Student Climate Activism and the Financial Industry’s Carbon Crisis
Seeing universities as the large institutional investors they are could help activists push for policy change away from fossil fuels on campus and beyond.
November at Harvard is home to the annual Harvard-Yale game, one of two days each year (the other being Housing Day) that we showed any kind of school spirit as undergrads. My last Harvard-Yale game as an undergraduate, however, was interrupted by something very different than football. Shortly after halftime began, with our team trailing to Yale as usual, a small group of students carrying banners and signs marched onto the football field. These field stormers weren’t the marching band, though: they were a motley group of student climate activists calling for the two universities to divest from their endowments’ investments in fossil fuels. And they weren’t going anywhere. Over the course of 45 minutes, hearing the protestors’ chants to onlooking university administrators, students began to pile in from the stands in mob fashion until the Yale police had to come onto the field and disperse hundreds of students singing “Sweet Caroline” and calling for fossil fuel divestment–don’t ask me what the relation is between the two. We ended up losing the game to Yale yet again, but the protest was an unforgettable victory for climate activists on both campuses.
At the time, most students (myself included) dismissed the divestment movement as an outlet for misplaced climate angst, unlikely to translate into actual policy change on campus. But less than a year later, under immense pressure from student activists and external voices, Harvard’s administration moved to divest from fossil fuel investments in its considerable $50+ billion endowment. “Given the need to decarbonize the economy … we do not believe such investments are prudent,” wrote Harvard President Larry Bacow in a letter announcing the change. Other university administrations mirrored the change, with schools like Boston University, the University of Minnesota, and the University of Pennsylvania phasing out their fossil fuel investments (Yale has not yet fully divested).
Many universities have yet to divest from fossil fuels, however, with a common argument from administrations–and the stance taken for many years by Harvard’s administration–being that tracking the fossil fuel emissions stemming from a portfolio of diversified public and private investments is impractically complicated. Administrators cite in particular the challenges of tracking emissions from investment vehicles like private equity funds, hedge funds, or index funds indirectly involved in the fossil fuel industry. The ongoing debate produces two questions: does fossil fuel divestment from universities matter? And if so, are there policy changes worth advocating for and implementing that could increase transparency around financed emissions?
Climate activism at prominent universities often takes on a symbolic meaning. Activists point to the notion that elite research universities should be aspirational institutions, leading the way in social changes for other organizations in the outside world and those watching for an example to follow. Universities, of course, can contribute to the climate effort by investing in academic resources, the most prominent recent example being Stanford’s commitment to build a new $1 billion School of Sustainability dedicated to the study of climate issues. Tracking this vein of thinking into the divestment debate, universities should divest from fossil fuels because doing so signals an ethical stance to be emulated by students and onlookers.
But in a practical sense, research universities are also significant institutional investors with large endowments that can influence financial markets. The NCES estimates that American universities together hold over $675 billion in endowments as of FY2020, a figure that suggests that even if only a small fraction of investments are directly related to fossil fuels, divestment from these funds would move the needle in both a symbolic and practical manner. To move this needle requires administrators to have visibility into the climate impact of their endowment portfolios, which in turn requires emissions transparency from financial institutions.
To see this point more clearly, we take a step back from campus activism to a broader movement going on right now focused on financial institutions. In recent weeks, UK climate protestors stormed the annual shareholder meetings of banks like HSBC, Barclays, and Standard Chartered demanding that greater action be taken on net-zero emissions targets. The challenge for these banks and other financial institutions is that calculating and disclosing financed emissions–or emissions from a financial institution’s investment portfolio–is a difficult task, especially when it comes to indirect Scope 2 and Scope 3 Emissions. These indirect emissions, meanwhile, can be several hundred times greater than direct emissions for financial institutions. It is a parallel problem to the one faced by universities trying to hit net-zero targets, and it shows how on-point groups like Divest Harvard are from a policy standpoint. When we see universities as the large institutional investors they are, we can start to think about pushing for policy change that would bring light to their emissions footprint.
