Since the fossil fuel divestment movement was conceived in 2011, in a large part at Middlebury, more than 1,000 universities, corporations, pension funds, cities (New York, London, Paris and Stockholm to name a few) and the entire country of Ireland — have committed to divesting more than $6 trillion from oil, gas and coal companies. It is time for the college to heed the call of its students (who last spring voted overwhelmingly in favor of divestment) and join this group.
While the science and risks of global warming are broadly and globally accepted, and the environmental and ethical arguments for action well-known, the economic case for divestment is especially compelling as the Board considers its fiduciary duty to protect and grow Middlebury’s endowment.
A study published in Ecological Economics last April compares the financial performance of investment portfolios with and without fossil fuel company stocks over the period 1927–2016 and shows that fossil fuel company stocks do not outperform other stocks on a risk-adjusted basis. Genus Capital Management recently reported that its fossil free fund had outperformed a benchmark of standard indices by close to two percent per year over the last five years. According to CEO Wayne Wachell, “At the five-year mark, we can conclusively say: divesting from fossil fuels pays.”
Jeremy Grantham, co-founder of Boston-based asset management company GMO with $70 billion under management, warns that “investors with long-term horizons should avoid oil stocks on investment grounds. They face a sustained headwind.” Some of the world’s largest insurance companies, such as Zurich and Allianz, agree and have divested over concerns that fossil fuel assets could become stranded and that owners could be held liable for damages linked to their investments. In addition, multi-billion dollar claims from more frequent superstorms and wildfires are rendering large geographies and portions of the economy uninsurable, which significantly shrinks the market for insurers.
The fossil fuel industry is notoriously volatile, and while a few investors may continue to profit from daily or weekly market cycles, many will not. More importantly, Middlebury is not a short-term player. Macro global trends in renewable energy, energy storage, the decline of the internal combustion engine and the electrification of transportation represent massive investment opportunities. Stewardship of Middlebury’s endowment and governance of the institution are all about the long game. Ensuring we are on the right side of that wager — not to mention history — should be an obvious choice.
The Economic Case for Fossil Fuel Divestment
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