This back to school season, follow the money at your college or university

September 21, 2022

Well, it’s done. You’ve set up the dorm room, reviewed the class schedule, checked out the dining hall, and bid familial farewells until winter break. Whether you’re a departing student or the teary parent at drop-off, a lot of scrutiny—and not a little cash—has gone into the journey toward a college degree.

But there may be one thing you haven’t looked at yet: Is your university supporting Big Oil?

Chances are, the answer is yes, and your school’s endowment has not divested from fossil fuels. Worldwide, only 240 higher learning institutions have fully or partially divested from fossil fuels, according to the Global Fossil Fuel Divestment Commitments Database. In the U.S. alone, some 2,000 private and public four-year schools reported endowments, says the American Council on Education, and more than 800 of them were worth more than $50 million. Endowments are funds invested into nonprofits, like universities, which support their work.

Given the climate crisis, the divestment movement argues, not a cent of that money should go into the coffers of fossil fuel companies. And after years of pressure from students and faculty, the tide is starting to turn. Last fall, Harvard University announced it “has no direct investments in companies that explore for or develop further reserves of fossil fuels [and] does not intend to make such investments in the future.”

Photo credit: Divest Harvard

Harvard was not the first to make such a commitment—other schools, such as the University of Massachusetts already had made similar announcements. But Harvard’s shift was a big deal for two reasons. At nearly $42 billion, the prestigious Ivy League school has the largest endowment in the nation. And it was a high-profile reversal after years of resisting calls to divest—as one headline put it, “Harvard cracks on fossil fuels and a dam breaks.”

As the perilous effects of climate change get harder to ignore, so has the role of institutions that have been pocketing returns generated by the extraction and burning of oil, gas, and coal. From churches to municipal governments to foundations, a growing number of those investors are acknowledging their responsibility to pull the plug. The Presbyterian Church (USA), which divested from five major fossil fuel companies in July, said it had tried to encourage improvements to those companies’ strategies and policies regarding climate change, but that “this process of engagement did not produce enough substantial change.”

Public pressure is a key factor in many such decisions, and schools are no different. Whether they get acknowledged or not, students have been driving change. “Students do research, advocate, and really are partners. We cannot always do things exactly the way they would like, but their voices have influenced our decisions,” Elizabeth Bradley, the president of Vassar, said last year after the college announced climate-focused changes to its investment policy.

But divestment is not solely a matter of responding to activism—it’s increasingly a legal and financial consideration. Schools that continue to invest endowment money in companies that are clearly contributing to climate change are conflicting with their own “charitable purposes” under the Uniform Prudent Management of Institutional Funds Act, a law in effect in every state except Pennsylvania. Earlier this year, students from five schools filed legal complaints arguing that their schools are violating this law, a legal strategy students at other schools have employed as well.

So what can you do?

First, look into whether there are any existing divestment campaigns at your school or in your town—in addition to your school’s own networks. The group Fossil Free has a searchable site on the topic. This post also offers useful advice for researching your school’s investment holdings, such as looking up legally required disclosures with the Securities and Exchange Commission and the Internal Revenue Service.

Once you’ve done your research, help organize ways to advocate for stronger divestment policies at your school. Aside from filing legal complaints, student groups across the country and beyond are recruiting support, holding protests, painting murals, and more. And connect to other groups doing the same work—Divest Harvard is a good example of showing how it’s done.

Of course, students aren’t the only ones whose opinions matter to schools. Parents, donors, faculty, and staff can all support change. In the process, whether it’s understanding how endowments work or engaging with school officials, you’re bound to learn something that won’t be on any syllabus. And you’ll be ensuring a long, healthy future for your alma mater and many students to come.

Investing in the climate while you sleep

June 8, 2022

This post originally appeared in Looking Forward, the climate solutions newsletter from Fix, Grist’s solutions lab. It was written by Fix’s climate solutions fellow, Marigo Farr.

