April 22, 2015, Earth Day

Gil Kemp and Members of the Board of Managers of Swarthmore College:
We write to you as a small group of tenured faculty representing a range of responses to the
recent Mountain Justice Sit-In. Some of us have signed the divestment letter from faculty1, others
of us have not. We are both aware and respectful of the fact that the Board is charged with
maintaining the fiduciary health and well-being of the College. We remain grateful for the ways
in which we have been treated as partners in everything from the choice of a new president to the
shaping of curriculum. And, in this particular moment, we reach out to you to partner in finding a
resolution to what appears to be a stalemate between the Board and Swarthmore Mountain
Justice. We sense that you each may be closer to common ground than is believed, and we offer
ourselves as a conduit for communication and resolution. This spring’s sit-in has concluded, but
the students remain poised for fresh action in the fall semester. We would like to help resolve
this impasse before the arrival of our new president.
Clearly, climate change is a multifaceted crisis, engaging many disciplines in overlapping ways.
That’s one of the things that has brought us together; we represent racial, disciplinary, gender,
and age diversity. We have a collective investment of more than 130 years at the College, and
our love of and respect for Swarthmore is deep and enduring. We recognize that there are
scientific, economic, and moral issues at stake, and that both our students and our Board are
engaged with these issues. Indeed, it is hardly surprising that members of one of the most
thoughtful and extraordinary liberal arts colleges in the country would be part of a broader selfreflection and an increasingly international social movement.
Our point in this letter is not to settle the issue of how we reduce emissions or sequester carbon,
because it is clear to us that there is the will to do both at Swarthmore. In response to the rising
and irrefutable costs of climate change, Swarthmore has been steadily and impressively reducing
our own carbon footprint. Your support of hiring a Sustainability Director, erecting buildings
that are LEED-certified and better, and your sponsorship of the Sustainability Charrette that you
and our interim president attended—all of these choices show that you care about the issues that
climate change raises, as does the community as a whole.
Divestment has been a more fraught issue. The stalemate is often framed this way: on the one
side are those who are committed to defending the endowment’s role in financial support of the
College and maintaining its independence from political activism; on the other side are those
who believe investment is not politically or morally neutral and who want to use the endowment
to make a political, symbolic statement. Moral arguments can be and have been invoked in
defense of both sides.
But we see a common ground shared by these two positions: in particular, both sides are
concerned with reducing intergenerational inequity, either by maintaining financial resources to
support future students or by influencing larger movements working to reduce the
intergenerational inequalities associated with climate change.



In light of this common ground, we offer a compromise proposal. We ask you to make a visible
gesture of support for a rapid transition away from fossil fuels: the declaration of the separatelyheld assets of the endowment to be free of fossil fuel stocks. This would not require upsetting the
arrangements we have with managers of our commingled funds and would constitute an
appropriate exercise of the greater control we maintain over our separately-managed accounts.
The limited divestment proposed here would affect roughly 0.3 percent of the endowment;
according to Greg Brown, there are currently holdings of only three equity stocks in our
separately-held assets listed in Carbon Tracker’s 200 fossil fuel companies.
This very modest compromise proposal works to support both sides, by preserving the
independence of the vast majority of the endowment while offering a small yet potent symbolic
gesture of support to a broader social movement working, in response to an unprecedented global
challenge, to encourage economic and political policies to reduce striking intergenerational
Some Managers might still object that acting on this proposal would create a slippery slope
precedent, inviting a wide range of political divestment campaigns. While some of us would be
pleased to see the Board engage ethical investment concerns more broadly, we all agree that this
proposal stands apart from broader discussions of investment on two grounds, both of which call
for the College to act in self-defense. First, the ongoing production of climate denial—a
deliberate campaign of misinformation and anti-rational discourse—by fossil fuel companies
such as Southern Co. and the Koch brothers’ holdings strikes at the heart of the College’s
educational mission. Second, climate change is all-pervasive: unlike apartheid, a practice
localized in a foreign state, climate change will affect the functioning of the College and the lives
of all our future students. Even if the College becomes carbon-neutral by 2025 (an aspirational
goal we wholeheartedly support), as a carbon-neutral island in a rapidly warming world, we will
still suffer extreme weather events, strained governmental resources, and loss of some
environmental services. Only by supporting global action toward reduced emissions can we
protect the College from some of these negative future impacts.
With your help, we are increasing sustainability efforts on campus, but it is equally important to
promote the College’s long-term physical and institutional survival—fiduciary and otherwise—
by reducing the influence of fossil fuel companies that delay positive climate action. We believe
that our commitment to intergenerational equity demands decisive action to participate in the
movement of organizations and institutions that will protect the education of future Swarthmore
Thank you for your willingness to consider this alternative. We append here a longer document
that we presented to the faculty that outlines the issues as we see them.
Betsy Bolton, Chair, Program in Environmental Studies; Professor, English Literature
Joy Charlton, Executive Director, The Lang Center for Civic and Social Responsibility;
Professor, Sociology
Carr Everbach, Chair, Department of Engineering; Professor, Engineering
Carol Nackenoff, Chair, Department of Political Science; Professor, Political Science
Lee Smithey, Chair, Program in Peace and Conflict Studies; Associate Professor, Sociology
Mark Wallace, Chair, Interpretation Theory; Professor, Religion
Sarah Willie-LeBreton, Chair, Department of Sociology and Anthropology; Professor, Sociology

Question for Discussion at Faculty Meeting 17 April 2015
Should the Faculty request that the Board of Managers change its approach to the investment of
that portion of the endowment that consists of separately managed funds, removing investments
in fossil fuel industries and reinvesting in energy efficiency and renewables? Separately managed
funds, compared to commingled funds, constitute approximately $250 million of the
endowment’s approximately $1.9 billion total; an estimate of the amount that would be moved
and reinvested is $5 million.
We offer this proposal as a compromise suggestion that steers a middle course between the
request by the student movement for divestment that the College completely divest from all of its
fossil fuels holdings, on the one hand, and the Board of Managers’ decision not to do so, on the
other. We envision this third-way proposal as a reasonable step to explore the impact of fossil
fuel divestment financially while acknowledging the direct, existential threat of the fossil fuel
industry to the well-being of Earth in general and the College in particular.
[Note: During its April 17 meeting, the faculty adopted the following resolution by majority
vote: “Resolved, the Faculty requests the Board of Managers announce divestment from fossil
fuels on the Carbon Tracker2 200 within separately managed funds, with reinvestment in energy
efficiency and renewables.”]
Executive Summary
World leaders and climate scientists agree that we are facing the end of the world as we know it
unless we limit greenhouse gas emissions. To ensure climate stability, the working consensus is
that current global temperatures cannot rise more than 3.6°F (2ºC). To stay within this threshold,
the International Energy Agency estimates that global use of coal must peak this year; global use
of oil must peak in 2020; use of gas can continue to rise briefly before leveling off in 2025.3
Unfortunately, according to Michael Greenstone ‘91, the Milton Friedman professor at the
University of Chicago, the world economy is on a disastrous glide path to raising global
temperatures by an astonishing 16.2°F (9°C) in the near term if we continue to use all of the
known reserves of fossil fuels in the ground.4 We do not have decades to transform our global
economy: that transformation needs to happen in the next five to ten years. If we are to preserve
the best likelihood for human flourishing in the future, we must begin dramatically reducing
global carbon emissions now. Not in a decade or so. Now.
Transformation of the global energy system requires investments of trillions of dollars: at least
$8 trillion in energy efficiency, and $7 trillion in renewables (and probably much more). The
markets alone have no mechanism for generating that level of investment, and government
policies are lagging well behind the urgency of the issue, in part for reasons discussed below.
What can we do to help encourage large-scale investment in the systems we need now?

