Ellen Dorsey and Richard Mott’s article on the divest-invest initiative of 17 foundations carefully addresses three arguments: first, that not divesting from fossil fuels stands the fiduciary notion on its head by putting profit before mission; second, that the loss of influence from holding few or no votes is not an excuse; third, the loss of market performance (or not).
Essentially the trustees of those 17 foundations are making two decisions: one is to disinvest from fossil fuels and to invest part of their assets in a clean energy economy. This is clear and simple to execute, and makes an important statement about carbon consumption and global warming. The other is to accept that if their investment performance is markedly worse than widely used benchmarks, the trustees will not be troubled because they are confident in the benefits their ‘moral return’ is bringing to their beneficiaries. The former requires considerable thought and preparation, but it can be implemented quite easily. The latter is harder because prolonged periods of sub-par market returns would demand a sustained and potentially progressively harder commitment by trustees – and that is a much bigger ask.
The authors are absolutely right about the need to put mission before profit, but people can sometimes underestimate the strain that can put on the governance structure over long periods. The analogy with the South African boycott is important (assuming there was a causal link between the boycott and the end of apartheid), but it’s not quite right: an investor could quite easily have boycotted such a small market without ever noticing its absence. It would be different with a boycott of fossil fuels, a far larger market with the potential to have a much larger impact on returns.
My purpose in writing is not to dismiss the initiative – far from it – but to observe that it will have more chance of success if great care is also given to supporting trustees if long-term investment returns are lower than the standard benchmarks, or indeed the returns of other foundations who have not disinvested.
James Brooke Turner
Finance director, Nuffield Foundation
(written in a personal capacity)