World leaders, titans of industry, and grassroots activists in Glasgow, Scotland over the past two weeks for COP26, also known formally as the 2021 United Nations Climate Change Conference: a global effort to create plans to collectively limit global warming in coming years and decades. The goal to this point (per the 2015 Paris Climate Agreement) has been limiting global warming to 1.5 degrees Celsius compared to pre-industrial levels.
But so far commitments and actions, leave that goal in doubt. Many scientists are saying that with the weakened text in the Pact the goal of 1.5 degrees is all but dead - unless these commitments are fulfilled and ambition is ratcheted up quickly.
This underscores the importance of investors in driving businesses to accelerate progress toward net zero to avert the massive suffering and loss of value that will accompany temperature rises over 1.5 degrees C. The folks at GreenBiz outlined 13 big deals that made COP26 the ‘Business COP’.
And there is a lot of momentum among investors - including endowments - to push credible, authentic steps for a just transition to net zero in the business community. The cost of capital for fossil fuels has risen sharply, diverging from that for renewables due to investors shifting investments through fossil fuel divestment and/or ESG strategies. The Science-Based Targets initiative (SBTi) recently released a new Net Zero Standard which will be a key tool for investors in monitoring companies' progress toward net zero. And there is a growing recognition that investors must take an intersectional approach to climate change and social inequality, as Cambridge Associates' new paper on Climate Justice summarizes.
Here at the Intentional Endowments Network, we believe that it will take an all-hands-on deck approach to curb emissions, which is why we convene and support endowments in learning about Net Zero Portfolios, making the commitment, and participating in shareholder engagement efforts to get portfolio companies onto decarbonization pathways. To help meet the 1.5-degree limit, the global financial system must play an essential role in the overall effort to reduce the amount of carbon emitted into the atmosphere -- as discussed below, endowments and the higher education sector are critical to making that happen.
While there are many shortcomings, COP26 also brought some encouraging developments.
- The Glasgow Climate Pact: Representatives from nearly 200 countries agreed to the Glasgow Climate Pact, which pledges further action to curb emissions, more frequent updates on progress, and additional funding for low- and middle-income countries. The Pact states that greenhouse-gas emissions must be reduced and carbon dioxide emissions must fall by 45% from 2010 levels by 2030 for global warming to be maintained at 1.5 °C above pre-industrial levels. It also includes a commitment to double ‘adaptation finance’ — funding to help the lowest-income countries improve climate resilience — to $40 billion by 2025.
- The Glasgow Financial Alliance for Net Zero (GFANZ). Chaired by Mark Carney, UN Special Envoy on Climate Action and Finance, GFANZ aims to utilize over $130 trillion in assets in an effort to steer the global economy towards net-zero emissions by 2050. Signed by over 450 financial institutions, large asset managers and other key investment stakeholders, the alliance oversees a large portion of the global financial market. Needless to say, this is a very BIG deal.
- Public Financing of Fossil Fuels. More than 30 nations pledged to end their financial support for overseas fossil fuel projects by 2022. The group including the United States, United Kingdom, Germany, Canada, France and others specifically announced they will “end new direct public support for the international unabated fossil fuel energy sector by the end of 2022 except in limited and clearly defined circumstances that are consistent with a 1.5°C warming limit and the goals of the Paris Agreement.” Additionally, the group pledged to “prioritize (their) support fully towards the clean energy transition, using (their) resources to enhance what can be delivered by the private sector.”
- India’s Net Zero Pledge. Significant attention has been paid to developing nations and their lack of concrete and specific climate commitments in recent years. However, India’s Prime Minister, Narendra Modi, announced at COP26 that India plans to reach net zero carbon emissions by 2070. Although the date is far later than most developed nations current pledges, it’s important for nations like India, who are projected to vastly increase their energy consumption in coming decades, to sit at the climate table. In addition, India pledged to meet 50% of its energy needs by renewable means by 2030. For a nation such as India, heavily reliant on coal power, this is a big deal.
- China (finally) Comes to the Table. China was noticeably absent at COP26 but in a surprise announcement, agreed to a deal with the United States that will ramp up cooperation tackling climate change, including by phasing out coal, reducing methane emissions, and protecting forests. The surprise announcement is an encouraging sign for COP26 leaders as China and the U.S. sit #1 and #2 when it comes to carbon emissions. The deal also follows an announcement by China just prior to COP26 to end the financing of coal power plant construction abroad.