Original citation: https://www.environmental-finance.com/content/news/$300bn-of-fossil-fuel-assets-risk-beingstranded-by-2035-says-iea.html
Michael Greenstone, “If We Dig Out All of Our Fossil Fuels, Here’s How Hot We Can Expect It to Get,” New
York Times (8 April 2015). http://t.co/3SCvseeIuF


We are very grateful that the Board has exercised the foresight to bring the BEP project up to the
highest level of sustainable building and that the Board is considering other sustainability-related
initiatives. Yet remaining below 3.6°F (2ºC) requires a reduction in emissions on a much larger
scale than the College can accomplish on its own.
Those Swarthmore students coalescing in the social movement for divestment push us to
consider divestment as a channel through which to bring about necessary change. Reasonable
people can have different views on the efficacy and desirability of divestment as a strategy for
achieving large-scale emissions reductions; we discuss many of the arguments pro and con
One central question is the cost of divestment. Discussions of divestment often look back to a
2013 summary of the cost of divesting from commingled funds ($856 million @ 1.7%
opportunity cost from loss of higher returns x 10 years = $264.4 million). Many students,
faculty, and board members look at that price tag and decide it is too high. But is that a
reasonable figure?
Our proposal specifies divestment within separately managed accounts -- those accounts
containing Swarthmore-only assets (in contrast to commingled accounts which pool assets from
multiple investors) -- currently about $250 million. What percentage of those funds are actually
invested in fossil fuels? According to John Fullerton, most US funds have roughly 2% exposure,
an assessment that aligns with a 2013 report on divestment campaigns by the Smith School of
Enterprise and the Environment at the University of Oxford.5 One might then estimate the funds
to be divested as roughly $5 million. $5 million @ 1.7% opportunity cost from loss of higher
returns x 10 years = $850,000 if one accepts the premise that in the present and future fossil fuels
will continue to be safe investments.
Given our rapidly shifting carbon environment, some of us support divestment for financial
reasons, others for politically strategic reasons, and/or because it’s the most visible social
movement working to limit carbon emissions. Others, such as Academics Stand Against Poverty
(ASAP), a global group of roughly 2000 researchers working on poverty and development, make
a specifically moral argument:
At this moment in history, it is paradoxical for universities to remain invested in
fossil fuel companies. What does it mean for universities to seek to educate youth and
produce leading research in order to better the future, while simultaneously investing
in and profiting from the destruction of said future? This position is neither tenable
nor ethical. […] As academics, we are in the privileged position to understand the
risks posed by climate change and to make powerful statements in support of action.6


“Stranded Assets and the Fossil Fuel Divestment Campaign: What Does Divestment Mean for the Valuation of
Fossil Fuel Assets?” 2013 http://www.smithschool.ox.ac.uk/research-programmes/stranded-assets/SAP-divestmentreport-final.pdf


We see this compromise proposal as designed to counter in some small measure the drastic blow
climate change delivers to the College’s deeply held values of intergenerational equity and
educational access. Climate change disrupts the lives of the poor more than it affects the lives of
the rich: if we are to offer our resources to worthy students of all backgrounds, we should
recognize that climate change will increasingly prevent worthy students from marginalized
communities from acquiring the preparation they would need to arrive here, much less thrive
This proposal includes a series of appendices to attempt to facilitate a well-grounded faculty
discussion of these issues:
1. Diagnostic test: do we suffer from stealth denial? (includes mock climate quiz)
2. Climate change as a multiplier of inequality
3. Climate science crash course: the meaning of the numbers, the carbon budget, range of
projections, limits and costs of adaptation, climate change’s effect on the college
4. Some arguments against and for divestment
Con: politics, inefficacy/distraction, costs and risk, impeding change
Pro: responsible fiduciary action (wasted capital, stranded assets with/without
governmental action, revenue risks), building a social movement, moral imperative
5. Political money, subsidies, climate denial
6. Beyond divestment: recognize social cost of carbon; invest in own energy efficiency,
direct investment in community, venture capital focused on renewables, other strategies.

Betsy Bolton, Chair, Program in Environmental Studies; Professor, English Literature
Joy Charlton, Executive Director, The Lang Center for Civic and Social Responsibility;
Professor, Sociology
Carr Everbach, Chair, Department of Engineering; Professor, Engineering
Carol Nackenoff, Chair, Department of Political Science; Professor, Political Science
Lee Smithey, Chair, Program in Peace and Conflict Studies; Associate Professor, Sociology
Mark Wallace, Chair, Interpretation Theory; Professor, Religion
Sarah Willie-LeBreton, Chair, Department of Sociology and Anthropology; Professor,


Appendix 1
Diagnostic: do we suffer from stealth denial or climate denial 2.0?
We don’t imagine any members of the College community actively deny the reality of
anthropogenic climate change, but we probably all participate in some form of stealth denial:
continuing to live in the manner to which we are accustomed, as our world continues on a path of
catastrophic warming. Climate change: that’s someone else’s job. We don’t bother to track the
science or the finance: better-qualified people are working on these issues. It’s in their hands.
The only trouble with this approach is that climate change is such a massively unprecedented
challenge, with such a troubled history, that we need all hands on deck. If you’re not working on
climate change in one form or another, in your personal or your professional life, you’re
engaging in some form of stealth denial.
Climate science and finance:
Here’s a challenge quiz, just for fun. Try to answer the questions below, as one way to assess
whether you’re paying attention to the greatest issue of our time.
If you can answer all these questions, you are climate literate
(and we hope you are taking action);
if you’re puzzled by 2-3 questions, you’re sneaking into the “stealth zone;”
if you find yourself struggling to answer 4-5 of them, consider yourself “stealth intensive;”
if you’re stuck on 6-7, you win the “stealth supreme” label.
Answers can be found in the relevant appendices.
1. What is a global carbon budget? (What’s the concept and what is estimated to remain of
the budget today?)
2. CCS: What is it? What are potential strengths and weaknesses? At what scale has it been
3. How consistent are the effects of climate change across different regions and latitudes?
What does CO2e (or eCO2) stand for? What’s a Gt?
4. What dollar figure would you give as an estimate of current costs of climate change?
Projected costs as of 2050? Projected costs by the end of the century in a 2ºC warmer
world? A 4ºC warmer world?
5. What is the lowest degree of warming we can now attain, according to current estimates?
6. What is capex? What is a stranded asset?
7. How much did fossil fuel exploration and development receive in G20 government
subsidies in 2013?


Appendix 2
Climate change: a multiplier of inequality
In 2014 Secretary of Defense Chuck Hagel called climate change a “threat multiplier.”7 We
would add that climate change is a powerful “multiplier of inequality.” The most recent report
of the UN Intergovernmental Panel on Climate Change (IPCC) makes both claims clearly though
blandly: “Climate change will amplify existing risks and create new risks for natural and human
systems. Risks are unevenly distributed and are generally greater for disadvantaged people and
communities in countries at all levels of development.”
Anthropogenic global warming—a result of greenhouse gas emissions produced through
industrial energy processes developed in and a result of the Industrial Revolution—is inseparable
from the history of colonialism and imperialism, so climate change is a postcolonial legacy. At
the same time, as the World Bank notes, the geography of climate change collaborates with
patterns of urban development to ensure that “the distribution of impacts is likely to be
inherently unequal and tilted against many of the world’s poorest regions, which have the least
economic, institutional, scientific and technical capacity to cope and adapt.”
The situation is complicated by the fact that carbon-intensive development is high in the BRIC
nations (Brazil, Russia, India, China), all of whom have reasons to resent European and
American imperialism, and to resist what feels like neo-colonialism, but the worst conditions
will be endured by those in sub-Saharan Africa, South and Southeast Asia:
As the coastal cities of Africa and Asia expand, many of their poorest residents are being
pushed to the edges of livable land and into the most dangerous zones for climate change.
Their informal settlements cling to riverbanks and cluster in low-lying areas with poor
drainage, few public services, and no protection from storm surges, sea-level rise, and
flooding. [...] Climate change will increasingly threaten the food supplies of Sub-Saharan
Africa and the farm fields and water resources of South Asia and South East Asia within the
next three decades, while extreme weather puts their homes and lives at risk.8
All of this makes political negotiations over emissions reduction extremely complex. And, as the
IPCC notes, the postcolonial is here, too, in our own region: when Venezuela’s Hugo Chavez
offered free heating oil to poor American households (including families in Philadelphia), he was
making the point that marginalized populations in the United States are effectively citizens of the
global South. How can we improve educational access for underrepresented and underserved
populations if we accede in the dramatic worsening of their public health, economic
opportunities, education, and life expectancy?
As Academics Standing Against Poverty (ASAP) notes, “climate change will wipe out crucial
gains in development and poverty reduction in the global South, and will trigger food shortages,




