Fossil-Free Finance

Fossil-Free Finance

The surprising successes of the divestment movement as an anti-carbon organizing strategy

November 13, 2017

This article appears in the Fall 2017 issue of The American ProspectSubscribe here

Sitting shoulder to shoulder, holding signs that read “#Divest” and “Climate Justice Now!,” hundreds of student activists lined the halls of the third floor of the administration building at the University of Massachusetts Amherst in April of 2016. Outside, crowds gathered in solidarity. Pizza was brought in for the protesters. Fully aware of their imminent arrest—15 students had been arrested the day before—many still refused to leave. They were escorted out in handcuffs. One protester being led to a squad car had a cardboard sign hanging around her neck: “Arrested for protecting my future.”

Elsewhere, Harvard students were arrested after hosting a sit-in inside the Boston Federal Reserve building. Some 3,000 miles away and two weeks later, Stanford students gathered outside Memorial Church protesting the school’s refusal to sell off fossil fuel investments, holding a banner that read “Temperatures Are Rising, So Are We.” While Harvard held out against the protests, Stanford and UMass trustees did agree to begin the process of getting their funds out of fossil fuels. So did more than a dozen other colleges and universities, including Yale, Oxford, Syracuse, Columbia, and the University of California.

To date, hundreds of institutions, ranging from philanthropic foundations to public pension funds, representing nearly $5.5 trillion in assets, have committed to some degree of divestment from fossil fuels. In pushing nonprofit institutions to sell off their carbon investments, the divestment movement hopes to delegitimize fossil fuel companies, rather in the same way tobacco companies have been increasingly shunned. The goal is both political and economic—to turn public opinion against these companies and the politicians who support them, and maybe to give ordinary investors second thoughts about their portfolios.

The divestment movement combines a political insight about the growing concern over global warming with an economic insight that fossil fuels in the ground (“stranded assets”) may stay there as the economy turns to renewables. If so, giant oil companies are not worth as much as the stock market thinks. The divestment movement hopes to turn that idea into a self-fulfilling prophecy. At a time when the Trump administration has reversed course to embrace carbon, the divestment movement aims to show that citizens can go around government policy, to make a difference directly. Even if the movement does not bring down Big Oil, it hopes to raise awareness and heighten activism.


THE FIRST STUDENTS TO organize for divestment, in 2010, were a group at Swarthmore College, a small private liberal arts school outside Philadelphia. Until then, climate activism at Swarthmore had primarily consisted of weekend trips to West Virginia to combat mountaintop removal in Appalachia, hence the name of the university climate group, Swarthmore Mountain Justice. Emulating the successful South African antiapartheid divestment campaigns of the 1980s and 1990s, Mountain Justice targeted their university’s endowment.

(Fossil-Free Stanford)

Stanford students won a partial victory when the university agreed to divest from coal.

“It occurred to us that divestment as a demand could be a useful way for us to get a toehold on the issue in our little corner of the world,” says William Lawrence, one of five founding members of the Mountain Justice divestment campaign. “Although we didn’t have mountaintop removal in our backyard, we did have these investments.”

Unbeknownst to Mountain Justice, various environmental groups and foundations, convened by philanthropic foundation Wallace Global Fund, had been mulling over the same idea. Mountain Justice’s role as trailblazers earned them an invitation to one of these meetings at Wallace Global’s D.C. offices in 2011, where the conveners decided to work with eight new campuses that coming school year. That turned into 40 in 2012, and grew to around 400 in 2013, spurred on by a cross-country campus tour spearheaded by environmentalist Bill McKibben of

Meanwhile, Wallace Global began to fund the expansion of the campaign to nonprofits and pension funds. By 2014, $50 billion in assets had been pledged to not be invested in fossil fuels. In September of that year, the Rockefeller Brothers Fund (RBF) announced it would completely divest from fossil fuels, drawing dozens of headlines and ire from the fossil fuel industry.

But many of the primary targets back then, including Ivy League universities like Harvard and major foundations like Ford, remain primary targets today. Ben Franta, one of the Divest Harvard protesters arrested last year in Boston, says that Harvard’s governing board, known as the Harvard Corporation, opposed divestment as a slippery slope. “They said if they divest here, tomorrow there will be somebody asking for something else,” says Franta. Franta recalls being in a meeting where Harvard President Drew Faust asked: “What are we going to divest from next, sugar?”

Swarthmore used the same argument in 1991. After divesting from apartheid, the college banned future uses of the endowment for social purposes. Swarthmore continues to resist divestment. “It’s a cynical argument,” says Lawrence. “It suggests that trustees don’t have agency or power. What they mean is, ‘We don’t want to do something because you told us to do it.’”

