies and energy producers who derive 30 per cent or more of their revenues from thermal coal or base 30 per cent or more of their operations on thermal coal.”
- “The Anglican Diocese of Melbourne resolved to take, within two years, all reasonable steps to divest its shares in corporations whose revenues from fossil fuel extraction or production exceed 20 per cent of their total revenue.”
- Swinburne University’s “investment objectives take account of environmental and social impacts giving particular consideration to the development of appropriate approaches including potential divestment processes in respect of companies that generate significant revenues from activities inconsistent with these aims, such as Fossil Fuels extraction or where such fuels are used for power generation.”
- La Trobe University “committed to divesting from the top 200 publicly-traded fossil fuel companies ranked by the carbon content of their fossil fuel reserves within five years.”
- Australian National University “requires its external manager to exclude companies that draw more than 20 per cent of revenues from coal.”
- The University of Sydney “will ask its listed equity fund managers to build a portfolio of investments that enables the University to reduce its carbon footprint by 20 per cent – in just three years.”
- HESTA will restrict investment in “companies that derive more than 15 per cent of revenue or net asset value from exploration, new or expanded production, or transportation of thermal coal.”
- Local Government Super “will not actively invest in companies that derive 33.3 per cent or more of their revenue from high carbon sensitive activities — including coal mining, oil tar sands and coal-fired electricity generation.”
We will use engagement and voting strategies to work actively with companies to reduce their carbon intensity and climate risk exposure and develop diversification strategies in keeping with international commitments to limit global warming to between 1.5 and 2°C.
- California Senate Bill 185 (SB185, de León) — Public Divestiture of Thermal Coal Companies Act, requires 2 of the 3 largest US public pension funds, California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS) “to constructively engage publicly traded coal companies that generate 50 per cent or more of their revenue from mining thermal coal. If following engagement a Company is not transitioning its business model to adapt to clean energy generation, SB185 directs CalPERS to sell or transfer any investments in that Company.”
- RS Group:
- “…demand that asset managers working on its behalf better incorporate climate risks in their investment processes and in their engagement with companies.
- actively consider climate change issues when voting proxies, participating in resolutions and engaging with companies.”
Divestment gathers speed
This week’s decision by four Australian Catholic orders to divest fully from fossil fuels can be interpreted as a direct response to the encyclical on the environment, issued by Pope Francis almost exactly a year ago.
The announcement is part of the launch of a much wider initiative by the Global Catholic Climate Movement, which aims to encourage Catholics to reconsider their investment options, on both an individual and organisational level.
Pope Francis was very clear in his assessment of the fossil fuel industry. His encyclical warned of the dangers of climate change, arguing that “technology based on the use of highly polluting fossil fuels – especially coal, but also oil and, to a lesser degree, gas – needs to be progressively replaced without delay.”
Catholic Church starts small but is clearly thinking big on fossil fuel divestment
The Conversation, 20 June 2016
The divestment argument
2°C is the upper limit — But we have three times as much in reserves
In 2012, the International Energy Agency (IEA) stated: “No more than one-third of proven reserves of fossil fuels can be consumed prior to 2050 if the world is to achieve the 2°C goal.”
In 2015, 197 countries agreed at the UN meeting on climate change (COP21) to limit global warming to between 1.5 and 2°C above pre-industrial levels.
To the casual observer, the Paris meeting went according to plan, but this remarkable outcome was never guaranteed. To the contrary – it was an extraordinary, hard-fought and unprecedented act of global consensus, exceeding all expectations – even those of the most optimistic and ambitious.
How the challenge of climate change has achieved consensus among 197 countries underpinned by serious accountability measures – says more about the singular importance of this issue than any other argument. Cooperation is now unilateral.
The Paris Agreement includes country targets that “ratchet” over time, with five-year reviews and pathways to proper transparency and accounting. To limit warming to the above goals, in aggregate, countries must achieve zero net emissions before 2050, which means no more CO2 can enter the atmosphere than what we are able to remove or sequester in soils, plants and oceans.
The IEA assessment includes oil, gas and coal combined. However, when considering coal on its own, the figure drops from one-third to less than one-fifth globally. For Australian coal, the Climate Council estimates less than 10 per cent of known reserves can ever be exploited in a 1.5°C to 2°C scenario.
What are the implications of the Paris agreement for investors?
The term “proven” fossil fuel reserves refers to the exploitable coal, oil and gas reserves held on the balance sheets of “fossil fuel companies” and governments in some cases. The expected future earnings from these reserves are factored into the companies’ current stock prices and financial valuations. If governments limit global warming to between 1.5°C and 2°C through regulation, pricing and incentives, most of these fossil fuel reserves will never be exploited and company valuations will be unrealised. This is where the term “stranded assets” originates.
In this context, “stranded assets are fossil fuel energy and generation resources which, at some time prior to the end of their economic life, are no longer able to earn sufficient financial return because of regulatory and pricing changes associated with the transition to a zero carbon economy.”
