What Were Morgan Stanley Reps Doing at a Fossil Fuel Divestment Forum?

As it turns out, they were leading a workshop on how to move billions of dollars in public and nonprofit funds to sustainable investments.
Abandoned gas station.


Imagine $41 billion removed from fossil fuel investments. That's roughly the total amount of money managed by the city officials and nonprofit staff who attended the Seattle Divestment Forum October 17 and 18.

"That is the power of it—to erode the political power of energy companies."

During his presentation, Paul Herman, the CEO and founder of HIP Investor, walked around the room at Seattle City Hall asking each attendee how much money he or she managed. Herman selected a ballpark figure for those who weren't sure, based on the size of the nonprofit or metropolitan area they represented.

Then he added the figures up. When he announced the total of $41 billion, a murmur of surprise swept through the room.

The people in charge of that money were at the forum to learn the nuts and bolts of fossil fuel divestment: Does it make financial sense? Will it have an impact? How can it be done? The main day of presentations included speakers from senior management of Morgan Stanley Capital International, Boston Common Asset Management, and Trillium Asset Management.

The forum was hosted by environmental nonprofit 350.org, the Mayors Innovation Project, and Seattle Mayor Mike McGinn, who is no stranger to the climate change conversation. When 350.org launched its fossil fuel divestment campaign here in November 2012 with a presentation by author Bill McKibben, McGinn joined McKibben on stage and pledged that the city would divest. Those statements made Seattle the first city in the country to sign on to the campaign.

Looking at the details

As of December 2012, Seattle's cash fund for the city's daily operations was fully divested. But the process is a little trickier for the Employee Deferred Compensation Plan and the pension system. On October 1, McGinn issued a report on his blog about the city's progress toward full divestment. A fossil free investment option has been added to the city's Employee Deferred Compensation Plan, he wrote, and the board in charge of the pension system has adopted a policy to incorporate socially responsible investing.

The performance of divested portfolios matched and in some cases exceeded the performance of undivested ones.

But financial managers are bound by fiduciary duty—the legal responsibility to act in the interests of investors or beneficiaries of the funds they manage. For pension managers, this means they must protect pension benefits and maximize return on investment. Thanks to state and federal laws and court rulings, investments for social and environmental objectives are only allowed if the investment's returns are not compromised.

The movement to divest from apartheid South Africa, often cited as inspiration for 350.org's campaign, faced similar difficulties, with detractors questioning the legality and financial sensibility of divestment. The Seattle Divestment Forum was intended as a first step toward addressing those difficulties.

How effective will it be?

The speakers at the Seattle Divestment Forum were divided on the potential impacts of divestment. Some agreed it was a tool for political intervention. "That is the power of it—to erode the political power of energy companies," said Leslie Samuelrich, president of Green Century Capital Management. "Whatever you do, I would do it very, very publicly."

But Daniel Kern, president and CIO of Advisor Partners, wondered how effective divestment could be without an accompanying movement to divest on the "demand side," referring to the consumption of fossil fuels. And Thomas Van Dyck, senior Vice President of RBC Wealth Management, expressed his support for a carbon tax.

350.org co-founder Jamie Henn agrees that it is only one facet of the campaign for climate action.

However, the speakers concluded that divestment was, in Kern's words, "a sound financial and social decision." Several speakers noted studies conducted by their own firms and by other organizations, which showed that the performance of divested portfolios matched and in some cases exceeded the performance of portfolios including fossil fuel investments.

A recent study by the University of Oxford suggested the campaign's greatest impact is likely to be damage to the fossil fuel companies' reputations, which can affect everything from customer relations to shareholder demands. Their findings were based on a review of previous divestment campaigns.

The report also found that the fossil fuel divestment campaign is growing faster than other divestment campaigns did (for example, the campaigns against apartheid, genocide in Darfur, or tobacco). According to 350.org's website, 19 cities, 14 religious institutions, and 6 colleges, among other institutions, have committed to divesting from fossil fuels.

350.org sees divestment as a way to pressure fossil fuel companies to meet their demands, which are threefold: the companies must stop exploring for new fossil fuel resources, cease their political lobbying, and agree to leave 80 percent of their current reserves in the ground.

Regardless of divestment's impacts, 350.org co-founder Jamie Henn, who attended the forum in Seattle, agreed that it is only one facet of the campaign for climate action. He says that while 350.org focuses hard on particular issues in order to maximize pressure and mobilization, they also try to support groups that have different ideas about strategy. And while 350.org campaigns for divestment and against Keystone XL, there are many other groups working the civil disobedience and legislative angles. Divestment is one of many strategies for a climate movement fighting on every front.

The forum was the first gathering of its kind, and according to McGinn's senior adviser Alison Van Gorp, the Mayors Innovation Project and 350.org are discussing the possibility of taking the forum to other cities, where more institutions can benefit from advice on divestment.

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