Then there’s the technical challenge of divestment itself. Divesting from fossil fuels can be difficult even if you really want to, as RBF can attest. Despite its commitment to completely divest by the end of 2017, RBF still has 2 percent of its endowment invested in fossil fuels, according to its president, Stephen Heintz, and probably won’t be hitting zero for another few years. Many of the fund’s investments are tied up in “lock-ups,” contracts requiring that money be kept with a particular fund manager for a minimum period of time. Depending on the type of lock-up, investors may not be able to withdraw their money without paying a penalty.

“As a practical matter, most institutions of size have enough flexibility that they can find a way to own segments of the economy and avoid others,” says Hugh Lawson, head of ESG Investing at Goldman Sachs Asset Management Global. “The investment technology is certainly there.” Lawson, who is a trustee of RBF, says divestment hasn’t hurt the bottom line of the foundation’s $894 million endowment. With a glut of oil, stocks of fossil fuel companies are down relative to the broad market. “We’ve actually outperformed, though that wasn’t the primary motivation for divestment.”

(Duke University Archives)

Students protest apartheid outside of the Duke Chapel on May 4, 1985, supporting Duke's divestment of all its holdings in South Africa.

Wall Street has responded to the divestment movement and the increasing demand from institutions for sustainable investing strategies. Goldman Sachs, Morgan Stanley, and Bank of America Merrill Lynch have all launched their own sustainable investing product lines. “The more clients tasking their fund managers with reducing fossil fuel exposure, the more responsiveness there is within the marketplace,” says Heintz, who sits on The American Prospect’s board of directors. “When we got started, fewer investment firms were really looking at this demand in a systematic way. Now, there are many more.”


OF THE MANY ARGUMENTS trustees of nonprofits make against divestment, three are the most common. One is the slippery slope—today fossil fuels, tomorrow Israel, the next day who knows what. The second is a technical one, which financial experts say is mostly bogus—the problem of commingled investments. But as the RBF experience shows and as Lawson of Goldman Sachs attests, it’s possible for an institution to extricate itself from fossil fuels if it really wants to; it may just take a little time. The third argument is fiduciary responsibility. Along with a duty to follow their organization’s charitable mission, trustees and finance committees have a legal responsibility to produce the greatest possible income from investments for their beneficiaries consistent with financial prudence. Philanthropic foundations have typically handled this duality by setting up a wall between the social aspect of investments and endowment management. The very idea of adding a social purpose to a fiduciary duty runs counter to the entire investment culture.

Divestment campaigns have amplified this tension within different institutions, pitting fiduciary responsibility against social mission. “Typically the way the world works is that, whether you’re a university endowment or foundation board with an endowment that it’s managing, those that have a Wall Street–type background are put on the board’s investment committee,” says John Fullerton, president of the Capital Institute and former managing director at JP Morgan. “For a long time, the conventional wisdom on Wall Street has been very cynical about confusing purpose with investment,” says Fullerton.

In a board meeting at UMass Amherst in 2015, the chair of the investment committee responded to the concerns of student activists by saying, “I just like to make money,” according to former Divest UMass member Varshini Prakash. “I can still see his face so clearly in my mind—laughing,” says Prakash.

Of the ten largest American charitable foundations, more than half have at least one board member with ties to or a previous job on Wall Street. Some foundations, such as Ford, have responded to this left-brain/right-brain investment dilemma by ramping up socially responsible investing while not ruling out future investments in fossil fuels. After years of being pressured by other foundations to divest, Ford Foundation President Darren Walker and board member Peter Nadosy, who spent 27 years at Morgan Stanley and opposes divestment, unveiled a plan to have the foundation invest $1 billion of its $12 billion endowment in mission-related investments over the next ten years.

Others have opted for partial divestment. The Bill and Melinda Gates Foundation, the world’s largest private foundation, sold off its $187 million stake in British Petroleum in 2015. The decision came in the midst of a concerted campaign by The Guardian, calling for the Gates Foundation to divest its entire holdings in fossil fuels. The foundation had previously dumped a $824 million holding in ExxonMobil. Bill Gates, for his part, has publicly spoken out against divestment, calling it a “false solution” to climate change.

(AP Photo/Jeff Chiu)

Bill McKibben, founder of, speaks at a rally to support fossil fuel divestment outside of City Hall in San Francisco on May 2, 2013.