Credit: Grist / Unsplash / Getty Images

Shortly after I was born, my parents and grandmother started investing money that would be passed on to me as an adult. I didn’t think much about it until my early 20s, when I asked my father if he had any idea what kinds of stocks they had purchased. He said something like, “I believe I told the bank guy, ‘No guns, no tobacco, no oil.’” I hoped he was right, but I didn’t look into it for another decade. When I finally did, I realized he was wrong.

On this Earth Day eve, I’ve been thinking about what we do with our dollars — not by donating, which is also important, but by asking the question: “Where does my money sleep at night?” This concept was shared with me by Robert Mante, director of consumer investments at Amalgamated Bank. It essentially means that money doesn’t just sit around like treasure in a vault. Banks (or you) use it to finance something concrete in the world. The question is, what?

If you don’t know the answer, it likely includes something you wouldn’t be happy to support. The world’s 60 largest banks directed $4.6 trillion in lending and underwriting to the fossil fuel industry between 2016 and 2021. In addition to personal investments managed by these banks, everyday customer checking and savings accounts also contribute to a bank’s income stream, enabling the financing of things like fracked gas pipelines, Arctic drilling, and mountaintop removal.

But consumers are taking notice and demanding alternatives, calling on big banks, university endowments, and other institutions to divest from fossil fuels. And in parallel, new, greener banking services and investment options have emerged. In honor of Earth Day, I thought I’d share some of the choices I’ve made about where my money sleeps, and how I’ve moved it to help support the kinds of projects I value.

If you have any amount of money in a bank

Blue piggy bank surrounded by dollar-textured leaves and yellow coins

Credit: Grist / Unsplash / Getty Images

Just like you consider environmental impacts when weighing options at the grocery store, you can do the same when choosing a bank. After years of feeling intimidated by the myriad choices out there and the potential for “greenwashing,” I finally opened up a checking account at a green bank. I chose Ando and researched it enough to discern what buzzwords like “sustainable” and “green” actually meant to the company — no lending to fossil fuels, as certified by the third-party organization Bank.Green. Ando also gave me the option of naming my priorities, such as clean energy, sustainable transportation, and green buildings.

If you’ve been pondering a switch, you can check out other Bank.Green fossil-free certified banks here, or use the platform Mighty to customize a search for banks that reflect a range of values that are important to you. From my experience, it takes less time to switch than you think. A lot of these services do the heavy lifting for you, including quick account setups online and automatic transfer of your money from your existing bank.

If you want to try investing for the climate, with as little as $100

Hand cupped with dollar-textured stem growing from palm and yellow coins surrounding

Credit: Grist / Unsplash / Getty Images

In addition to divesting my personal accounts from fossil fuel lenders, I’ve been pondering the question, “What is the alternative I want to invest in?” I learned about an approach often referred to as community investment. Unlike purchasing publicly traded shares in for-profit companies, the idea is to put your money directly into mission-driven projects that often have community involvement, or mission-driven funds that finance those projects.

Energea and Sunwealth are both solar developers that let individuals invest in community solar projects. For me, helping to make a specific solar project possible felt like a really tangible way to start. With Energea, you can invest as little as $100 and receive monthly cash dividends immediately. If you’re new to this kind of investment, like I was when I put in my first $500, the Energea returns calculator is a helpful tool for visualizing projected outcomes and experimenting with different cash inputs.

Another example is Kachuwa Impact Fund, which provides financing for multiple mission-oriented companies, such as solar cooperative Namaste Solar and woman- and POC-owned energy-efficiency company COI Energy Services. The fund is open to everyday investors at a minimum of $5,000.

You can also go the route of investing directly in your own community, if you know of projects you care about that are looking for backers.

