Statement by Leslie Samuelrich, President of Green Century Capital Management at Harvard Heat Week, Cambridge, MA
April 17, 2015
Today, I stand with other members of the investment advisory and financial services community in solidarity with the students, faculty, alumni and members of the larger community who are supporting Harvard Heat Week.
Opponents of divesting have said that it is too risky, that divesting is too costly, that shareholder advocacy is the better way to go. I run a company that ONLY invests fossil fuel free and I’m here to tell you that these arguments just don’t add up.
First, let’s talk about returns. In study after study since the divestment movement began, investment analysts have provided data and results that show that over time periods from 10 to 25 years, that divesting does not negatively affect returns. The Aperio Group reported negligible difference when a portfolio was divested from fossil fuels in the first widely reported study and in the most recent study Advisor Partners reported that returns are “virtually identical for the 25-year period ending December 31, 2014, implying no trade-off between values and performance. Finally, I proudly invite all investors to look at returns of fossil fuel free funds and judge for themselves.
In fact, there may be financial benefits to divesting
The first benefit may be dividends, the part of a company’s earnings that may be distributed to its shareholders each year. Do you know what the boards of directors of oil and gas companies are doing with their earnings? Instead of distributing the majority to shareholders, they are pouring them into expensive exploration and drilling projects. In 2013 and 2014, the top 200 fossil fuel companies (by reserves) had adjusted capital expenditures of $674 billion and only paid $126 billion in dividends to their shareholders over the same period. On top of that, the companies spent billions on projects like offshore oil drilling or Tar Sands, which prompted the Wall Street Journal to run a story called “Big Oil Companies Struggle to Justify Soaring Project Costs.”
Might not institutions that care about receiving dividends avoid an industry that is only distributing to its shareholders 20% of its earnings and spending the rest on projects that have costs that may never be recouped?
Second, although opponents claim that divesting is risky, they may be ignoring a core fact about the energy sector. The energy sector has been quite volatile and has caused one of the leading investment providers to state, “The energy sector consistently has been among the most risky sectors in the global economy since 2005.”
With all this data and studies, the financial case for fossil fuel free investing appears strong, even formidable. But, institutions that don’t want to be bothered to make the transition to fossil fuel free investing are instead digging in and saying that they want to use their influence as a shareholder to change fossil fuel companies. Green Century and many of my colleagues here from other firms such as Trillium Asset Management have used shareholder advocacy successfully in the past, but shareholder advocacy with fossil fuel companies has severe limits:
- There is no track record of success. None. Not even the Rockefellers, whose fortune came directly from the oil industry, could make a dent, and finally decided to divest.
- It’s unlikely there will ever be a success because shareholder advocacy is not designed to change a company’s core business – such proposals are not even allowed in a shareholder resolution.
- Dirty energy companies will not lead us to a clean economy. Do we really think that the industry that not too long ago funded campaigns to deny climate science and now says that it has no plans to stop drilling for oil is the one that is going to get us out of this crisis?
Finally, while divesting certainly will take some time for institutions, there are plenty of paths to get there. I’m standing here with a number of firms that have colleges as clients. Progressive Asset Management, like Green Century, works with individuals who want to go fossil fuel free. I’m certain that the investment officers and consultants working with Harvard University also can chart a smart transition out of the industry.
To summarize, even if Harvard University was not concerned about its moral duty or reputation and was only motivated by financial considerations, the reasons to move its investments out of the fossil fuel industry are compelling. The case is based on performance, dividend payments and the volatility of the energy sector. It is not the best slogan for a campaign. But, if Harvard University and other institutions want to oppose divestment on financial grounds, it may just become one we need to start using.
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