According to its public investment policy, the William and Flora Hewlett Foundation, worth approximately $9 billion, is “not attracted to either positive or negative screening” when it comes to investments because the reasons for screening can be “highly subjective” and “subject to significant differences of opinion among reasonable observers.” Such differences of opinion have been on full display at Hewlett, where its board of trustees, usually unanimous in its votes, and its investment committee have been torn on the question of screening investments for years. Hewlett committed in 2015 to refraining from future investments in private partnerships primarily involved in oil and gas drilling, but has stopped short of selling currently held fossil fuel assets.

The tension caused in foundations and universities and the shaking up of the traditional conversation on investment goals has perhaps been one of the most tangible contributions of the movement thus far. Making grants to fund environmental causes is undermined by investment in fossil fuels. “The divestment campaign has raised the question of how institutions ought to think about the intersection of their mission and portfolios,” says John Goldstein, a managing director at Goldman Sachs Asset Management who has worked with various institutions looking to align their missions and portfolios.

Members of the Rockefeller family had long tried engaging with ExxonMobil on its practices but got little in the form of meaningful response. “Every institution needs to grapple with this question,” says Heintz. “We thought it was hypocritical [to invest in fossil fuels]. It would be as if we were a foundation that was funding a lot of research on lung cancer and still investing in the tobacco industry.”

Major institutions have sufficiently large endowments to attract top-flight fund managers who offer returns well above benchmark, and they sometimes seem captive to those managers. Asking them to change an entire investment strategy for the sake of one organization trying to divest could mean them walking out the door. “Some of these perennial, top-performing fund managers are not about to change their investment strategy because an endowment wants to divest,” says Fullerton. “It’s kind of ‘Take it or leave it—this is what we do.’”

In the case of Hewlett, their investment approach allows them to “work with the world’s best money managers,” and those increased returns “translate directly into significant increases in our grantmaking budget,” according to spokesperson Vidya Krishnamurthy. “But remember, endowments do have the ability to pick their own fund managers,” says Fullerton.

Even so, the rare financial officer supportive of divesting takes a career risk. “CFOs don’t have tenure. If they make a financial mistake, they get the axe pretty quick,” says Oberlin College environmental professor David Orr. If portfolios take a hit from being invested in fossil fuels, as they did after the plunge in petroleum prices in the second half of 2014, it’s unlikely that anyone gets fired, so long as every other major investment portfolio dropped too. But divesting from fossil fuels without a guarantee of immediate returns means sticking your neck out. This environment produces cautious, incremental change.

Another obstacle to divestment is a web of direct links between some universities and the fossil fuel industry that includes both alumni pressure and research funding. In response to public comments made by the Notre Dame president, Reverend John Jenkins, on eliminating coal use for power generation and seeking greater use of renewable energy, Robert Schleckser, ExxonMobil vice president and treasurer and Notre Dame alumnus, wrote to the university administration that he would be “very interested” in “any substantive discussion within the campus administration toward things like fossil fuel divestment from the endowment portfolio.” Schleckser pointed toward recent successful engagements with Harvard and MIT and added that “this would have implications on the ND/ExxonMobil relationship in the future.” Notre Dame’s $10.4 billion endowment remains invested in fossil fuels.

MIT President Rafael Reif rejected divestment in a 2015 statement, saying that it would “entangle MIT in a movement whose core tactic is large-scale public shaming” and that it “would retard rather than encourage the open collaboration and ability to hear new ideas that are central to our research relationships. … Fossil fuel companies have consistently been among our most productive research partners.”


IN 2014, STANFORD BECAME the first major university to commit to some form of fossil fuel divestment. After 18 months of hosting rallies, going door to door with petitions, and trying to navigate the university’s labyrinthine bureaucratic process, Fossil Free Stanford activists got their breakthrough. The school’s decision to divest its $18 billion endowment from coal was part of its “responsibility as a global citizen,” said John Hennessy, Stanford’s president at the time. But it could also turn out to be a shrewd financial decision. Coal divestment, however, was low-hanging fruit. Others have exited coal investment on purely financial grounds.

Last year, Yale dumped $10 million of investments in coal and oil. After months of speaking with external investment managers, Yale Chief Investment Officer David Swensen announced the divestment, saying that his office “believes the risks of climate change, like any risks, should be incorporated in the evaluation of investment opportunities.”

“The act of divesting can be rational,” Mark Moody-Stuart, former chair of oil giant Royal Dutch Shell, observes. “Look at the fossil fuel industry itself. In the 1990s, all major oil and gas companies divested from coal—some because they thought oil and gas was a better business, and some with an eye on climate change.”

