{"id":59465,"date":"2021-09-23T03:06:11","date_gmt":"2021-09-23T07:06:11","guid":{"rendered":"https:\/\/world.edu\/?p=59465"},"modified":"2021-09-23T03:06:11","modified_gmt":"2021-09-23T07:06:11","slug":"harvards-decision-to-ditch-fossil-fuel-investments-reflects-changing-financial-realities-and-its-climate-change-stance","status":"publish","type":"post","link":"https:\/\/world.edu\/harvards-decision-to-ditch-fossil-fuel-investments-reflects-changing-financial-realities-and-its-climate-change-stance\/","title":{"rendered":"Harvard\u2019s decision to ditch fossil fuel investments reflects changing financial realities and its climate change stance"},"content":{"rendered":"<p><img fetchpriority=\"high\" decoding=\"async\" src=\"https:\/\/world.edu\/wp-content\/uploads\/2021\/09\/harvard-divest.jpeg\" alt=\"\" width=\"680\" height=\"383\" class=\"aligncenter size-full wp-image-59466\" srcset=\"https:\/\/world.edu\/wp-content\/uploads\/2021\/09\/harvard-divest.jpeg 680w, https:\/\/world.edu\/wp-content\/uploads\/2021\/09\/harvard-divest-250x141.jpeg 250w\" sizes=\"(max-width: 680px) 100vw, 680px\" \/><br \/>\nHarvard University will keep\u00a0<a href=\"https:\/\/www.thecrimson.com\/article\/2021\/9\/10\/divest-declares-victory\/\">phasing out all investments tied to oil, gas and coal<\/a>, it announced on Sept. 9, 2021. When\u00a0<a href=\"https:\/\/www.harvard.edu\/president\/news\/2021\/climate-change-update-on-harvard-action\/\">Larry Bacow<\/a>, the school\u2019s president, announced this plan, he cast it as a response to climate change \u2013 part of a broader trend that\u2019s gaining steam among\u00a0<a href=\"https:\/\/www.cnn.com\/2020\/05\/20\/us\/university-of-california-divest-fossil-fuels-trnd\/index.html\">many large institutions with endowments<\/a>.<\/p>\n<p>\u201cWe must act now as citizens, as scholars and as an institution to address this crisis on as many fronts as we have at our disposal,\u201d he wrote.<\/p>\n<p><a href=\"https:\/\/www.thecrimson.com\/article\/2021\/9\/10\/divest-declares-victory\/\">Climate activists on and off Harvard\u2019s campus<\/a>\u00a0called the announcement a victory in response to their yearslong campaign demanding fossil fuel divestment.<\/p>\n<p>But as a law professor who writes and researches about the role\u00a0<a href=\"https:\/\/papers.ssrn.com\/sol3\/cf_dev\/AbsByAuth.cfm?per_id=557612\">climate change considerations can play in investments<\/a>\u00a0held by universities, foundations and other large institutions, I instead see it as part of a bigger story. Investing with climate change in mind is now an accepted practice for endowments, whether or not an institution uses the word divestment to describe this strategy.<\/p>\n<h4><strong>No quick shift<\/strong><\/h4>\n<p>Interestingly, Bacow didn\u2019t say Harvard is divesting from fossil fuels.<\/p>\n<p>Instead, he explained that less than 2% of its\u00a0<a href=\"https:\/\/finance.harvard.edu\/files\/fad\/files\/fy20_harvard_financial_report.pdf\">roughly US$42 billion endowment<\/a>\u00a0is connected to those industries, through stakes in\u00a0<a href=\"https:\/\/www.investopedia.com\/ask\/answers\/121614\/what-difference-between-hedge-fund-and-private-equity-fund.asp\">private equity funds<\/a>. These indirect investments will soon be phased out, and Harvard will not acquire any new assets with fossil fuel exposure in the future, its president said.<\/p>\n<p>\u201cWe do not believe such investments are prudent,\u201d Bacow said.<\/p>\n<p>And that is not a sudden change. The university\u2019s declared intention to shed its fossil fuel holdings is the continuation of a longstanding strategy. Several months earlier, in\u00a0<a href=\"http:\/\/www.hmc.harvard.edu\/content\/uploads\/2021\/02\/2021-Climate-Report.pdf\">February 2021<\/a>, Harvard had said it no longer \u201chad direct exposure to companies that explore for or develop further reserves of fossil fuels.\u201d<\/p>\n<p>The term divestment is generally\u00a0<a href=\"https:\/\/www.investopedia.com\/terms\/d\/divestment.asp\">used in business<\/a>\u00a0to refer to selling an asset or the division of a company. In this context, it means selling off stocks, bonds and other assets held in an investment portfolio tied to a specific industry\u00a0<a href=\"http:\/\/www.jstor.org\/stable\/44282151\">based on ethical reasons<\/a>\u00a0\u2013 rather than for financial motives.<\/p>\n<p>Some schools, including\u00a0<a href=\"https:\/\/www.rutgers.edu\/news\/rutgers-divest-fossil-fuels\">Rutgers University<\/a>\u00a0and\u00a0<a href=\"https:\/\/www.insidehighered.com\/quicktakes\/2020\/04\/22\/american-u-divests-fossil-fuels\">American University<\/a>, have followed a strategy similar to Harvard\u2019s and called it \u201cdivestment.