After fighting in two Democratic presidential primary campaigns, Maggie Thomas may face her toughest election yet. The former climate advisor for Washington governor Jay Inslee and Massachusetts senator Elizabeth Warren is running for Yale University’s board of trustees. Backed by the climate activist group Yale Forward (inspired by a similar group at Harvard), Thomas hopes to rally alumni behind an “ethical investment strategy” that calls for rapid, full divestment of all university assets from fossil fuels and greater consideration of environmental, racial, and social justice.
“Yale has an opportunity not just to divest, but also how to invest,” she said by phone. She pointed to her time on the Inslee and Warren campaigns as proof of how insurgent candidates can change the terms of the debate. Inslee’s climate positions were picked up by Warren and, later, Democratic presidential front-runner Joe Biden, who now has one of the most ambitious climate platforms in US history, pushing for 100% clean energy, net-zero emissions no later than 2050, and an end to fossil fuel subsidies. “Both campaigns were incredibly successful in pushing their ideas,” Thomas said. “That’s the model we’re really hoping to run here.”
Yale has successfully opposed petition candidates like Thomas in the past. She will be running for one of the six alumni positions on the 16-member board—the rest are appointed by the university. If she collects enough signatures to get on the ballot and wins, Thomas will be the first petition candidate to do so since Yale elected its first Jewish board member in 1965.
Thomas will likely face resistance from Yale’s financial officers. Despite having sold off thermal coal and oil-sand assets (reducing them from 0.24% of holdings to .02% since 2014), the $30 billion endowment is still heavily invested in fossil fuels, estimates Yale Forward. Most data is not public, but based on comparable exposure to fossil fuel assets among other Ivy League institutions (about 6.5%), the organization estimates Yale likely holds $2 billion worth, including $454 million in publicly traded stocks.
David Swensen, the university’s chief investment officer, indicates Yale has no plans to divest anytime soon. In February he argued in a public letter that while the school would minimize emissions in its portfolio, it would maintain investments in oil and gas firms that don’t deny climate change science. Swensen repeated a decades-long argument that endowment decisions should reflect where capital will earn the highest returns, not the values of the students, faculty, and institution. While Yale itself is pursuing a zero-emissions target, investment policies, he wrote, are separate from its “fiduciary responsibility to [fund] its greatest areas of strength: research, scholarship, and education.”
The divestment movement
Thomas is part of a growing fossil fuel divesture movement challenging that notion. Sparked by activist Bill McKibben around 2012 as an offshoot of the climate organization 350.org, it takes aim at the fossil fuel industry’s ability to raise capital and, ultimately, operate. It hopes that by convincing universities and institutions to pull out their cash, it will chip away at the industry’s social and political acceptance, and eventually its money.
The model is based on successful attempts in the 1980s to pressure universities, governments, companies, and other institutions to divest from apartheid-era South Africa, and later from tobacco companies in the 1990s. Both efforts framed their arguments in moral terms. Divestment proponents realized that pulling millions of dollars out of global capital markets would not alone deter companies, but that elevating reputational risk for industries might change the calculus for investors. Uncertainty around firms’ ability to attract customers, employees, and political allies lowered prospective returns.
The direct financial impacts were negligible. Economists studying South African corporate entities during the apartheid divestment movement found share prices did not fall. Instead, boycotts and divestment efforts mostly “reallocated shares and operations to indifferent investors and countries.”
The real goal, according to researchers analyzing such movements in the journal Climate Policy in 2015, was “reputational damage and stigmatization.” The divestment campaign against South Africa ramped up political pressure to isolate the apartheid regime. The international community followed. Sanctions were imposed. International banks pulled out. Eventually, the economic instability fueled unrest, inflation, and foreign capital flight, spelling an end to apartheid in the early 1990s.
The researchers found the same motivations behind climate efforts. Activists want to turn public attitudes, investors, and eventually government regulators against fossil fuel interests by labeling carbon pollution as a moral wrong.
That’s already happening to the coal industry. Since the World Bank stopped financing coal in 2013, a remarkable exodus of capital has crippled the industry’s ability to expand and even secure insurance. More than 100 major financial institutions have restricted funding to the sector. Economics may seal coal’s fate—renewables are now consistently cheaper in most places—but international investors are now lobbying governments to phase out coal as fast as possible, among them the Institutional Investors Group on Climate Change, representing $32 trillion of funds.
Will oil and gas be next? As one climate campaigner interviewed by the researchers said, the goal is to “turn Big Oil into Big Tobacco—a pariah industry that politicians can’t stand beside in good faith.”
Money, not morality
Universities have historically argued that endowments should reflect the most lucrative places to invest their money, not the values of their institutions. That argument has carried the day at Harvard University, which never fully divested from South Africa, since the 1980s. As late as 1990, the school had increased its holdings in South African interests fivefold to $168 million.
The university’s president at the time, Derek Bok, argued divestment would not affect apartheid. If investment officers pursued “social justice through divestment—if it merely agreed to divest from all companies doing business in countries suffering from severe political oppression,” he wrote, “the number of black-listed firms could easily be long enough to push our losses to high levels.”
Today, the argument against dropping fossil fuels resembles Bok’s. Harvard reportedly has about 1% of its $41 billion endowment in fossil fuel holdings. In 2013, university president Drew Gilpin Faust wrote that divestment was off the table. “The endowment is a resource, not an instrument to impel social or political change,” she said at the time. A year later, replying to a student who asked Faust to divest the university from fossil fuels, she reportedly answered, “you students don’t understand investments.”
But Harvard’s investment approach is not being followed by everyone. More than 100 schools across the US, Europe, and Australia have now partially or fully divested from fossil fuels, including the University of Hawaii, University of Dayton, Syracuse University, the Rhode Island School of Design, Brown University, and the biggest prize to date, the University of California system, with its $83 billion in pension and endowment funds.
At Harvard, five candidates backed by Harvard Forward are running for the Board of Overseers. Like their Yale counterparts, they want full divestment from fossil fuels (as do a vast majority of the faculty). The results of the election, delayed due to the pandemic, will be announced later this year.
Meanwhile the terms of the debate may be shifting. Until recently, moral persuasion was the primary argument against fossil fuels. Now, returns factor in. For decades, fossil fuel firms generated better returns than counterparts in the solar, wind, and renewable sectors. In 2019, that switched.
Last September, shares in renewable power firms had risen by 35% over the prior year, while oil and gas indexes had dropped by more than half, according to the Institute for Energy Economics and Financial Analysis. Renewable energy firms have outperformed oil and gas since May 2018, including during the coronavirus pandemic.
Ultimately, morality was not part of the equation when the University of California system divested from fossil fuels and invest more than $1 billion in climate solutions, argued UC chief investment officer Jagdeep Singh Bachher in a Los Angeles Times opinion piece last September. Instead, an inevitable energy transition made fossil fuels a bad investment bet.
“We believe hanging on to fossil fuel assets is a financial risk,” he wrote along with Richard Sherman, chairman of the UC Board of Regents’ Investments Committee. “While our rationale may not be the moral imperative that many activists embrace, our investment decision-making process leads us to the same result.”