(Chris Maddaloni/CQ Roll Call via AP Images)

Representative Lamar Smith of Texas has received more campaign money from oil and gas than any other industry.

Former Goldman Sachs risk management officer Robert Litterman suggests that making an economic argument for forms of divestment, rather than making an ethical one, will prove more successful in the long run. “I don’t view fossil fuels as immoral. I don’t think investors should divest from fossil fuels on a moral basis,” says Litterman. “The externality created by CO2 needs to be priced and will be priced in the future. As investors recognize this, certain assets like coal and tar sands are not going to be competitive.”

Mark Campanale, founder of independent think tank Carbon Tracker Initiative, has conducted studies on the valuation of fossil fuels, pioneering the concept of a “carbon bubble” inflated by stranded fossil fuel assets. According to Carbon Tracker reports, $2 trillion worth of fossil fuel investments could become redundant if action on global warming limits allowed emissions to 2 degrees Celsius, as pledged by the world’s governments. Carbon Tracker Initiative has received funding from various foundations, including both Wallace Global and RBF.

One of the key variables in the stranded assets argument, and therefore the argument for divestment, is whether a 2-degree limit is realistic (a point of contention among scientists, many of whom have labeled 2 degrees as unlikely or a best-case scenario). The other is defining when exactly oil demand will begin to decline. According to a report by Carbon Tracker and the Grantham Institute at Imperial College London, that date could arrive as soon as 2020. The estimates of fossil fuel companies, which spent $670 billion in 2013 alone on new fossil fuel projects, vary. Royal Dutch Shell and Norway’s Statoil, both of which have begun to diversify away from crude oil, predict that oil demand will peak by 2030, while companies like Exxon and Chevron are far more bullish—at least, that’s their public stance. Behind closed doors, things might look different. Campanale says he has been called in to present his research to the trustees of “one of the world’s largest oil companies” (he wouldn’t mention the company’s name) regarding the future of their pension fund. “They were worried how the fallout would work,” Campanale says. “This has been mainstreamed internally in a way that isn’t perceived on the outside.”

Accepting the stranded assets argument supports the purely financial argument for divestment. But belief in stranded assets is not ubiquitous among members of large institutions. Despite being funders of Carbon Tracker, Bloomberg Philanthropies and the Rockefeller Foundation, the largest of the Rockefeller foundations with an approximate value of $3.7 billion, have not divested from fossil fuels or publicly limited themselves to legacy projects. Hewlett, also a funder, has not figured the concept of stranded assets into its public statements or investment strategies. That these foundations are making contributions to promote such research, while still simultaneously investing in fossil fuels, provides a stark example of the disconnect between endowments and foundation grant-making.

“The divestment message has a simplicity to it that is very powerful,” Campanale says. This simplicity can be both an asset and a limitation. “There are places to use moral arguments, such as churches, universities, and foundation endowments. For these other institutions, however, the arguments that have to succeed are principally financial ones.” Even in the case of universities and foundations, particularly large ones, the moral argument can fail and has failed. In these cases, divestment advocates will have to refine their approach even more, opting to focus on partial victories and compromise.

“There are ways that the conversation around divestment can be an on-ramp to a constructive process or it can lead to a cul-de-sac,” Goldstein says. “We see this where the dialogue breaks down. … You can have advocates on one side who may not be as deeply contextualized in how an organization is managing their portfolio. People can talk past each other. In some ways it actually builds resistance rather than engagement.”

A chief goal of the divestment movement has been to stigmatize the fossil fuel industry. That doesn’t seem to be working with the broad public, though the movement has made some inroads with foundations and universities. Paradoxically, oil and gas industry approval ratings are surging, because the same low prices that give credibility to the stranded-assets argument are popular with consumers. According to Gallup, this year the industry hit 38 percent approval, topping a previous 15-year high of 35 percent from 2003.

Divestment also has a complex relationship to shareholder activism. Some see the two as prongs of the same broad movement. After years of little progress, ExxonMobil shareholders led a rebellion against company management in May, instructing them to provide a report on the effect that global measures designed to keep climate change to 2 degrees might have on the value of the company’s oil and gas reserves. The resolutions were buoyed by votes from financial firms BlackRock and Vanguard, both major stakeholders.

(AP Photo/The Free Lance-Star, Reza A. Marvashti)

More than 100 students and supporters march on the campus of the University of Mary Washington in Fredericksburg, Virginia, while participating in the UMW March for Divestment on February 13, 2015.

