Widgets Magazine

OPINIONS

Fossil failure: why Stanford’s future depends on divesting from dirty energy

The science is undeniable: Our current pace of climate change threatens the fabric of human civilization, and the primary culprit for climate disruption is our use of fossil fuels.

How then can Stanford justify continuing to invest in fossil fuel companies?

The short answer is, Stanford can’t.

Certainly justifications are given. There’s the misperception that Stanford can make the fossil fuel companies more sustainable by engaging in shareholder advocacy. But the primary business of fossil fuel companies is to sell products that are directly causing climate change. Fossil fuel companies will always be incentivized to extract carbon for as long as possible, even though current fossil reserves are already five times what the world can burn to keep us at a “safe” level of +2°C warming.

There’s also a misperception that fossil fuel investments are necessary for stable financial returns. Quite the opposite is true. Coal, oil and natural gas stocks have been some of the most volatile holdings in the market over the past decade. A 2014 Bloomberg study found that divested portfolios have actually performed better than the market. Similar studies from MSCI, Advisor Partners and Aperio Group have also found there’s little to no financial penalty for divestment.

When lecturing at Stanford I emphasize that all decisions have trade offs, but fossil divestment is a remarkably sound strategy. My startup, Oroeco, has been working with Trucost and Confluence Capital to create a series of low-carbon exchange traded funds (ETFs) that are fully divested from fossil fuels, then quantitatively optimized for both climate and financial performance. We’ve been pleasantly surprised by how easy it is to create a diversified portfolio product that reduces climate impacts by over 80% while simultaneously outperforming the S&P 500. Investments in renewable energy infrastructure projects can go even further, providing stable financial returns that are effectively “carbon negative” through avoided fossil fuel use, particularly in countries where solar competes with diesel.

Stanford has already taken the first important step by committing to divest from coal. But stopping there risks tarnishing Stanford’s reputation for leadership. Prospective students care deeply about climate, and 78% of current Stanford students support full divestment. Over 180 large institutional and individual investors have already committed to divest, including several other universities. Stanford is falling behind by not divesting from oil and gas alongside coal.

CalPERS, the state’s largest public pension fund, has even gone a step beyond, pledging to quantitatively track the climate performance of its entire $300 billion portfolio. This is a monumental next phase in the divestment movement, since whole-portfolio carbon tracking allows institutions to optimize for both climate and financial performance across all investments, rewarding cleaner supply chains, and earning carbon credit for investments in clean energy infrastructure.

Portfolio carbon tracking can also lead to some sobering conclusions about the importance of divestment. The greenhouse gas emissions linked to the average dollar invested is about a third of a kilogram of CO2e per year. So if Stanford invests our entire $18.7 billion endowment in conventional funds, it will result in approximately 6.4 million tons of climate pollution each year. That’s the carbon equivalent of 1.4 million cars on the road. The actual climate footprint of Stanford’s investments will remain a mystery until the university commits to portfolio carbon tracking and public reporting, measurement and accountability that’s necessary for effective management.

The moral imperative to stop climate change is clear. All science indicates that the entire fossil fuel industry is causing “substantial social injury” around the globe. Stanford has a fiduciary duty to align investments with our founding charter to “promote the public welfare by exercising an influence on behalf of humanity and civilization.” Stanford therefore already has a mandate to immediately divest from all fossil fuel holdings. I urge Stanford to also show leadership beyond divestment, by committing to track and report the climate footprint of our entire endowment portfolio, and by pledging to invest in renewable energy infrastructure, efficiency and clean technologies.

Our money and our values are inextricably intertwined. As Stanford faculty and an alum, I encourage Stanford to invest in a fossil-free future, which will pay dividends for many generations to come. Visit FossilFreeStanford.org if you agree.

Ian Monroe BS ’03 MS ’04

Ian Monroe is a lecturer on renewable energy and climate change in Stanford’s earth systems department, as well as the founding CEO of oroeco.com. He can be contacted at imon@stanford.edu.

 

 

  • StevenHowardJohnson

    As an alum from the B school (’82), I second Ian Monroe’s recommendation. Let’s review the causal chain that our consumption of fossil fuels has put in play. The more fossil fuels we humans consume, the more CO2 we emit. The more CO2 we emit, the greater the stock of atmospheric CO2. The greater the stock of CO2, the greater the warming. The greater the warming, the more extensive the effects of climate change.

    Now to a critical point. While the first parts of this causal chain are shaped by rules of proportionality, the last parts are not. Yes, emissions are proportionate to the number of cars, air conditioners, gas furnaces, etc, that we use. Yes, the rise in total CO2 is proportionate to cumulative emissions. Yes, the rise in temperature is proportionate to the rise in CO2.

    But no, climate change isn’t proportionate to temperature change; climate change is driven by tipping point effects. Small temperatures increases can tip parts of the climate into significantly different states. Is California’s drought caused in part by global warming? Would anyone argue that its severity is proportionate to the slow upward creep of global warming? Climate change is a volatile and unpredictable function of rising global temperatures.

    The world cannot halt climate change, and its tipping point damage, without turning the problem logic into our new solution logic. We halt further climate change by halting global warming. We halt global warming by halting the expansion of atmospheric CO2. We halt the growth in CO2 by halting CO2 emissions. And we halt emissions by replacing the technologies that consume fossil fuels with technologies that don’t.

    In other words, the gradualism of the Kyoto strategy has always been an act of folly. It has never been right to think of climate change as an emission reduction challenge. In reality, it has always been a technology change-out challenge. For the right model of what we should be doing, look to the Montreal Protocol and its technology changeout approach.

    Is it impossible to run the American economy solely on renewable energy? Hardly. On average, 35,000 square miles of solar panels would generate just as much daily energy as today’s American economy now consumes.

    Divestment is a good first step. It sends an elemental message: The world halts climate change by replacing ALL technologies that depend on fossil fuels with technologies that don’t.

  • Xylem

    Excellent column by Mr. Monroe — as staff on campus, I was esp struck by some of the stats, that 78% of current students want the University to divest further than just coal, and that CalPERS is going so far in tracking how carbon-intensive all its investments are.

    This is a critical issue not only of our time, but for all future generations. It will behoove us all to act much more quickly than we have been doing, to keep the one livable planet in our Solar System, and the only one for trillions of kilometers around, just as conducive to life when we leave it as it was when we came into it (and if we are wise enough, even more so).

    Let us always think at *least* seven generations hence.