Georgetown prepares to divest from fossil fuels, including from private funds

Georgetown University moved last week to divest from fossil fuels, including its exposure through private funds, as the movement to get major LPs out of the business appeared to gain steam.

Georgetown released a new policy Thursday called “Policy on Impact Investments and Fossil Fuel Divestment.” The school’s endowment pledged to “cease making new investments in any company or fund whose primary business is the exploration or extraction of fossil fuels, including all forms of coal, oil and natural gas.”

The school will “divest from private investments of any company whose business is the exploration or extraction of fossil fuels, including all forms of coal, as soon as it is prudent and within the next 10 years. The university will divest fossil fuel holdings during this time in a manner that is both financially responsible and expeditious.”

A footnote to the policy clarified that private investments “often involve binding multi-year commitments. The university needs flexibility in divesting from private investments during this time to avoid incurring substantial losses by withdrawing from these private investments before they reach maturity.”

The endowment did not respond to multiple requests for comment.

Harvard faculty push

A group of Harvard University faculty passed a resolution last week calling upon the school’s endowment to divest from the fossil fuel industry, including private investments.

The resolution called upon the university to “instruct the Harvard Management Company to withdraw from, and henceforth not pursue, investments in companies that explore for or develop further reserves of fossil fuels, or in companies that provide direct support for such exploration and development.”

The motion said the endowment should “over a reasonable period of time, extend those instructions to advisers of investment vehicles used by Harvard’s endowment, including commingled funds where Harvard is not the sole investor; and ensure that any adviser who may be unwilling or unable to comply is replaced by one who is willing to carry out these instructions.”

“This has to be done over a period of time,” Harvard English professor James Engell told Buyouts, “and [how long that time is] we cannot state because we don’t know what is committed for what period of time currently. The endowment does not make that information public.”

The vote of the Faculty of Arts and Sciences was 179 in favor of the motion and 20 against, according to the Harvard Crimson.

Unlike Georgetown, Harvard’s administration has not been amenable to the motion.

Harvard spokesman Jason Newton provided Buyouts with this previous statement: “While we agree on the urgency of this global challenge, we respectfully disagree with divestment activists on the means by which a university should confront it.”

Newton told Buyouts the vote would be shared with the Harvard corporation. “I am confident that the corporation will give it the thought and consideration it deserves,” Harvard President Lawrence Bacow told the Harvard Crimson last week.

Private equity programs

As of June 30, 2019, Georgetown’s private equity holdings included fair values of $71.6 million in private equity and $80.3 million in venture capital holdings, and unfunded commitments of $89 million in private equity and $102.4 million in venture capital. Georgetown’s endowment was valued at $1.8 billion.

Harvard’s endowment is much larger. As of June 30, 2019, it was valued at $40.9 billion, with 20 percent of that, or about $8 billion, in private equity.

Harvard plans to up its private equity and venture allocation in the future, as Buyouts has reported, as part of a five-year plan to overhaul its portfolio.

Growing trend of divestment activism

Both Georgetown and Harvard have been facing pushes to divest from fossil fuels. A group called GU Fossil Free tweeted its thanks to Georgetown’s Board of Directors for agreeing to the divestment, while a group called Divest Harvard has been agitating at that school. Last fall, activists grabbed headlines by disrupting a Harvard football game against Yale to call for fossil fuel divestments.

Last September, University of California chief investment officer Jagdeep Singh Bachher co-wrote an op-ed in the Los Angeles Times announcing that the school would divest from fossil fuels.

Larger US LPs such as California Public Employees’ Retirement System and California State Teachers’ Retirement System have faced activist and stakeholder calls for divestment from fossil fuels.

At a November meeting where CalPERS heard from divestment activists, CIO Ben Meng indirectly addressed divestment activists by arguing the fund needed to make about $24 billion in benefit payments every year, and strategy must be “100 percent aligned with generating the needed returns.”

“We ask that [outside activists] respect our fiduciary duty, acknowledge the aforementioned unique challenges we face, and appreciate the fact that even with our constraints and unique challenges, we continue to lead on climate change initiatives on a global scale,” Meng said.

CalPERS declined to comment further.

In a required environmental report published in December, CalSTRS called divestment a “last resort action” and said it would have “negative impact on the health of the fund, while severely limiting our ability to shape corporate behavior for long-term sustainable growth.”

Buyouts reported last week that energy PE fundraising appears to have dried up in recent years, due in part to LPs lowering their allocations to oil and gas due to concerns over climate change.

Action Item: read Georgetown’s fiscal year 2018-2019 financial report here and Harvard’s here.