Fiduciary Responsibility

The issue of ‘fiduciary responsibility’ is offered as a reason for not divesting from fossil fuel stocks. That is, those who control endowments claim that there would be a ‘financial loss,’ or rather a missed opportunity to profit maximally, if they sold the stocks of companies whose products and services are the biggest contributors to the current climate destabilization of Earth. This is a false argument.

The Intergovernmental Panel on Climate Change (IPCC) established a global carbon budget of 469 billion tons. Emissions beyond that will provoke the exceeding of an internationally agreed-upon target of limiting global warming to 2°C above pre-industrial levels. This would in turn result in ‘runaway climate change’ from which there would be no hope of recovery on any timescale relevant to human civilization.  Scientists as famous and respected as Stephen Hawking have said that runaway climate change would have a high likelihood of rendering the Earth a cloud-shrouded planet, like our sister planet Venus, with no liquid water and a possible average surface temperature on the order of 250°C (over 480°F).

Based on this global carbon budget, the International Energy Agency (IEA) explained that 66% of all known fossil fuel reserves must be left in the ground to have a 50% chance of meeting the 2°C target; the Carbon Tracker Initiative took this a step further, stating that 80% of all reserves must be left in the ground to have an 80% chance of meeting the target. We endorse the Carbon Tracker Initiative’s estimate, as humanity deserves more than a 50/50 chance.

It is also important to note that Dr. James Hansen, former Director of NASA’s Goddard Institute for Earth & Space Science, who originally came up with 2°C as the threshhold target, has since said that it is far too high a target and that 1.5°C above pre-industrial levels is the limit before we provoke runaway conditions.  The Earth currently stands at .85°C above pre-industrial levels, more than half way to that dangerous threshhold limit.

If companies violate this unequivocal opinion of science and insist on developing all of their reserves for short-term profits, it will be the greatest intergenerational crime of all time.  On the other hand, when governments rise to their obligation of requiring 80% of known reserves to be left in the ground, ‘stranded’ as it were, then the market price of fossil fuel stocks will end up being grossly inflated beyond their real value.  When the market is forced to contend with these literally toxic stranded assets, endowments still in possession of these stocks will take a proverbial bath.

United Nations Framework Convention on Climate Change (UNFCCC) Executive Christiana Figueres proclaimed the above in her response to Brown University’s decision not to divest from the stocks of coal companies:

As a society we are on an irreversible path toward low-carbon. In this process, high-carbon assets will lose their value, becoming stranded by the new economy. It is financially prudent to be on the forefront of this transition, in particular given the increasing options for profitable investments in clean technologies.  Several large financial institutions have already stated publicly that they will no longer invest in coal.  Long-term institutional investors that are still vested in high-carbon are realizing that they could be in breach of their fiduciary responsibility.  By the same token, academic institutions that are still vested in fossil fuels should ask themselves whether they are also in breach of their social responsibility to serve the community, the nation, and the world.”

Thus, the fiduciary responsibility of the University of Hawaii’s endowment supports the avoidance of the risk that it will be left holding stocks at inflated prices when the reckoning finally comes.  And so, divesting from fossil fuel stocks at the present moment is a matter of double risk avoidance; fiscal and ecological.