\u201d<\/p>\n<p>Harvard, however, has refused \u2013 even now \u2013 to use that word. As a result, students, faculty and others had continued to\u00a0<a href=\"https:\/\/www.npr.org\/2021\/09\/10\/1035901596\/harvard-university-end-investment-fossil-fuel-industry-climate-change-activism\">pressure Harvard to divest<\/a>, even after it began to\u00a0<a href=\"https:\/\/www.harvardmagazine.com\/2021\/09\/did-harvard-climate-announcement-mean-divestment\">move in this direction in 2008<\/a>.<\/p>\n<h4><strong>What changed?<\/strong><\/h4>\n<p>Investing with climate change in mind, or, more broadly, the use of strategies for sustainable and responsible investing, has\u00a0<a href=\"https:\/\/dx.doi.org\/10.2139\/ssrn.2656640\">undergone a transformation<\/a>\u00a0and\u00a0<a href=\"https:\/\/www.marketwatch.com\/story\/esg-investing-now-accounts-for-one-third-of-total-u-s-assets-under-management-11605626611\">become far more common<\/a>\u00a0in recent years.<\/p>\n<p>Investing that incorporates\u00a0<a href=\"https:\/\/www.cfainstitute.org\/en\/research\/esg-investing\">environmental, social and governance<\/a>\u00a0factors into decision-making, known as ESG investment, may mean avoiding a company because that information indicates uncompensated financial risk.<\/p>\n<p>Since many people are used to thinking of climate or environmental factors as nonfinancial, the idea of using environmental information in an investment decision sounds risky, but it need not be. The environmental information is added to traditional financial metrics, with a goal of improving financial returns or reducing financial risk.<\/p>\n<p>Efforts to act on concerns about climate change and its\u00a0<a href=\"https:\/\/www.weforum.org\/agenda\/2021\/06\/impact-climate-change-global-gdp\/\">serious financial consequences<\/a>\u00a0are creating good investment opportunities that might help investors make money too. A study that looked at 35 university endowments that divested from fossil fuels \u2013 whether they called it that or not \u2013 found that refraining from investments in those industries\u00a0<a href=\"https:\/\/dx.doi.org\/10.2139\/ssrn.3501231\">generally didn\u2019t affect endowment performance<\/a>\u00a0from 2011 to 2018.<\/p>\n<p>Aligning an organization\u2019s investments with its mission has also become a more common and accepted practice for charities \u2013 a\u00a0<a href=\"https:\/\/www.charitynavigator.org\/ein\/042103580#:%7E:text=Harvard%20University%20is%20a%20501,and%20donations%20are%20tax%2Ddeductible.\">category of nonprofits that includes Harvard<\/a>\u00a0and thousands of other universities.<\/p>\n<p>The\u00a0<a href=\"https:\/\/nonprofitlawblog.com\/foundation-new-rules-mission-related-investments\/\">Internal Revenue Service has issued guidance<\/a>\u00a0regarding how charities, as long as certain conditions are met, may use investments to help carry out their missions \u2013 not just to produce income. Indeed, the IRS said that some charities can earn a\u00a0<a href=\"https:\/\/www.irs.gov\/pub\/irs-drop\/n-15-62.pdf\">below-market return on their investments<\/a>\u00a0due to practices that are tied to their missions.<\/p>\n<p>For example, a charitable organization seeking to improve air quality can invest its holdings in wind, solar and other forms of renewable energy. Even if those investments might appear bound to produce a smaller return than other kinds of assets, which\u00a0<a href=\"https:\/\/www.investopedia.com\/investing\/wind-stocks\/\">could prove to be an unfounded fear<\/a>, the investment should nonetheless be considered prudent because it carries out the organization\u2019s mission.<\/p>\n<p>That is why I was intrigued to see that\u00a0<a href=\"https:\/\/www.harvard.edu\/president\/news\/2021\/climate-change-update-on-harvard-action\/\">Bacow\u2019s open letter<\/a>\u00a0to the Harvard community recognized that seeking to slow climate change is connected with the university\u2019s mission. Its endowment \u201cis building a portfolio of investments in funds that support the transition to a green economy,\u201d he wrote.<\/p>\n<p>The letter also emphasizes Harvard\u2019s mission: \u201cThe principal way we influence the world is through our research and teaching,\u201d Bacow wrote.<\/p>\n<p>As complicated as strategies for using a university\u2019s endowment to address climate change may prove, I expect to see other schools following Harvard\u2019s lead.