conflict, epidemic disease, and mass displacement. The current response by the international
community is inadequate to prevent this from happening.”9
Appendix 3:
Climate science crash course
In talking about climate change among ourselves, we have been struck by how shallow our
shared understanding of climate change actually is. Because we believe climate change to be the
overriding issue of this century—predetermining the resources available for human survival and
flourishing—we also believe we need to take the time for a communal recitation of the science,
economics, politics, and values relevant to climate change and its risks. We expect anyone
confident in his or her grasp of the scientific, political, and social issues will choose to skim or
skip familiar material.
Global scientific consensus on climate change is detailed by the Fifth Assessment Report of the
United Nations International Panel on Climate Change (IPCC). The IPCC offers the most
exhaustive survey of global science on climate change; the Fifth Assessment Report (AR5) was
compiled by a group of 833 scientists around the world (see appendix 1). The report includes
overwhelming evidence of anthropogenic (human-created) CO2 emissions drastically changing
the carbon cycle of the planet. CO2 is not the only greenhouse gas affecting climate change, but
it is the most prevalent (after water vapor) and the most persistent. Note that cement and flaring
also constitute significant components of CO2 admissions, in addition to fossil fuels.

Why all the focus on carbon? What about other greenhouse gases (GHG)?
Carbon dioxide is the longest-lasting and most prevalent of the greenhouse gases, thus it has the
greatest overall impact on global warming. Each gas is assigned a Global Warming Potential
(GWP) which reflects its persistence in the atmosphere and its absorption of energy. Carbon
dioxide has a GWP of 1.
Methane lasts only 12 years in the atmosphere (on average) before reacting with hydroxyl
molecules to form CO2 and water (which of course leaves CO2 in the atmosphere): methane’s




GWP is 21. Leaks from shale gas production are of concern for this reason (amounts of leakage
are disputed), but methane is also released from coal mining, cattle feedlots, and landfills.10
Nitrous oxide, produced by fossil fuel consumption and agriculture, has a GWP of 310.
Fluorinated gases have variable GWPs ranging from 140 to a shocking 23,900. They are used to
substitute for ozone-depleting substances (chiefly as refrigerants: make sure your air-conditioner
is not leaking!), in the production of aluminum and magnesium and semiconductors, and in
electrical transmission and distribution.
The proportions of US greenhouse gas emissions in 2012 are shown below left; sources of CO2
below right:

What do all the carbon numbers mean?
The carbon cycle includes both flux (CO2 emissions) and stocks (atmospheric carbon).
Emissions are typically measured in billions of metric tons or gigatons (Gt); atmospheric carbon
is measured in parts per million (ppm). 350.org took its name from the attempt to keep
atmospheric carbon below 350 ppm; on April 1, 2015, atmospheric carbon was 400.88 ppm; to
stay below a 2 degree Celsius average temperature increase, the global community now aims to
limit atmospheric carbon to 450 ppm, though the IPCC frequently articulates its goals as a range
(e.g., from 430 to 530 ppm).11


“Each year when the terrestrial vegetation of the Northern Hemisphere waxes and wanes in vigor along with the
seasons, it removes considerable CO2 from the atmosphere in its productive growing phase, while it returns CO2 to
the air when it dies and decomposes. This phenomenon creates a seasonal ripple in the atmosphere's CO2
concentration, as it drops a few ppm when land plants are growing vigorously and rises a similar amount when the
majority of these plants are senescing. Over the past forty years that this seasonal oscillation of the air's CO2
content has been accurately measured, it has been noticed that the amplitude of the oscillation has been growing in
size. In fact, as we note in our mini-review of the Amplitude of the Atmosphere's Seasonal CO2 Cycle, this once-ayear "breath of the biosphere" has risen in strength by approximately 20% over the last four decades.”


As the chart on the left below indicates, however, actual temperature rise is not a single line but a
band registering regional variation. Even the best-case scenario of a 1.5 degree Celsius average
temperature rise will involve some regions experiencing more than a 2-degree rise. The globally
agreed 2-degree Celsius limit will expose certain regions to temperature increases of 3 degrees
and more, and unmitigated CO2 emissions will produce temperature increases of 6-7 degrees
Celsius in some regions by the end of the century.

Carbon budget:
The IPCC suggested in September 2013 that in order to have a two-thirds chance of limiting
global warming to 2 degrees centigrade, we have to limit CO2 emissions to no more than a
trillion tons since 1860. By 2011, we had already emitted 515 billion tons. That leaves 485
GtCO2 left to emit—for a two-thirds chance of staying below average warming of 2 degrees
Celsius. This is known as the carbon budget. Scientific projections following the IPCC cite
carbon budgets ranging from 485 GtCO2 down to 250 GtCO2. The range of projections varies
according to policy assumptions: should we limit other greenhouse gasses? Should we engage in
massive reforestation? And so on.12
We are currently using roughly 36 GtC02 per year, increasing at a rate of 2-3%. At current rates,
depending on which carbon budget you select, we will burn through our allowance in the next
twenty to twenty-five years.13

A useful overview is available at
Carbon dioxide (CO2) emissions from fossil fuel burning and cement production increased by 2.3% in 2013, with
a total of 9.9±0.5 GtC (billion tonnes of carbon) (36 GtCO2) emitted to the atmosphere, 61% above 1990 emissions


What will happen if we do nothing? What will happen if we drastically reduce our
The IPCC has explored four major scenarios, or projections of what will happen under four
different approaches to mitigation (efforts to reduce CO2 emissions): RCP2.6 represents the
most aggressive mitigation, RCP8.5 represents no mitigation efforts beyond present practices. If
we limit emissions drastically, the near future will look like the left-hand images of the globe in
the image below; if we fail to change emission patterns, the right-side images represent projected
conditions in roughly 2100.
In every case, we will experience more extreme weather events, more precipitation in some
regions and more drought in others, increased food and water insecurity with resulting increase
in conflict over basic needs. The World Bank estimates 20% decline in water availability with a
2ºC rise in average temperature; 50% decline with a 4ºC rise.14 These effects will hit the
Swarthmore campus directly, as it will the hometowns of our students. Economic and social
stresses are likely to increase, affecting every aspect of the College (including its finances).

(the Kyoto Protocol reference year). Emissions are projected to increase by a further 2.5% in 2014. In 2013, the
ocean and land carbon sinks respectively removed 27% and 23% of total CO2 (fossil fuel and land use change),
leaving 50% of emissions into the atmosphere. The ocean sink in 2013 was 2.9±0.5 GtC, slightly above the 20042013 average of 2.6±0.5, and the land sink was 2.5±0.9 GtC slightly below the 2004-2013 average of 2.9±0.8. Total
cumulative emissions from 1870 to 2013 were 390±20 GtC from fossil fuels and cement, and 145± 50 from land use
change. The total of 535±55GtC was partitioned among the atmosphere (225±5 GtC), ocean (150±20 GtC), and the
land (155±60 GtC). GlobalCarbonProject.org. Posted September 21, 2014.