From the policy angle, there have been a few key regulations focused on bringing visibility to financed emissions. In the European Union, the Sustainable Finance Disclosure Regulation will soon require financial institutions to disclose their direct and indirect emissions, classifying investment vehicles into 1 of 3 categories according to the degree to which sustainability is considered in its investments. The UK has its own rule mandating banks and insurance companies to disclose both direct and indirect emissions. On the international level, the new climate accounting standards built by the Partnership for Carbon Accounting Financials (PCAF) provide a structured set of accounting rules for banks, investors, and other financial institutions to disclose their Scope 1, 2, and 3 Emissions. With these standards in place, institutions from university endowments to large banks and financial institutions can use carbon tracking software to report out the climate impacts of their portfolios for all to see. In other words, the climate tech & policy worlds have shown us that it is possible to gain visibility into the climate impacts of a diversified, indirect portfolio like Harvard’s, or like HSBC’s.
Student climate activists are focused on the right goals, and their calls to action have been echoed by the broader activist community and by policymakers and standard-setters worldwide. As they push for divestment from fossil fuel investments, campus change-makers should take the fight both to university administrations and up the “value chain” to financial institutions by pushing for emissions disclosure and advocating for policies that drive transparency in financed emissions.
My Climate Top 5:
#1: Heat waves continue to plague the South Asian subcontinent, pushing temperatures past 120 degrees in some areas. The unprecedented heat waves have set new April records for temperatures across India and Pakistan and have produced running electrical blackouts, wildfires, and other human and nature-related impacts in one of the world’s most climate-vulnerable areas. In an extreme consequence of the sudden heat wave, a glacier dam in Pakistan broke last week from accelerated snow and ice melt, wiping out a village in the process. Only a small fraction of the South Asian population have access to air conditioning, which means the heat wave could be lethal for the subcontinent’s most vulnerable even before the hottest season of the year begins in May.
#2: Miami was host last week to the inaugural Aspen Ideas: Climate conference, which brought together hundreds of policymakers, scientists, and business leaders to talk climate for four days. Maybe one of the conference’s most significant developments was House Speaker Nancy Pelosi being questioned about Congressional action on climate change and coming up short on answers, as the Biden administration’s plans on climate action have been stalled in the Senate. The conference also featured talks from business leaders like John Doerr on decarbonizing the American economy, investing in renewable fuels, and even the environmental impacts of the war in Ukraine.
#3: EFRAG releases 13 exposure drafts with detailed ESG disclosure guidance for the European Union. EFRAG is a private, non-profit organization commissioned by the European Commission to draft detailed guidance for the EU’s upcoming ESG disclosure regulation, the EU Corporate Sustainability Reporting Directive. The guidance released by EFRAG includes disclosure rules not only about environmental matters like climate, pollution, and biodiversity but also surrounding social and governance topics like workforce treatment, diversity and equity in hiring, and engagement of local communities impacted by a company’s operations and facilities.
#4: In potentially a huge win for the carbon capture space, factory emissions startup Carbon Clean raised $150M in a Series C round led by oil company Chevron. Carbon Clean’s point-of-source carbon capture technology uses rotators to intake gases from waste or oil refineries and absorb carbon dioxide for underground storage. As a next step, the startup is working with its largest investor, Chevron, to build a carbon capture and storage unit at the company’s California oil refinery. The fundraise follows an announcement by the US Department of Energy that it is beginning to invest a total of $2.5 billion in carbon capture technologies as part of the Bipartisan Infrastructure Law signed last year.
#5: On the subject of financial institutions, BlackRock has announced that it will not support most climate proposals from shareholders this year, saying the action suggested by such proposals has become too extreme. The world’s largest money manager with $10 trillion in assets, BlackRock claimed that Russia’s invasion of Ukraine has changed the calculus on climate change proposals, leading to a need for more investments in fossil fuels in the short term. The press release from BlackRock’s management came on the same day that US Presidential Envoy John Kerry warned that the longer the war in Ukraine wages on, the more global environmental efforts will come under threat.