<\/p>\n<p><em><strong>Author Bio:<\/strong> Susan Gary is Professor Emerita of Law at the University of Oregon<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Harvard University will keep\u00a0phasing out all investments tied to oil, gas and coal, it announced on Sept. 9, 2021. When\u00a0Larry Bacow, the school\u2019s president, announced this plan, he cast it as a response to climate change \u2013 part of a broader trend that\u2019s gaining steam among\u00a0many large institutions with endowments. \u201cWe must act now as [&hellip;]\n&hellip; <a href=\"https:\/\/world.edu\/harvards-decision-to-ditch-fossil-fuel-investments-reflects-changing-financial-realities-and-its-climate-change-stance\/\" class=\"more\">learn more&rarr;<\/a><\/p>","protected":false},"author":33,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[29],"tags":[422004],"coauthors":[11733],"class_list":["post-59465","post","type-post","status-publish","format-standard","hentry","category-higher-education","tag-divesting-from-fossil-fuels"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.2 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Harvard\u2019s decision to ditch fossil fuel investments reflects changing financial realities and its climate change stance - World leading higher education information and services<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/world.edu\/harvards-decision-to-ditch-fossil-fuel-investments-reflects-changing-financial-realities-and-its-climate-change-stance\/\" class=\"yoast-seo-meta-tag\" \/>\n<meta property=\"og:locale\" content=\"en_US\" class=\"yoast-seo-meta-tag\" \/>\n<meta property=\"og:type\" content=\"article\" class=\"yoast-seo-meta-tag\" \/>\n<meta property=\"og:title\" content=\"Harvard\u2019s decision to ditch fossil fuel investments reflects changing financial realities and its climate change stance - World leading higher education information and services\" class=\"yoast-seo-meta-tag\" \/>\n<meta property=\"og:description\" content=\"Harvard University will keep\u00a0phasing out all investments tied to oil, gas and coal, it announced on Sept. 9, 2021. When\u00a0Larry Bacow, the school\u2019s president, announced this plan, he cast it as a response to climate change \u2013 part of a broader trend that\u2019s gaining steam among\u00a0many large institutions with endowments. \u201cWe must act now as [&hellip;]\" class=\"yoast-seo-meta-tag\" \/>\n<meta property=\"og:url\" content=\"https:\/\/world.edu\/harvards-decision-to-ditch-fossil-fuel-investments-reflects-changing-financial-realities-and-its-climate-change-stance\/\" class=\"yoast-seo-meta-tag\" \/>\n<meta property=\"og:site_name\" content=\"World leading higher education information and services\" class=\"yoast-seo-meta-tag\" \/>\n<meta property=\"article:published_time\" content=\"2021-09-23T07:06:11+00:00\" class=\"yoast-seo-meta-tag\" \/>\n<meta property=\"og:image\" content=\"https:\/\/world.edu\/wp-content\/uploads\/2021\/09\/harvard-divest.jpeg\" class=\"yoast-seo-meta-tag\" \/>\n<meta name=\"author\" content=\"Kevin\" class=\"yoast-seo-meta-tag\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" class=\"yoast-seo-meta-tag\" \/>\n\t<meta name=\"twitter:data1\" content=\"Kevin\" class=\"yoast-seo-meta-tag\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" class=\"yoast-seo-meta-tag\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" class=\"yoast-seo-meta-tag\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/world.edu\\\/harvards-decision-to-ditch-fossil-fuel-investments-reflects-changing-financial-realities-and-its-climate-change-stance\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/world.edu\\\/harvards-decision-to-ditch-fossil-fuel-investments-reflects-changing-financial-realities-and-its-climate-change-stance\\\/\"},\"author\":{\"name\":\"Kevin\",\"@id\":\"https:\\\/\\\/world.edu\\\/#\\\/schema\\\/person\\\/42c1c1d5ff7ffbdf0bd50ed94c6ae6ee\"},\"headline\":\"Harvard\u2019s decision to ditch fossil fuel investments reflects changing financial realities and its climate change stance\",\"datePublished\":\"2021-09-23T07:06:11+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/world.edu\\\/harvards-decision-to-ditch-fossil-fuel-investments-reflects-changing-financial-realities-and-its-climate-change-stance\\\/\"},\"wordCount\":843,\"image\":{\"@id\":\"https:\\\/\\\/world.edu\\\/harvards-decision-to-ditch-fossil-fuel-investments-reflects-changing-financial-realities-and-its-climate-change-stance\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/world.edu\\\/wp-content\\\/uploads\\\/2021\\\/09\\\/harvard-divest.jpeg\",\"keywords\":[\"divesting from fossil fuels\"],\"articleSection\":[\"Higher Education\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/world.edu\\\/harvards-decision-to-ditch-fossil-fuel-investments-reflects-changing-financial-realities-and-its-climate-change-stance\\\/\",\"url\":\"https:\\\/\\\/world.edu\\\/harvards-decision-to-ditch-fossil-fuel-investments-reflects-changing-financial-realities-and-its-climate-change-stance\\\/\",\"name\":\"Harvard\u2019s decision to ditch fossil fuel investments reflects changing financial realities and its climate change stance - 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