What about a middle ground? Can’t we just burn our carbon reserves more slowly?
If we could completely stop emitting CO2 into the atmosphere (flux), the overall stock of
atmospheric CO2 would remain high for a period of time ranging from 50 years to hundreds of
thousands of years. Researchers estimate that roughly 50 percent of the net anthropogenic
“pulse” (sustained but temporary increase in CO2 flow) would be absorbed in the first 50 years,
and about 70 percent in the first 100 years. Zeke Hausather notes that “Absorption by sinks
slows dramatically after that, with an additional 10 percent or so being removed after 300 years
and the remaining 20 percent lasting tens if not hundreds of thousands of years before being
removed.” As University of Washington scientist David Archer explains, this “long tail” of
absorption means that the mean lifetime of the pulse attributable to anthropogenic emissions is
around 30,000 to 35,000 years. Even 10 percent of the anthropogenic carbon pulse has the
capacity to produce changes in sea chemistry and seawater rise.15

Can’t we just adapt?




That’s what human beings are good at: adapting and thriving in challenging situations, right? In
fact, no matter how hard we work to mitigate climate change, we will also have to be adapting to
its challenges and risks.
The IPCC has been criticized for underestimating climate change risks, so the following
assertions should be considered conservative predictions for the best possible, most mitigated
climate future:16

Surface temperature is projected to rise over the 21st century under all assessed emission
scenarios. […H]eat waves will occur more often and last longer, and […] extreme
precipitation events will become more intense and frequent in many regions. The ocean
will continue to warm and acidify, and global mean sea level to rise. {2.2}

Climate change will amplify existing risks and create new risks for natural and human
systems. Risks are unevenly distributed and are generally greater for disadvantaged
people and communities in countries at all levels of development. {2.3}

Many aspects of climate change and associated impacts will continue for centuries, even
if anthropogenic emissions of greenhouse gases are stopped. The risks of abrupt or
irreversible changes increase as the magnitude of the warming increases. {2.4}

Substantial emissions reductions over the next few decades can reduce climate risks in
the 21st century and beyond, increase prospects for effective adaptation, reduce the costs
and challenges of mitigation in the longer term and contribute to climate-resilient
pathways for sustainable development. {3.2, 3.3, 3.4}

As Michael Oppenheimer, a Princeton University geosciences professor and contributing author
to the [IPCC] report, put it, “The window of opportunity for acting in a cost-effective way — or
in an effective way — is closing fast.” 17
The dramatically rising cost of adaptation and remediation may be seen in a recent report (April
2015) by Bloomberg and Paulson’s Risky Business on the effects of climate change in
California.18 Some of the risks applicable to the first half of the century were listed as follows:

Changes in the timing, amount, and type of precipitation in California, which could lead to
increased drought and flooding and put the reliability of the state’s water supply at risk

Widespread losses of coastal property and infrastructure due to sea-level rise along the
California coast
(If we continue on our current path, between $8 billion and $10 billion of existing property in
California will likely be underwater by 2050, with an additional $6 billion to $10 billion at




risk during high tide. Rising tides could also damage a wide range of infrastructure,
including water supply and delivery, energy, and transportation systems.)

Shifting agricultural patterns and crop yields, with distinct threats to California’s varied crop
mix of fruits, vegetables, nuts, and other highly valuable commodities
(For example, the Inland South region will likely take an economic hit of up to $38 million
per year due to cotton yield declines by the end of the century.)

Increasing electricity demand combined with reduced system capacity, leading to higher
energy costs
(The Inland South region will be the hardest hit, with total energy costs likely to increase by
up to 8.4% in the short term and as much as 35% by end of century.)

Higher heat-related mortality, declining labor productivity, and worsened air quality
(7,700 additional heat-related deaths per year by late century; with 30% of California
workers in “high risk” industries that are vulnerable to high temperatures, labor productivity
is likely to decline across the state; higher temperatures and more frequent wildfires increase
particulate air pollution)

Many of these costs are hard to quantify,19 but they loom large, overshadowing the funds
available to a state budget or federal budget. And this is the Golden State.20
What does climate change mean to the College?
Even if the global community radically reduces emissions starting tomorrow, future generations
of students will experience negative impacts of climate change. Some of our students had homes
and communities shattered by Katrina or Sandy—more will share such experiences as extreme
weather events increase. As we engage more international students, the exposure of our student
body to risks from climate change will increase. As we engage more first-generation college
students, their exposure and that of their families will increase. In general, the college

The EPA estimates the social cost of carbon at $37 per ton in 2015. (This suggests that as we burn 36+ billion
tons this year, we will be creating global social costs of $1.3 trillion.) A recent study out of Stanford proposes the
cost should be much higher: $220 per ton. (This suggests a global social cost of 2015 CO2 emissions of around $8
trillion.) The Stanford study includes in its Integrated Assessment Model (IAM) “recent empirical findings
suggesting that climate change could substantially slow economic growth rates, particularly in poor countries.”
The IPCC Working Group 3 report notes a wide range of possible costs, figured in percentage of reduced
consumption, depending on how quickly we move to mitigate climate change. The best case scenario would require
holding CO2 to 450 ppm in 2100: in that case, the cost would be 1.7 % reduction of consumption in 2030, 3.4% in
2050, 4.8% in 2100; with an annualized reduction in consumption growth rate from 2010 to 2100 of
0.06%. Delaying mitigation to 2030 increases costs up to 37%. [www.ipcc.ch/pdf/assessmentreport/ar5/wg3/ipcc_wg3_ar5_summary-for-policymakers.pdf] The White House in 2014 noted that damage
estimates remain uncertain, especially for large temperature increases, [... and] the costs of climate change increase
nonlinearly with the temperature change. Based on Nordhaus’s (2013) net damage estimates, a 3° Celsius
temperature increase above preindustrial levels, instead of 2°, results in additional damages of 0.9 percent of global
output. To put this percentage in perspective, 0.9 percent of estimated 2014 U.S. GDP is approximately $150 billion.
The next degree increase, from 3° to 4°, would incur additional costs of 1.2 percent of global output. Moreover,
these costs are not one-time, rather they recur year after year because of the permanent damage caused by increased
climate change resulting from the delay.
https://www.whitehouse.gov/sites/default/files/docs/the_cost_of_delaying_action_to_stem_climate_change.pdf, pp.


community, like the population as a whole, will suffer (but suffer unevenly) various economic
and health constraints resulting from climate change.
Physically, the campus itself will suffer more frequent extreme precipitation events, affecting
buildings and other infrastructure, as well as student safety. More frequent flooding will increase
contamination risks even for filtered drinking water due to increases in temperature, salinity,
sedimentation, concentrations of pollutants, etc. Rising temperatures will shift energy costs from
heating to cooling, though winters may also be colder and/or longer due to the slowing and
destabilization of the Gulf stream; managing heating and cooling will become more difficult and
expensive. Food insecurity will increase with droughts and flooding. Disruption of energy
supply through the grid becomes more likely with increase in extreme weather events. These
projections represent local applications of high confidence projections included in the Synthetic
Report of the IPCC AR5. If we are to counter these pervasive intergenerational inequities,
projected even under the IPCC’s most aggressive mitigation scenario, we must prioritize more
desirable future scenarios over short-term profits.
Furthermore, as we describe in more detail below, climate change is starting to have a significant
impact on financial markets and investments, producing new risks that will affect the college’s
investments and financial resources. And the necessary transition to a low-carbon economy is
likely to produce political and social upheaval which may also have unforeseen effects beyond
their immediate contexts.
Given the changes now visible on the horizon, and knowing that climate change is bringing
other, as yet unforeseen changes, we argue that protecting the future of the College and our goal
of intergenerational equity requires us all—the Board of Managers, the administration, faculty
and staff, interested students and alumni—to pursue immediate and significant mitigation of
climate change on all fronts.
Appendix 4
Divestment: a symbolic and political gesture
Supporters and opponents of divestment have generally agreed that divestment is a symbolic
gesture rather than a direct attempt to reduce the profitability of fossil fuel companies. Since
most of the world’s fossil fuel reserves are held not by publicly-traded companies but by national
companies, even if the price of fossil fuel company stocks were to fall in response to the
divestment campaign, that market shift would have no direct influence on the oil reserves held by
OPEC, Russia’s Gazprom, Venezuela, and others.
Opponents of divestment argue diversely that divestment is 1) inappropriately political; 2) an
empty, ineffective strategy; 3) costly and risky; 4) a possible obstacle to development of
mitigation strategies.
Supporters of divestment argue that it is 1) a responsible fiduciary action, 2) supportive of a
growing social movement, and 3) a moral imperative.
Arguments against divestment
Some academics (such as the NYU working group on divestment) argue that political action or
speech is not part of an academic mission and that divestment is inappropriate on that basis