The developments at ExxonMobil seem to vindicate those who claim that having a seat at that table can change fossil fuel companies. Divestment advocates don’t necessarily disagree, but add that teeth are needed to back it up. “Shareholder activism is a tool and can be very effective,” says Wallace Global president Ellen Dorsey of the shareholder resolutions. “The test is in the next year. Shareholders must demand a 2-degree Celsius model with a clear business plan attached. If companies refuse, they must divest.”

Others question the limits of the approach, unconvinced that engagement will cause fossil fuel companies to go against their own interests. “What are they [shareholders] going to do at the table? The business plan for fossil fuels is all the same: Play it out to the end. What are you going to tell them to do?” says Orr.


THE INDUSTRY HAS NOT exactly been a passive bystander as divestment, shareholder resolutions, and foundation-funded investigations have gathered strength. When the Rockefeller Family Fund (a separate entity from RBF) announced it was divesting its fossil fuel holdings, it singled out ExxonMobil for immediate divestment because of the company’s “morally reprehensible conduct.” With the help of RBF and other foundations, Rockefeller Family had funded two journalistic investigations into the history of ExxonMobil’s disinformation campaign, which would eventually be published in the Los Angeles Times and InsideClimate News in 2015. Internal documents showed that the company had accepted the reality of climate change by the late 1970s and early 1980s. These reports were the impetus for a new investigation by New York Attorney General Eric Schneiderman and other attorneys general into whether ExxonMobil had committed fraud by intentionally failing to reveal the risks that climate change could portend for shareholders.

Exxon has called the journalistic investigations “inaccurate and deliberately misleading stories.” In July 2016, Texas Republican Lamar Smith, the chair of the House Committee on Science, Space, and Technology, subpoenaed Rockefeller Family and seven other organizations, including RBF and Wallace Global, along with Schneiderman for refusing to provide private correspondence in relation to any possible investigation into ExxonMobil and climate change. The month before, 13 Republican attorneys general published an open letter to their colleagues in defense of Exxon and the oil and gas industry. The subpoena has since expired and Smith, who has received more campaign contributions from oil and gas companies than from any other industry during his congressional career, has yet to issue a new one under the new Congress.

“It was a testing of the water to see how they could undercut or weaken pressure on the fossil fuel industry,” says Dorsey. Dorsey remains unsure whether Smith will renew the probe. “What did Monty Python say? ‘No one ever expects the Spanish Inquisition.’”

In July 2016, the Republican Attorneys General Association hosted a summit in Colorado, holding a panel titled “Climate Change Debate: How Speech Is Being Stifled.” The investigation into Exxon was the center of discussion, with speakers thanking the Republican attorneys general for standing by the industry and deriding their Democratic counterparts. One of the speakers, American Fuel & Petrochemical Manufacturers President Chet Thompson, labeled “the politics of climate change” as one of the most imminent threats to the fossil fuel industry. He implored the attorneys general in attendance to “start paying attention” to the divestment movement, which he later described as “part of a broader campaign.”

Weeks before an expected decision by University of Denver trustees, the Independent Petroleum Association of America (IPAA), an industry trade group, held a forum in the Mile High City in late 2016 as a counterattack to the growing Fossil Free DU movement on campus. The university’s board rejected the calls to divest the next month. The forum celebrated the launch of the latest iteration of a national social media campaign against divestment that had begun in 2015 with the creation of, a website run by the IPAA, and had been complemented by Energy In Depth, another IPAA communications initiative.

Because of the movement’s rapid growth and ties to, which also receives funding from Wallace Global and RBF, opponents have described the divestment effort as an “Astroturf” campaign coordinated by “green mega-donors,” charges that Dorsey rejects. “This has never been a well-funded movement,” Dorsey says. “It’s not a campaign intricately coordinated by NGOs—it’s a full-blown social movement.” McKibben, for his part, says that the movement has grown so large that it has a life of its own. “On we roll.”

The legacy of the fossil fuel divestment movement is hard to determine, filled with partial victories and loose ends. Divestment is neither a panacea nor a bumper sticker. It won’t bankrupt fossil fuel giants, as studies have shown, and it won’t magically usher in the green economy of the future. But if that’s all true, then what makes divestment any different from a hashtag or a customizable profile picture on Facebook?

Social movements define generations, all believing in the power of symbolism and each finding new symbols to make their own. For a movement in progress, divestment has already accomplished quite a bit. It has held the spotlight on climate change; challenged institutions on their investment goals; pushed the envelope on the limits of impact investing; and helped to activate politically a segment of a generation that might have otherwise remained on the sidelines. Divestment as a question has proven far more potent than divestment as an answer. For that very reason, it must continue to be asked.  

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