On September 9th, Harvard announced that they would divest themselves from holdings in fossil fuels. At $42 billion AUM, Harvard has the largest endowment in the U.S. The move promises to cut all direct investments with companies that plan on expanding their reserves of fossil fuels. Up until 2019, Harvard had numerous private equity holdings with exposure to the fossil fuel industry. Harvard’s legacy investments in fossil fuel-related companies went from 11% in 2008 to 2% in 2020 . Further, Harvard has committed to hitting a target of net-zero greenhouse gas emissions within its investment portfolio by 2050 . $OIL
The university fund is run by Harvard Management Company. In recent years, the fund has been under pressure from the student body and the alumni to invest more sustainably. In August 2020, a Harvard alumni activist group opposed to fossil-fuel investments won three seats on the school’s Board of Overseers. At one point, many higher education institutions were against divestment in oil-and-gas companies fearing it would dampen their returns. However, in the past few years the pressure has become insurmountable for many large U.S. endowment funds.
Many in academia have changed course and now believe that there is significant risk in investing in the fossil-fuel industry. Georgetown University decided to divest from the industry entirely in February, followed by George Washington University and Cornell University. Brown University is also in the process of withdrawing its investments in the fossil fuel industry . Recently, the University of Michigan’s Board of Regents rejected a proposed $50 Million oil-and-gas investment. The result was that the U of M’s endowment grew by 20% to $12 billion in 2020. Alumni that typically fund endowments are disillusioned with investments in companies with large environmental footprints and are investing more heavily in funds that can produce results sustainably. $TAN
Many, however, are not keen on the idea of divestment. David Swensen, head of Yale University’s endowment, is an advocate of a proactive engagement policy. He believes divestment is counterproductive because the ability to influence large oil-and-gas companies is lost. Moreover, Yale is down to 5% exposure to natural-resource investments, down 2% from the year prior. Additionally, Tariq Fancy, $BLK (BlackRock Inc) ’s first global chief investment officer for sustainable investing raised a substantial issue. He pointed out that the issuance of green bonds which allow companies to raise debt for environmental issues are done without altering business models to be more sustainable. Also, he noted that ESG funds average higher fees at 0.2% than U.S. large-cap stocks with a 0.14% fee.
As energy companies move towards low-carbon technology, it is worth asking whether it is worth divesting in oil-and-gas companies and ceding an ownership position of companies. U.S. endowments control roughly $600 billion of investments and an approach of divestment could end up with academia holding less control over the future of the fossil-fuel industry. However, by 2025, 75% of the workforce will be Millennials and 85% of Millennials believe that social and environmental impact is important to investment decisions . Therefore, endowments have an obligation to their donors to invest in a way that represents their interests.
The rise of shale production and alternative energy sources have squeezed margins and hurt the bottom line of many oil-and-gas companies. $XOM (Exxon-Mobil) for example, has lost almost half of its value since the beginning of 2018. Pressure from activist investors is mounting and the industry is in a stark transition. ESG’s are projected to hit $53 Trillion by 2025, a third of global assets under management . Nascent energy companies such as $NEE (NextEra Energy Inc) , which has the largest market share of North American wind capacity, are seen as a more sustainable and long-term investment.
PS. All my investments and portfolio are public. To join eToro please follow the link: https://bit.ly/3i7Yo3C
My Public Profile: https://www.etoro.com/people/mj_lux
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.