alone.21 Robert Knox, Chair of the Board of Trustees of Boston University, believes that
divestment should be considered only when “the social harm caused by the actions of the firms
in the asset class is clearly unacceptable,” which rather begs the question of what one considers
“clearly unacceptable.”22 The Boston University Board of Trustees do acknowledge the
following as one goal of the University: “to create an environment in which an academic
community can productively consider, discuss, and debate a variety of viewpoints on social and
political issues and that encourages freedom of enquiry.” We applaud this statement of
engagement with the larger physical, political, and social environment.
To us, as to other academics and fiduciaries, the critical challenges posed by climate change
makes political speech or action toward a less drastically impaired future seem appropriate;
indeed, excessively close alignment between fossil fuel companies and government leaders
(discussed below) makes political engagement in our global future urgently necessary.
Many critics of divestment object not to the politics of the movement but rather to what they see
as its inefficacy. Albert Stavins of the Harvard Kennedy School, writing in The Wall Street
Journal on November 24, 2014, put this argument against divestment very concisely:
If divestment would at best be a symbolic action, without direct and effective financial
impacts on the industry—or, more important, on global CO2 emissions—then a major
problem arises. Symbolic actions often substitute for truly effective actions by allowing us to
fool ourselves into thinking we are doing something meaningful about a problem when we
are not.23
For some, more specifically, the focus on production rather than consumption is a dangerous
distraction from the real work of limiting consumption. Like Stavins, we worry about the lack of
direct action on global CO2 emissions, and we call on members of the College community to
continue pursuing all possible paths to reducing emissions on campus, in the region, and more
broadly, irrespective of any decision taken on divestment.
Costs and risks:
Managers may worry about potential costs and risks associated with divestment. Transaction
costs are frequently mentioned: immediate full divestment of the endowment would require
redeeming and reinvesting the bulk of the portfolio in order to accomplish divestment of a much
smaller fraction of shares and funds. We would pay transaction fees for this wholesale
redemption and reinvestment, taking on otherwise unnecessary costs, and the College could lose
access to fund managers it strongly wishes to retain.
One way to minimize the transaction costs associated with divestment and maximize the social
benefits would be to divest only separately managed funds while asking managers of
commingled funds to pursue productive engagement with fossil fuel companies.

http://theenergycollective.com/cutler-cleveland/2203396/why-divest-substantial-harm-fossil-fuels. See the first
footnote for full text of principles articulated by Board on divestment.



More generally, divestment works against the principle of diversification, with the result that a
portion of the endowment takes on additional, idiosyncratic risk, in addition to the risks
otherwise associated with equity markets.24
On the other hand, if (as some financial experts argue), fossil fuel companies are more exposed
to risk than the market currently recognizes, divestment and reinvestment may also serve as a
hedge against risks not yet fully priced by the market.25 While the College does not use index
funds, it is at least instructive that there is presently little difference between a fully diversified
index and a fossil-free index, as demonstrated by the Fossil Free Index US (FFIUS) of Tom
Francis ’87. Starting in 2013, FFIUS indexes the S&P 500 with the top 200 fossil fuel
companies removed; there has been no statistical difference in daily returns between FFIUS and
the S&P 500. This finding supports Mark Kuperberg’s prediction, quoted in the New York Times
in May 2014, that divestment would not cost much.26
Impeding change:
According to Stavins, “even if divestment were to reduce the industry’s financial resources, this
would only serve to reduce fossil-fuel companies’ efforts to develop emissions-cutting
technologies such as carbon capture and storage.”27 Carbon capture and storage (CCS) is a
process whereby the carbon produced from fossil fuel power plants is captured (most easily from
flue gasses after coal is burned), transported to a storage site, and deposited where it will not
enter the atmosphere, most probably in an underground geological formation.


This issue is described by a May 2013 memo on the costs of divestment prepared by Sue Welsh and Chris

See Carbon Tracker Initiative, reports on Carbon Bubble, Stranded Assets.





Stavins does not, however, mention that the most optimistic accounts of CCS tie it to bioenergy
(BECCS) and biomass power plants as a means of enabling negative emissions of CO2.29
Stavins is correct that fossil fuel companies—coal companies in particular—should be investing
in CCS because viable CCS would make it possible to burn more fossil fuels without increasing
atmospheric carbon. But most CCS projects thus far have been state- rather than industryfunded, including the first commercial CCS coal plant: the Boundary Dam plant in
Saskatchewan, Canada, which opened in October 2014.30
Arguments in favor of divestment


Wikipedia offers this account of BECCS: Bio-energy is derived from biomass which is a renewable energy
source and serves as a carbon sink during its growth. During industrial processes, the biomass combusted or
processed re-releases the CO2 into the atmosphere. The process thus results in a net zero emission of CO2, though
this may be positively or negatively altered depending on the carbon emissions associated with biomass growth,
transport and processing, see below under environmental considerations.[15] Carbon capture and storage (CCS)
technology serves to intercept the release of CO2 into the atmosphere and redirect it into geological storage
Sulphuric acid and carbon dioxide are extracted from the coal-burning process (liquefied) and then sold on the
open market. Most of the CO2 from Boundary Dam goes to oil drillers who use it in “enhanced oil recovery,” a
kind of fracking for oil, leading to environmentalists to complain that carbon pollution is merely being passed down
the line. Boundary Dam is conducting research on underground and underwater storage of CO2 at their site.
[http://english.cntv.cn/2015/03/19/VIDE1426732926512600.shtml] Some major fossil fuel companies are exploring
CCS, such as Shell’s CCS Quest project, in relation to tar sands oil development. Yet CCS is estimated to increase
energy costs by 25-40% and tar sands oils are already so expensive to develop that it is difficult to celebrate Shell’s
Quest. Conversely, if IPCC projections that 90-99% of CO2 will remain underground for 1000 years or more are
true, and if no ugly unintended consequences raise their heads, BECCS is a process and technology that could
dramatically enhance our climate future.