If you want to explore the stock market, and do it as green as possible

Yellow arrow zig-zagging on blue graph paper with dollar-textured leaves surrounding

Credit: Grist / Unsplash / Getty Images

Last year, in my efforts to divest from fossil fuels, I sold all of my personal investments and put them into renewable energy portfolios like iShares Global Clean Energy ETF and portfolios screened as “socially responsible” or meeting Environmental, Social, and Governance (ESG) criteria. It felt like a good step, but since then, I have learned that some ESG portfolios can include fossil fuel companies. The good news is, there are investment services that can provide you with transparent, curated investment portfolios screened for fossil fuels — one example is Amalgamated Bank’s Fossil Fuel Free portfolio, which consists of a “sustainability” component as well as a strictly screened ESG component. (It does have a $15,000 minimum, but there’s no stated minimum for starting your own portfolio at Amalgamated, which you can customize with the help of an adviser.)

There are also plenty of investment management services, such as Natural Investments and Revalue, that specialize in environmentally and socially responsible publicly traded stock options as well as direct and community investing. And it’s worth noting that renewable power investments have been outperforming fossil fuels for years — a trend that’s likely to continue, according to Forbes.

The 2022 Banking on Climate Chaos report, compiled by Rainforest Action Network and other environmental orgs, states that in order to move toward a world that limits global warming to 1.5 degrees Celsius and “fully respects human rights,” banks must prohibit financing for all fossil fuel expansion projects and phase out financing for existing fossil fuel infrastructure. I believe that is a call to action — and one that we can all be part of answering. I didn’t dramatically change my lifestyle in order to take steps toward aligning my money with my values. Mostly, it was a few conversations and clicks of a mouse. By doing that little bit of extra work, we can be levers in the shift to a greener, more compassionate economy.

What’s “ESG,” and can it enable serious goodness?

April 14, 2021

This article is from the April 14, 2021, issue of Flip the Script, a weekly newsletter moving you from climate stress to clean energy action. Sign up here to get it in your inbox (and share the link with a friend).

Investors of all stripes are increasingly “investing with their values” by prioritizing portfolios that aim for positive sustainable and societal impact. They’re shifting their assets to so-called ESG (environmental, social, and governance) funds. These are collections of company stocks with certain “do-gooder” criteria, such as clean energy or embracing diversity, equity, and inclusion. By opting for ESG, investors feel like they’re able to advance meaningful change in the business world.

Meanwhile, business leaders and entrepreneurs are jumping on the ESG bandwagon, out of a desire for a more sustainable and socially responsible economic system and/or because they recognize the benefits of riding this growing trend. Globally, investment firms managing some $100 trillion of assets have signed on to the UN’s Principles for Responsible Investment (PRI), and forward-thinking CEOs across the U.S. have joined the Business Roundtable, a coalition of top corporate leaders who aim to reorient capitalism to serve not just shareholders, but also workers and the environment.

ESG funds have come a long way since the 1990s when they first became an option for progressive-minded investors who didn’t feel comfortable with their dollars supporting, say, tobacco or fossil fuel companies. As the number of ESG choices has grown, the associated costs have gone down, and the funds now often outperform their traditional counterparts.

But the big question is, are they actually making a difference? Critics have raised growing concerns about the lack of follow-through on companies’ stated ESG commitments. According to one analysis, investors who signed on to the UN’s investment principles didn’t actually improve the social and environmental performance of their holdings, but instead “use the PRI status to attract capital without making notable changes to ESG.”

So, what can be done to make ESG a more effective and trusted investment tool, and to ensure greater accountability for corporate climate commitments? Here are four key ways:

Better define what qualifies as “ESG”

ESG remains a confusing field, in part because of the lack of uniform definitions and clear metrics. In a recent survey of institutional investors, three-quarters of respondents highlighted a lack of clarity around ESG terminology in their organizations. Without a standard framework for prioritizing among different environmental, social, and governance issues, ESG is a bit of a free-for-all. Managers of several ESG funds have been called out recently for putting “shiny green labels” on what were essentially index funds, heavy in tech stocks and crafted to deliver strong returns over the long term.

In a recent survey of institutional investors, three-quarters of respondents highlighted a lack of clarity around ESG terminology in their organizations.

