- September 10, 2020
- Posted by: David Root
- Category: FFI Perspectives
Even as disruptions go, COVID-19 is a monumental one. The pandemic has compelled society to reexamine the fundamental ways in which we live, work and, importantly, educate our young people. Yet as college and university students return to class this fall, some from the confines of their dormitories and others from their hometowns, there is another significant change occurring elsewhere on campus.
College and university endowments are incrementally incorporating sustainable investing strategies into their endowment management. Earlier this year, the University of California became the largest higher education system to fully divest its pension, endowment and working capital pools of fossil fuel companies, and has invested more than $1 billion in clean energy projects since 2015, when it first began its ESG investment strategy. In July, the University of Michigan froze all direct investments in fossil fuel companies while it reviews its investment policy. Even Harvard, which has a $41 billion dollar endowment, is under increasing pressure to tackle climate change by divesting from fossil fuels. Indeed thousands of institutions, not all academic, have committed to end their sponsorship of fossil fuels.
Why does the shift away from fossil fuels appear to be accelerating now?
The financial uncertainties brought about by COVID-19 threaten these institutions’ revenue base and, for some, their survivability. With financial performance of paramount concern, administrations and trustees are coming to appreciate the link between ESG factors and corporate performance, and thus their rate of return. They also recognize that the energy transition, as a structural change to the global economy, provides opportunities for both divesting and sustainable investing.
A financial backbone for an educational institution, a healthy endowment ensures a university’s ability to foster its most innovative research, learning, and teaching methods. By taking a more forward-looking and sustainable approach to investing, universities and colleges can help ensure that their endowments will survive the crisis caused by COVID-19. To reap the benefits of the energy transition that is already occurring, we believe that part of that approach must be to re-evaluate the role of fossil fuels in their investment portfolios.