Divestment gathers speed
Rockefeller Family Fund, a charity set up in 1967 by descendants of John D. Rockefeller, said on Wednesday that it would divest from all fossil fuel holdings “as quickly as possible”.
The fund, which was founded by Martha, John, Laurance, Nelson and David Rockefeller, singled out ExxonMobil for particular attention describing the world’s largest oil company as “morally reprehensible”. The RFF acknowledged that the family has made a lot of money from oil, “but history moves on, as it must.
Needless to say, the Rockefeller family has had a long and profitable history investing in the oil industry, including ExxonMobil”, it said. “These are not decisions, therefore, that have been taken lightly or without much consideration of their import.” RFF is not the first Rockefeller family organisation to vow to divest from fossil fuels.
Another Rockefeller fund announces divestment
The Guardian, 23 March 2016
How divestment began
In April 2016, Ellen Dorsey, Executive Director of Wallace Global Fund, accepted the inaugural Mandela-Machel Award for Brave Philanthropy on behalf of 140 foundations, family offices and charities of DivestInvest Philanthropy. Wallace Global Fund has played a key role in the funding, organising and growth of the global DivestInvest movement, and has led the campaign in the philanthropic sector.
Ellen Dorsey was herself an activist in the anti-Apartheid movement, where she saw firsthand the power of divestment as a driver of fundamental social and political change. Following is an extract from her acceptance speech where she provided a compelling description of how the movement began.
In 2011, hopes for a solution to climate change were at a 20 year low.
The UN climate conference held in Copenhagen in 2009 had ended without meaningful agreement and efforts to pass a comprehensive climate bill collapsed in the US Senate in 2010.
The combination of setbacks left a demoralised climate advocacy community adrift in its wake. Into this vacuum stepped Fossil Fuel Divestment. A meeting of student groups held in Washington in early June 2011 hammered out the first plan for a series of campus campaigns calling on universities to divest their endowments from coal, six of which were launched the following August. By the following spring, divestment campaigns had spread to an estimated 40 campuses. But they had yet to get their biggest boost.
In summer of 2012, author and climate activist Bill McKibben published a landmark article in Rolling Stone magazine calling for fossil-wide divestment and linking it to the “Carbon Bubble” first reported by the Carbon Tracker Initiative. The basic premise being that companies can’t burn the vast majority of the reserves they have on their books — it is a prescription for planetary destruction. They would have to leave it in the ground. Those reserves amount to ‘stranded assets’ for investors. The ethical case to divest was bolstered by a powerful financial analysis.
Ellen Dorsey, Executive Director of Wallace Global Fund
In a short space of time, the movement has spread from college campuses in the United States to local councils, cities, religious and health institutions, foundations, unions and pension funds across the world. By November 2016, 688 institutions with over US$5.2 trillion worth of assets have committed to DivestInvest. Those organisations include:
|Foundation||158 (23%)||12 (9%)|
|Faith based||158 (23%)||19 (15%)|
|Government||117 (17%)||27 (20%)|
|Education||96 (14%)||6 (5%)|
|Pension funds||82 (12%)||9 (7%)|
|Self managed super funds||Not applicable||49 (37%)|
|For profit organisations||22 (3%)||3 (2%)|
|Non-government organisations||41 (6%)||4 (3%)|
|Other||14 (2%)||2 (1.5%)|
Divestment gathers speed
Allianz is the latest big company turning its back on coal, with the German financial services giant vowing to offload significant coal holdings within six months.
German broadcaster ZDF quoted Allianz chief investment officer, Andreas Gruber, as vowing to shift investments out of coal and into renewables. “We will no longer invest in mining companies and utilities that generate more than 30 per cent of their sales or energy creation from coal.” According to reports by Reuters, the change will be conducted over a six-month period and will see investment in wind doubled to 4 billion euros.
Allianz makes a €2 trillion statement about coal divestment
Sydney Morning Herald, 24 November 2015
Actively investing in solutions to climate change is equally important as withdrawing capital from fossil fuels if we are to achieve climate stability for our planet. This is why signatories to DivestInvest commit to allocate at lease five per cent of their portfolio assets to areas such as renewable energy, energy efficiency, clean technology and energy access.
The DivestInvest pledge reminds us how “the escalating climate crisis will impact the programs of all philanthropic institutions, not just those focused on the environment and health.” In other words, to invest in climate solutions is both a practical and strategic way to strengthen and support your grantmaking across a wide spectrum of issue areas.
What do we mean by climate solutions? Examples might include large scale or community renewables, emission reduction technologies, mass transport, water management, Indigenous savanna burning, sustainable food, forestry and agriculture, green property or resilient infrastructure.
RS Group, Hong Kong believe new, collaborative approaches to investment, business and philanthropy are needed to build a global community where social progress and economic development occur in harmony with nature.
When the English Family Foundation, Australia discovered the DivestInvest pledge in June 2015, they embarked on a surprisingly quick path to divestment. After signing the pledge, implementation was completed by the end of July.
Fundamentally, our purpose with the English Family Foundation is to create good in the world.
Investing in fossil fuels is simply not aligned with our objectives.
Allan English, English Family Foundation