A big question is, who should really make the cut for inclusion in an ESG fund? Some managers argue that any company that meets certain ESG measures (as defined by the fund) should be allowed entry. The largest U.S. ESG fund, the $25 billion Parnassus Core Equity Fund, concentrates its assets in 40 large cap stocks, relying on metrics such as whether a company has committed to decarbonization. The fund excludes fossil fuel producers and any energy companies that lack a comprehensive carbon-fighting plan. But many of the companies it does include—such as the ag equipment manufacturer Deere & Co., Microsoft, and recently Amazon—have “passed the test” simply because of their ambitious low-carbon commitments on paper, despite these companies’ massive climate footprints.

The catch-all nature of today’s ESG market means that many of the smaller companies that are actually going the extra mile on climate (and that really need the investment boost)—like cutting-edge clean energy start-ups—are being flooded out. Despite its low-carbon intentions, the Parnassus Core Equity Fund has no direct investments in publicly-traded solar companies or other renewable energy producers because, it argues, they aren’t big enough or mature enough to meet its investment criteria.

More transparency = more accountability

A key way to hold companies accountable to their professed ESG principles is to require them to publicly report on their social and environmental impacts, using clear, standardized, and easy-to-understand metrics (on carbon emissions, gender diversity, etc.). That way, investors can know if adding an ESG fund to their portfolio is actually making a difference. With no standardized ESG reporting requirements, it’s a bit like the fox guarding the henhouse, since companies themselves decide what social/environmental data to disclose (if any), which can result in self-serving reporting.

Some argue that the same process that’s currently used in corporate financial reporting (requiring it to be transparent, standard, mandatory, and audited) should also be applied to ESG commitments. Recently, the world’s “Big Four” accounting firms took a step forward by recommending a common set of ESG metrics for companies to add to their existing financial reporting, and, so far, around 61 companies have agreed to use it. But it’s only a voluntary measure. A far bolder step would be for companies to explicitly commit to becoming certified benefit corporations, which requires stating in their charter their aim of balancing profit with a specific public benefit (a key B Corp example is Patagonia).

Give climate-friendly funds the priority they deserve

Because climate change has become the defining issue of our era, some analysts argue that’s it’s time to give priority attention to investments that are specifically climate-related. In other words, fund managers should stop lumping in the “environmental” component of the ESG triumvirate with the “social and governance” principles, since they’re a different kind of beast. Climate change in particular deserves its own investment narrative because it has existential impacts and involves a much higher degree of risk than, say, issues like how much a CEO is paid, or the gender mix of a corporate board.

Because climate risk “is impossible to segment across markets and cannot be diversified away,” it has unique implications for how a company’s assets are valued as well as for portfolio diversification, notes Swasti Gupta-Mukherjee, a professor of finance at Loyola University — Chicago. Climate change can impact the physical assets of companies and often results in direct costs, such as damages caused by storms or wildfires. According to Barron’s, as many as 60 percent of companies in the S&P 500 Index hold assets with high exposure to at least one type of physical climate-related risk. This is just one among many reasons to dedicate funds solely to climate-related investments, Gupta-Mukherjee says.

Collectively hold corporations’ feet to the fire

Ultimately, we all have a role to play in making sure companies uphold their ESG commitments—even those of us without large investment portfolios. As consumers, we can make it clear that we expect companies to take a stand on social and environmental issues, as this could make a difference in shifting corporate behavior. As employees, we can also demand more from the companies we work for (whether through protests, walkouts, or just making our values clear). People power can have a significant impact, especially as overall interest in companies’ environmental impacts has grown.

In this context, it would be foolhardy for companies to ignore ESG trends, warn investment managers Michael O’Leary and Warren Valdmanis. They note that as the expectations of company stakeholders have changed, people are “demanding more than hollow marketing and happy talk,” and, as a result, “companies that don’t adapt will find themselves at odds with their customers, employees, investors, and regulators.” Through clearer definitions, more stringent reporting, a dedicated climate focus, and public pressure, ESG investing can become a more effective tool for supporting the kind of sustainable and inclusive future we need.