October 29, 2013

Group to detail impact of energy divestment

After students last year voted overwhelmingly in favor of divestment, Stop Funding Climate Change (SFCC) plans to release a white paper by eighth week to prove divesting from fossil fuel industries is financially prudent. While the group does not claim divestment will decrease fossil fuel usage directly, it hopes the University will divest for reasons of principle.

A movement organized by the UChicago Action Network (UCAN), for the past year, SFCC has been urging the University to stop investing in fossil fuel companies and commit to a divestment of current holdings over five years. The University currently invests three to four percent of its portfolio in natural resources, particularly coal and other non-sustainable energies, Chief Investment Officer Mark Schmid said at a forum last week.

SFCC’s efforts prompted a SG referendum last May, in which 70 percent of voters favored divestment. In response to the referendum, Zimmer said at an informal Q&A with SG that the University needed more concrete information before it could consider the issue.

The 30–40 page document will present the financial argument for these changes to members of the University’s Board of Trustees and investment managers.

“Divestment from any industry is a huge decision that the University would make, and it’s totally reasonable—and we would hope, actually—that they would look at the the evidence and the ramifications very carefully before making any kind of decision like that,” said fourth-year Paul Kim, one of the authors of the white paper.

The paper will attempt to prove that the threats of climate change will induce national governments to regulate fossil fuel consumption, devastating fossil fuel equity holdings. It also argues that immediate divestment would have a neutral effect on the University’s short-term returns but will be extremely beneficial in the long-term, due to the alleged risk of overvalued fossil fuel stock.

Kim pointed to index funds and research by Aperio Group, an investment management firm, as evidence that portfolios without fossil fuel holdings make returns just as high, if not higher than their competition. He admits that portfolios without fossil fuel holdings are slightly more volatile, but only by about a tenth of a percent of return.

Given the financial neutrality of divestment, SFCC firmly believes that divestment is, as Kim said, “an effective way for an institution like the University to show that [a fossil-fuel based society is] a deeply irrational and...shortsighted way of life.”

However, both Kim and UCAN co-director and second-year Kylah Johnston said that the effect of the movement will not dramatically harm fossil fuel companies from a financial standpoint.

In the long run, the impact of divestment is contingent on thousands of other organizations also pulling billions of dollars from the fossil fuel market, energy stock prices might dip. But even that, Kim said, won’t slow production of the oil and gas that UCAN opposes.

“Is every little bit of money that individual Universities and groups are taking out…going to hurt the fossil fuel industries directly? No, not directly. As the movement grows? Maybe eventually,” Johnston said.

By neutralizing the argument that the University would lose money if it divested from fossil fuels, SFCC hopes to be able to frame the decision to invest or divest from fossil fuels as a singularly moral decision.

“What we’re trying to do is assuage as many…fears as possible and show that this is the reasonable, cautious and ultimately this is going to be historically right and its going to be financially right,” Kim said.