But the COP process has also catalyzed hundreds of other meaningful pledges by individual institutions, investors, and more have been announced around the COP26 summit. Recent announcements made in the lead-up to COP by endowments and foundations include:
Aberdeen University became the 90th university in the UK to commit to complete divestment from fossil fuels,
Boston University’s Board of Trustees voted to immediately end all direct investment in fossil fuels,
Cal State System announced that no future investments in fossil fuels will be made by any of the system’s three investment portfolios,
Dartmouth College'sTrustees have pledged to end all holdings in fossil fuels in addition to making new investments in the clean energy industry,
The Ford Foundation announced no future investment in assets related to the fossil fuel industry,
Harvard University built on its previous termination of direct public equity investments in fossil fuels, adding that it will not make new direct private equity investments in the fossil fuel industry in the future,
Lancaster University has transferred all of its investment portfolios to new ESG-aligned funds,
Loyola University Chicago has released a new sustainable investment policy, which includes divestment from fossil fuels and integration of ESG considerations,
Macalester College pledged to divest all dedicated, publicly traded oil and gas assets, including all shares of Enbridge, Inc. It also adopted a college investment policy that prohibits any new direct investment in oil and gas assets,
Mount Holyoke shared updates on their fossil fuel divestment strategy and carbon neutrality pledge established in March 2021,
McKnight Foundation has pledged to convert its $3B endowment to a net-zero portfolio by 2050,
Selwyn College will divest from all “meaningful” investments in fossil fuels by the end of this year,
University of Minnesota will divest all of its funds currently supporting fossil fuel-related companies over the next 5-7 years, largely to the credit of its students’ activism
University of San Diego, alongside other Catholic universities, is seeking to eliminate its endowment’s exposure to fossil fuels in alignment with 'Laudato Si’
University of St. Thomas will divest from public securities of companies involved in the exploration and extraction of fossil fuels over the next five years. In the next 10 years, it will do the same for private investments alongside a pledge to not create any new investments in fossil fuel companies.
University of Toronto communicated a goal of a net zero portfolio by 2050 and fossil fuel divestment. It will also allocate 10 percent of the endowment portfolio to sustainable and low-carbon assets by 2025 – an estimated $400 million worth of investments.
University of Virginia has established a new Advisory Committee on Investor Responsibility to supplement the addition of ESG criteria into the management of their endowment.
Vassar College's Board of Trustees announced the explicit addition of environmental and sustainability concerns to their endowment management guidelines.
Now that COP26 has come to an end, the coming months will be vital to ensuring more ambitious progress is made to limit global warming. At IEN, we will continue our efforts to limit global temperature rise by working directly with institutions to support new net-zero portfolio commitments, student education, and shareholder advocacy.
Take Action Through Student Education and Advocacy
“Countries and companies have made bold net zero commitments at COP26,” said Hannah Payson, the Executive Director of the Center for Business, Government, and Society at Dartmouth, an IEN Member. “How governments, business and society achieve these in time is the next challenge. Tuck Social Venture Fund and Tuck’s ESG fund offer our MBA students hands-on experience in sustainable investing, helping them to develop the skills, knowledge and confidence to lead us into a net zero future.”
These students also participate in IEN’s SIILK Network, a network of over 200 students, faculty, and staff from 50 colleges and universities that connect to share best practices and resources to advance sustainable investing strategies in student-managed investment funds and curricula. SIILK hosts the Student Corporate Engagement Competition -- a first-of-its-kind student investment competition in which students pitch an investment in a publicly-traded company, including a shareholder engagement strategy focused on addressing inequality and the climate crisis, as they are systemic risks that threaten a healthy society, and in turn, healthy portfolio returns.
"While every year at the COP the world tries to figure out how to undo the climate crisis that largely has been caused by the burning of fossil fuels, the companies responsible for extracting all that carbon from the Earth continue to do so, seemingly unabated as global carbon emissions rise year after year.” Said David Krantz, a student at Arizona State University (ASU), and participant in last year’s Corporate Engagement Competition. “Global fossil-fuel companies have the resources to transition to sourcing their energy entirely from renewables, such as solar and wind, but instead they continue investing in further carbon extraction. At the Sustainable & Impact Finance Initiative at ASU, we are engaging with [these companies] to encourage them to switch to a more sustainable business model, one designed for the energy sources of tomorrow rather than the energy sources of yesterday.”
Participation in SIILK and the Corporate Engagement Competition offers an opportunity to make real impact and accelerate the shift to an equitable, low-carbon, regenerative economy. As investors, by actively engaging with companies and proposing ways they can use their resources to reduce the amount of carbon emitted into the atmosphere, we can transform our economy and limiting global warming to 1.5 degrees Celsius compared to pre-industrial levels.
Take Action Through Net Zero Endowment Commitments
Over the past two years, IEN has worked with over a dozen notable endowments around the world to commit to net-zero financial portfolios by 2050. The Net Zero Endowments Initiative, signed by Harvard, Princeton, Stanford and most recently, the University of Toronto, among others, accelerates corporate climate action to reduce systemic risk from climate impacts for all investors, as well as current and future generations.
A commitment to Net Zero means committing to transition the investment portfolio to net-zero GHG emissions by 2050 consistent with a maximum temperature rise of 1.5°C above pre-industrial temperatures, taking into account the best available scientific knowledge including the findings of the IPCC, and regularly reporting on progress.
Social equity is central to the need to address the climate crisis. Marginalized communities, disproportionately Communities of Color, are often the most vulnerable to climate impacts. To ensure an equitable and just transition, climate solutions must be viewed from a holistic perspective to ensure all communities are protected and have opportunities to benefit from the wealth generated in creating a new economy.
For a full list of Net Zero Endowment Initiative signers, to learn more, and to get involved visit: www.intentionalendowments.org/net_zero_endowments
The Intentional Endowments Network is a nonprofit peer learning network of colleges, universities, and other mission-driven institutional investors working together to achieve their risk and return objectives through investment actions that create a thriving, sustainable economy. IEN has more than 195 network members including endowments, asset managers, investment consultants, nonprofit partners, and individuals. www.intentionalendowments.org