1. Responsible fiduciary action
Conservative financial experts have argued that fossil fuel divestment is a responsible fiduciary
response to the financial risks associated with climate change. In particular, in November 2013,
Bevis Longstreth, former commissioner of the Securities and Exchange Commission (SEC)
under President Reagan, published “The Financial Case for Divestment of Fossil Fuel
Companies by Endowment Fiduciaries,” arguing that fossil fuel companies are struggling and
will increasingly struggle as a result of four “rapidly evolving developments:”
(a) the stranding of carbon-bearing fossil fuel assets through governmental restrictions
(b) improvements in alternative sources of energy undercutting demand for fossil fuels,
(c) grass-roots public action,
(d) stigmatization of fossil fuel companies, with adverse effects on hiring, morale and
motivation, and valuation.
Longstreth offers the following three-step argument as a basis for responsible fiduciary
1. Given that climate change is an existential threat to human civilization, a threat unique in
human history, human beings have a compelling and urgent need to limit carbon
2. We believe that global leaders, driven by widespread and increasing social action, will
achieve the necessary limits.
3. In a world of emissions limits, the largest 200 fossil fuel companies are vastly overvalued
in their trading markets and continuing to hold investments in those companies exposes
our endowment to material loss.31
The first step of this argument is generally accepted. The second step is less certain: the United
Nations Framework Convention on Climate Change (UNFCCC) has repeatedly failed to produce
binding agreements on reduced emissions. The third step in Longstreth’s argument relies heavily
on the second: governments must act to limit emissions; until they act (or other circumstances
intervene), carbon assets retain their value.32
More recently, our alumna Christiana Figueres, Executive Secretary of the United Nations
Framework Convention on Climate Change (UNFCCC), argued in her letter to the Board of
Managers that “the risk return analysis of fossil fuel investments has shifted in the past five
Longstreth’s actual phrasing was this: "Recognizing climate change as an existential threat to the planet, unique in
human history, and both the compelling need to limit carbon emissions and the confidence we place in global
leaders to achieve the necessary limits, the largest 200 fossil fuel companies are vastly overvalued in their trading
markets and, therefore, continuing to hold investments in any of them exposes our endowment to material loss."
The three-step outline fixes a grammatical confusion and points a little more clearly to Longstreth’s reliance on
global leadership.
In defense of a belief in global leadership, Longstreth argues that “Betting against the stranding risk materializing
is arguably an irresponsible, hard-to-defend, position for a fiduciary, who will have to demonstrate a sound basis for
doing so, something that seems hard to do. By the same token, betting that this risk will be realized is not hard to
defend as the inevitable consequence of rational, self-surviving acts by people and their governments around the


years, and is accelerating. In effect, the burden of proof has been reversed—so that those who do
not take these material factors into account face potential impairments to their asset values.”
Testing this fiduciary argument involves two key questions: 1) What is the amount of value at
risk through the possibility of stranded assets? and 2) What are the odds of fossil fuel assets
being stranded? (How likely is government action? Are there other mechanisms that might result
in stranded assets?)
Wasted capital: $674 billion-5.4 trillion capex (capital for exploration and development)
Longstreth’s argument builds on a number of concepts proposed by Carbon Tracker Initiative
(CTI), a London-based non-profit think tank focused on articulating “the risks that fossil fuel
investments pose to financial stability.” Stranded assets are a key CTI concept, as is wasted
capital associated with a carbon bubble. Wasted capital is perhaps the more widely accepted
issue: Carbon Tracker Initiative reported that in 2013 the top 200 fossil fuel companies allocated
$674 billion for exploration and development of new reserves; in 2014, they allocated $650
billion. In July 2014, Ambrose Evans-Pritchard pointed out in The Telegraph that
The cumulative blitz on exploration and production over the past six years has been $5.4
trillion, yet little has come of it. Output from conventional fields peaked in 2005. Not a single
large project has come on stream at a break-even cost below $80 a barrel for almost three
years. […] The damage has been masked so far as big oil companies draw down on their
cheap legacy reserves.33
CTI has launched a new focus on capex to help investors identify the fossil fuel companies
wasting the most on capex.34 As Longstreth notes, “There is no good reason for this vast
expenditure of stockholder wealth. It is wasted capital, an offense against stockholders in terms
financial alone. It suffices as justification for a fiduciary to divest from any company so
Stranded assets:
Stranded assets are now receiving considerable attention in financial analyses, though there is not
yet broad consensus about the mechanisms or the total values involved.
The well-respected but conservative International Energy Agency (IEA) projects $300 billion in
stranded fossil fuel assets in a world where we limit climate change to 2 degrees Celsius average
temperature increase. The IEA explores two possible futures: one in which average temperature
rises by 4 degrees Celsius (New Policies Scenario) and one in which average temperature rises 2
degrees Celsius (450 Scenario). Under the New Policies Scenario, fossil fuels’ share of the
global energy mix will fall from 82% (at present) to 76%; under the 450 Scenario, they would
fall to 65%. In either case, gas consumption would be higher than it is presently, but in the latter
case, oil consumption would peak before 2020 and coal would peak in 2015 and then drop




In the 450 scenario, the IEA projects that roughly $300 billion of investment in fossil fuel assets
could be "stranded," and the agency notes that this figure could rise with changes in the
regulatory or physical environment.35
Chris Nelder argues in a different context that “although it’s an understandable and
uncontroversial baseline for analysis, it’s also of dubious value to use the IEA’s scenarios as
reference, because the agency has a long track record of poor forecasting and overly optimistic
scenario construction.”36 Indeed, Mark Lewis of Kepler-Cheuvreux, previously an analyst for
Deutsche Bank, offers a drastically higher assessment of stranded asset risk, as quoted in EvansPritchard’s Telegraph piece:
“Under a global climate deal consistent with a two degrees centigrade world, we estimate
that the fossil fuel industry would stand to lose $28 trillion of gross revenues over the next
two decades, compared with business as usual," said Mr Lewis. The oil industry alone would
face stranded assets of $19 trillion, concentrated on deepwater fields, tar sands and shale.37
Carbon Tracker Initiative offers an estimate slightly lower than that of Lewis, who serves as an
external research advisor to the think-tank: CTI’s 2013 report on stranded assets noted that only
20-40% of the 762GtC02 listed as reserves on the top 200 publicly traded fossil fuel companies
could actually be burned. In 2013, these companies had


Chart taken from http://www.carbonbrief.org/blog/2014/06/the-iea-weighs-in-on-stranded-assets-not-just-agreen-conspiracy/ Original citation: https://www.environmental-finance.com/content/news/$300bn-of-fossil-fuelassets-risk-being-stranded-by-2035-says-iea.html
http://www.jeremyleggett.net/2014/06/fossil-fuels-are-on-their-way-out-chris-nelder-on-the-history-of-strandedassets/ A range of scientists and activists have criticized the agency for an institutional bias in favor of fossil fuels,
political commitments (in favor of US policy), and underestimation of renewables. One example: the anticorruption NGO Global Witness argued that "the Agency's over-confidence, despite credible data, external analysis
and underlying fundamentals all strongly suggesting a more precautionary approach, has had a disastrous global
impact." "Heads in the Sand: Governments Ignore the Oil Supply Crunch and Threaten the Climate" (PDF). Global
Witness. October 2009. pp. 45–47. See also


a market value of $4trn and debt of $1.5trn. […] Analysis from HSBC suggests that equity
valuations could be reduced by 40 - 60% in a low emissions scenario. In parallel, the bonds
of fossil fuel companies could also be vulnerable to ratings downgrades, as recently
illustrated by Standard & Poor’s. Such downgrades would result in companies paying higher
rates to borrow capital, or if the rating drops below investment grade they could struggle to
refinance their debt.38
Market exposure of 5.5 trillion, reduced by 40%, suggests possible market losses of $2.2 trillion
or more. So, in answer to our first question, we have at least three possible answers: $300 billion
(from IEA, with a pro-industry bias), $2.2 trillion at present (CTI), or $28 trillion over the next
two decades (Lewis).
Stranded assets despite a lack of coordinated governmental action
At a brownbag lunch discussion at Swarthmore on April 3rd 2015, Tom Francis ’87 offered a
series of examples for ways in which carbon assets could be stranded even without governmental
1) In Groningen (northern Netherlands), the largest gas field in Europe, production-related
earthquakes (196 since 2013) have led the Dutch government to cut back severely on gas
production.39 No lives have been lost but “the cost of damage repairs, structural
improvements to buildings, and compensation for home value decreases has been estimated
at 6.5 billion euros.” Dutch gas exports in 2012 totaled […] around 12 percent of Europe's
gas demand, about 75 percent of it from the Groningen field.40 A significant portion of the
Groningen gas may become stranded if the government rules it too risky to continue
producing. Oklahoma is also suffering from earthquakes allegedly caused by
hydrofracturing, but is there serious risk of those assets being stranded?
2) US sanctions against Russia in 2014 (in response to Russian annexation of Crimea and
destabilization of Ukraine) banned American companies from doing business with Russian
gas and oil companies. This has led to politically stranded assets for Exxon: As reported in
Forbes, Exxon-Mobil announced in a 10-k filing with the SEC on 25 Feb 2015, that “In
compliance with the sanctions and all general and specific licenses, prohibited activities
involving offshore Russia in the Black Sea, Arctic regions, and onshore western Siberia have
been wound down.” Exxon said its “maximum exposure” to loss from these joint ventures
was $1 billion.41
3) Saudi Arabia’s surprise decision to maintain production despite falling prices may have been
explicitly designed to hamper competitive oil and gas ventures in North America. In any
case, the low price of oil (as low as $40/barrel at the trough) has made more expensive
extraction ventures commercially unviable, leading to stranded assets in Canadian tar sands
and a consolidation of smaller US gas companies: a loss to the sector as a whole. To balance
their budget, OPEC needs the price of oil to return to $80-100 per barrel, and the market,





