(The author is a Reuters columnist. The opinions expressed are
By Gerard Wynn
LONDON Oct 31 Harvard's decision to keep buying
into the fossil fuel industry through its $32.7 billion
investment fund - the world's biggest - is a blow to a
divestment campaign also navigating legal uncertainty among
performance-driven fund managers.
Environmental groups driving the a divestment movement argue
that most fossil fuels must not be burned if the world is to
avoid the worst effects of climate change - a threat to the
value of energy companies which own coal, oil and gas reserves.
The movement is trying to repeat the success of a divestment
campaign which decades ago pushed South Africa to dismantle the
Fossil fuel divestment has gained some traction with U.S.
city pension funds, but is running into legal uncertainty around
the fund managers' responsibility to earn as high a return as
possible, according to the City of Seattle.
Harvard's rejection of the campaign on additional grounds
undermines momentum in the short term.
The university's president, Drew Faust, said fossil fuel
divestment would not only cut fund returns - used to support
budgets - but also undermine the institution's independence
while failing to affect the energy companies.
"I do not believe, nor do my colleagues on the Corporation
that university divestment from the fossil fuel industry is
warranted or wise," she said in a statement this month.
"The endowment is a resource, not an instrument to impel
social or political change."
The endowment contributes more than a third of the
university's annual operating revenues.
TOO MUCH CARBON
Harvard graduate Bill McKibben is leading the divestment
campaign under his broader leadership of the activist
In its report last month, the U.N.'s Intergovernmental Panel
on Climate Change (IPCC) estimated the amount of carbon
emissions which can keep global average surface warming below
two degrees Celsius, widely seen as a rough safety threshold.
It estimated that to have a 50 percent chance or more of
staying below the threshold humankind can burn no more than 309
billion tonnes of carbon in total.
The International Energy Agency last year estimated the
amount of emissions locked up in current, proven fossil fuel
reserves - including unconventional gas and oil - at 780 billion
tonnes of carbon.
TRACTION AND HURDLES
The divestment movement has had some traction among local
authority pension funds, and has mounted campus campaigns to
pressure university endowments.
The City of Seattle reports that sixteen cities from across
the country have committed to fossil fuel divestment.
Earlier this month, Seattle's Mayor Mike McGinn reported
that the city was continuing to take action to divest from
fossil fuels but faced hurdles.
A fiduciary duty is a legal duty to act in another party's
interests, in this case for fund managers to safeguard
university endowments and city pensions.
Abundant case law shows that investors must act in the best
interests of their beneficiaries; the implications for
investments in environmental, social and governance (ESG) issues
are less clear cut.
Much hinges on the subjective view of the fund about whether
taking ESG factors into account undermines returns.
"State and federal law on fiduciary responsibility requires
board members to only invest funds to achieve a social or
environmental objective when the resulting return on investment
and related risk are comparable to other available investments,"
McGinn said in a statement this month.
"The market for fossil free investment tools is still new
and the pension system's financial adviser believes that
existing tools do not yet meet the legal requirements."
"I've also heard from other cities that have committed to
divestment that they are finding similar challenges."
McGinn said he would continue to map out a divestment
strategy "in a phased manner that protects our retirement
Some academics have questioned the usefulness of activist
campaigns in building popular support for climate policies which
will raise energy prices, such as a nationwide U.S. carbon tax.
It may be that activist campaigns may further polarise the
issue and turn off conservative voters, they argue.
Academics have also pointed out practical difficulties.
"Divestment of fossil fuel stocks would hurt, not help
efforts to address global climate change," said Harvard
political and environmental economist Robert Stavins, in a blog
published last week.
He argued that divestment would conflict with natural gas,
the least carbon-emitting fossil fuel which has helped cut U.S.
emissions by displacing coal.
It could also undermine carbon capture and storage, a
technology which could cut carbon emissions, and is most likely
to be funded by the oil and gas industry.
One alternative approach may be to bring pressure to bear as
shareholders, as suggested by Harvard's Drew.
That will resonate with fund managers which may want to pay
attention to ESG issues but are unsure about the impact on
"In the case of fossil fuel companies, we should think about
how we might use our voice not to ostracize such companies but
to encourage them to be a positive force both in meeting
society's long-term energy needs while addressing pressing
environmental imperatives," she said.
(Editing by Louise Ireland)