currently in contango, seems to anticipate a return to those higher prices.42 But this is a case
in which unexpectedly fierce competition among fossil fuel companies has led to the
stranding of assets for part of the industry.
Energy analyst Chris Nelder offers two other examples of non-regulatory stranding of assets,
bringing our total to five (block quotations below are drawn from Nelder):
4. Exxon Mobil’s Kearl project in the Canadian tar sands is working below 50 percent of
expectations and ultimate capacity has been downgraded by 31 percent.43
Importantly, the Kearl project’s troubles have nothing to do with the KXL pipeline, nor with
carbon policy. They’re simply a function of the difficulty of production and rising costs. And
they raise some important questions: How are ExxonMobil/Imperial booking the reserves
related to Kearl? Have the claimed reserves changed at all since the 2012 projection? What
production output level will the project actually achieve, and when? Will it turn out that cost
expansion and delays are actually “stranding” some of those assets in the complete absence
of any effective carbon policy?
Nelder’s analysis suggests the importance of considering the industry as a whole rather than
concentrating only on the possible effect of government regulation:
A comprehensive assessment of stranded asset risk would be based on such real-world
experiences as the Kearl project, and might point more to a “revenue risk” than “stranded
assets” risk, but it could be at least as potent a warning to investors, and a powerful counterargument to the sunny outlooks on production offered by the oil majors. Current metrics on
free cash flow, capital intensity, the crude to natural gas liquid ratios, return on investment,
and so on could be even more damning than the unknown risk that as-yet-unformed climate
policy might pose at some unknown point in the future.
5. The grid power sector may be the first place significant asset stranding shows up: coal assets
stranded by competition from cleaner fuels, solar, moderating growth. Nelder summarizes
relevant reports:
Barclays just downgraded high-grade corporate bonds across the entire U.S. utility sector,
citing the emerging threat of solar power and storage. The latest Carbon Tracker report,
“The Great Coal Cap – China’s energy policies and the financial implications for thermal
coal” (PDF summary), released June 5, finally takes aim at stranded asset risk in the grid
power sector. Up to 127 gigawatts (GW) of existing coal-fired capacity and 310 GW of
expected future capacity, equivalent to 40 percent of the total installed coal-fired capacity by

According to Investopedia.com, “a market is ‘in contango’ when the delivery price of a particular futures contract
has to converge downward to meet the futures price. If prices did not converge, it would set up an opportunity for
investors to profit from arbitrage. Contango situations can be costly to investors holding net long positions since
futures prices are falling. For example, assume an investor goes long a futures contract today at $100. The contract
is due in one year. If the expected future spot price is $70, the market is in contango, and the futures price will have
to fall (unless the future spot price changes) to converge with the expected future spot price.”
“From 2008 to 2014, after spending nearly $13 billion and running more than a year over schedule, the Kearl
operation achieved a first-quarter production level of 52,000 b/d [barrels per day] when 160,000 b/d was expected, is
only achieving 70,000 b/d now, and its ultimate capacity has been downgraded from 500,000 b/d to 345,000 b/d.”


the end of this decade, could be stranded in the Asian nation as demand falls due to
moderating economic growth, increased competition from cleaner fuels, and carbon policy.
But these are not merely future risks; they’re in the present.
Assets stranded by high or rising oil prices
Where Francis and Nelder point out that a wide variety of unforeseen circumstances may end up
producing stranded fossil fuel assets, Lewis and Nelder argue respectively that continued high
prices or even continually rising prices might also strand fossil fuel assets by triggering policy
incentives or passing consumers’ pain threshold. Lewis notes that “if oil prices rise faster in the
future than currently assumed by the IEA in its base-case projections, we think this could lead to
an acceleration of the policy incentives for, and deployment of, renewable-energy technologies
and energy-efficiency measures.”44 Nelder argues that “prices could rise beyond the pain
threshold of consumers, and oil demand could fall off through the mechanism of simple demand
destruction and economic contraction — precisely as it did (to some indeterminate extent) in the
aftermath of the 2008 crash.”45
Counter-argument: Efficient Market Hypothesis
The primary argument against these views on stranded assets is the notion that these risks are
already included in stock prices because the markets are informationally efficient. Eugene Fama
was awarded the Nobel Prize for his work on the Efficient Market Hypothesis (EMH) in 2013.
But behavioral economist Robert Shiller shared that Nobel Prize and he has called EMH “the
most remarkable error in the history of economic thought.” Burton Malkiel, defending the
general validity of EMH in Forbes, acknowledges that for many critics, asset bubbles such as the
dot-com bubble of 2000 and the subprime crisis of 2008 “stretch the credibility of the EMH
beyond the breaking point.” 46
Supporters of EMH might say that the information available on oil and gas companies is
ambivalent: the market price reflects both the confidence of the fossil fuel companies and the
uncertainties about global leadership on emissions reductions, as well as the knowledge of
wasted capital and stranded asset risk. Behavioral economists might argue that stock prices
variability can only be explained by behavioral considerations and crowd psychology.
The financial analysts quoted here—including representatives of the Bank of England and
Deutsche Bank quoted below—side not with EMH but rather with the carbon bubble hypothesis,
stating explicitly that fossil fuel companies are dramatically overvalued in today’s markets.
Summary of the fiduciary argument:
Wasted capital plus the likelihood of assets stranded by government regulation, political
conflicts, rising costs and production challenges, competition with renewables or other fossil
fuels, rising prices, and/or other, as yet unforeseen complications: the inherent riskiness of fossil
fuels in the present and future underscores the financial, fiduciary argument for divestment. The
signatories to this letter find this argument and its supporting evidence persuasive.



How can we better invest for a sustainable future? Carbon Tracker Initiative, a major power
behind shifting financial views of fossil fuel companies, calls for a blended approach of
divestment and engagement:
The volume of engagement activity by investors is larger than divestment, but much of it
takes place below the radar. However true engagement needs the pressure created by
divestment. Engagement without divestment is like a criminal legal system without a police
force. 47
By divesting separately held funds while asking managers of commingled funds to assess risks of
stranded assets and avoid wasted capital, Swarthmore College’s endowment has the capacity to
begin moving our gas and oil behemoths in the direction of greater sustainability. We need our
major energy companies to help us make a massive and urgent transition to low-carbon. We are
not looking for a major, destabilizing market meltdown; rather, we want these companies and
their resources deeply engaged in energy development that will lead to greater human
When should we move to this blend of divestment and engagement? The fiduciary answer is
this: when it costs us the least and gains us the most. We think that time is now.
Perhaps because the real costs of climate change are becoming more evident, financial markets
and institutions are becoming more skeptical about the value of fossil fuels. In January 2015, the
Bank of England announced that it would assess the investment risks associated with stranded
fossil fuel assets. In his speech, Paul Fisher, Executive Director of the Bank’s Supervisory Risk
and Regulatory Operations, asserted the validity of stranded asset risks quite strongly:
One live risk right now is of insurers investing in assets that could be left ‘stranded’ by
policy changes which limit the use of fossil fuels. As the world increasingly limits carbon
emissions, and moves to alternative energy sources, investments in fossil fuels and related
technologies – a growing financial market in recent decades – may take a huge hit. There are
already a few specific examples of this having happened.48
On January 19, 2015, in the journal Konzept published by the Deutsche Bank, Rineesh Bansal
and Stuart Kirk argued that the emissions reduction agreement reached by the United States and
China in late 2014 gives reason to believe that the UN Climate Conference in Paris in 2015 will
produce a significant agreement. For Bonsal and Kirk, “such a conclusion would change
everything to do with the oil industry,” so that “peak carbon rather than peak oil becomes the
primary driver of oil prices.”49






When central banks of the United Kingdom and Germany begin assessing risks associated with
stranded assets, those risks become more visible to the market as a whole, and stock prices
become more likely to reflect those risks.
Coal prices have already plummeted, to the extent that Stanford’s decision to divest from coal
can be seen as financial foresight as much as a political or moral choice. In July 2014, Zack’s
Industry Rank put the coal industry 236 out of 260 industries, four places lower than the previous
year.50 And on March 12, 2015, Moody’s announced that the North American coal industry had
moved into a negative risk climate. 51
Zack’s Industry Rank also described the outlook for gas and oil overall as “negative.”52
We believe we are at or very closely approaching a tipping point at which divestment offers
greater gain than loss, greater security than risk; at the same time, we are persuaded by Carbon
Tracker Initiative’s argument that divestment and engagement can work together to produce
major improvements in fossil fuel company policies, including greater investment in renewables
and CCS. Linking that targeted divestment announcement to strategies of investor engagement
can help protect the larger endowment from the risks associated with wasted capital and stranded
2. Building a social movement
Social movements are politics by other means. Mass movements can shape entire structures of
governance in dramatic revolutions, but more often, in western democracies, social movements
impact politics by reshaping the social and cultural terrain on which politics are conducted. In the
absence of significant fossil fuel industry investment in low carbon technologies and the absence
of meaningful government action, the grassroots movement of the divestment campaign appears
to many to be a necessary and productive political path toward a sustainable or even survivable
future. Michael Greenstone ‘91, the Milton Friedman professor of economics at the University of
Chicago warned in a recent article in the New York Times, that “…because of the vast supplies of
inexpensive fossil fuels, protecting the world from climate change requires the even more
difficult task of disrupting today’s energy markets.” Divestment supports political efforts that
intervene in energy markets.
A 2013 report on divestment campaigns from the Smith School of Enterprise and Environment at
the University of Oxford53 asserts that direct impacts on fossil fuel companies’ bottom lines are
unlikely, but a process of stigmatization can influence market norms. More importantly,
however, if political uncertainty is generated, the enterprise value of fossil fuel companies may

Persistently weak demand for metallurgical (met) coal will lead to lower earnings over the next 12-18 months,
and along with near-term challenges in the thermal coal sector will exacerbate the industry's long-term, secular
decline. "We expect industry earnings to drop 6%-8% over the next year or so," says Vice President -- Senior
Analyst, Anna Zubets-Anderson in "Changing Outlook to Negative as Earnings Come Under Added Pressure."
“Stranded Assets and the Fossil Fuel Divestment Campaign: What Does Divestment Mean for the Valuation of
Fossil Fuel Assets?” 2013 http://www.smithschool.ox.ac.uk/research-programmes/stranded-assets/SAP-divestmentreport-final.pdf


be undermined and impose significant constraints. The level of political intervention required to
keep fossil fuels in the ground is admittedly unprecedented, but so is the danger of anthropogenic
climate change and the need for us to take action on unprecedented scales.
Rather than bankrupting fossil fuel companies literally, the divestment campaign aims to
“bankrupt them politically,” (to quote the Harvard HeatWeek video54) or in the words of Tim
Burke in the Daily Gazette, “to deprive them of the political infrastructure they require to appear
more economically viable than they actually are.” Given the immense capacity of the fossil fuel
industry to capture institutional politics, counter narratives must be produced that challenge the
presumed legitimacy generated by the industry’s lobbying efforts. Until fossil fuels are
sufficiently stigmatized to the point where political leaders can feel confident that their own
legitimacy will not be undermined by challenging the industry, it is unlikely that sufficient
regulation will be undertaken. Indeed, when the head of the UNFCCC (Christiana Figueres) and
the head of World Bank both support divestment, it is a sign that intergovernmental agencies
need grassroots support and pressure. Thankfully, social movement organizations and institutions
in civil society can impact public opinion by reshaping discourses. Since the 1980s, the antinuclear movement has been able to stigmatize the nuclear power industry (though, interestingly,
nuclear power’s fortunes may change as new needs for alternative energy emerge). The anti-war
movement played an important role in puncturing the U.S. government’s rationales for
continuing the war in Vietnam. The LGBT rights movement has made important strides in
challenging discrimination against LGBT Americans, with marked shifts in attitudes and
Nonviolent direct action campaigns, such as the divestment campaigns that are a subject of this
paper, play a familiar role in the emergence or reinvigoration of social movements. Social
movement scholars speak of “coalescence” in which dissent becomes collective and coordinated.
The civil rights activist, Bill Moyer’s, (2001) eight-stage MAP model for organizing social
movements defines stage four as the typological moment in which nonviolent actions follow a
trigger event (perhaps the emerging perceivable effects of climate change) and serve to alert the
public, to awaken more activists, and to signal the possibility of strength through solidarity and
collective action.55 56
A nationwide social movement can be born in stage four of Moyer’s model. In addition to
amplifying new discourses about climate change, the current wave of sit-ins and protests are
serving as a kind of capacity-building exercise. Indeed, many organizational and communication
skills have been developed on college campuses over the course of the past few years through
trainings and trial and error. Nonviolent actions in this stage are unlikely to win immediately the
ultimate goals of the movement, such as a cessation of fossil-fuel extraction, but they lay
important groundwork, politicize participants, and begin to transform the discourses through
which public opinion is formed and political efforts expand.

Moyer, Bill. 2001. Doing Democracy: The MAP Model for Organizing Social Movements. New Society
Publishers. See also Meyer, David S. 2003 “How Social Movements Matter.” Contexts. 2:4 pp. 30-35. Retrieved
April 11, 2015. http://www.jstor.org/stable/pdf/41800812.pdf
Scholars of social movements describe cycles of emergence, subsidence, revival, and decline depending on a
range of factors including opportunity structures, available repertoires of action, repression, and movement


Thus, one of our greatest contributions to mitigating climate change may well be sitting on the
floor outside Greg Brown’s office at this very moment—or sitting somewhere else, listening and
thinking about the divestment debates. The students protesting are among those most motivated
to challenge our reluctance to move beyond business as usual, the most motivated to lead their
generation toward a future that allows for broader distribution of human prosperity. Finding a
way to support and steer these students—our own precious human capital—may be our best
contribution to a flourishing human future. We appreciate the work the administration and the
Board have done already to engage our students as they have focused our attention on climate
science and the fossil-fuel industry. We celebrate the strengths and successes of the divestment
social movement while also wanting to continue to build a broad-based political movement. To
that end, we would like to partner with both students and the Board in working to understand
better the kinds of policies that will ease rather than increase the burden of climate change on
underserved communities on campus and in the surrounding region and then reaching out more
directly to policy makers.
Ethical action in keeping with the College’s Quaker heritage:
We all believe that climate change poses an ethical challenge, calling us to a careful and creative
rethinking of social relations: work that the College, with its Quaker heritage and its commitment
to teaching ethical intelligence, is ideally positioned to perform. We call upon ourselves and our
colleagues to include in our research and teaching critical tools that will help our society and our
students create more just, creative and sustainable futures.
Yet the ethical argument specifically in favor of divestment, at least as it has been advanced thus
far, has been quite polarizing: some members of the College community (students, faculty, staff,
alumni, and presumably board members) find it deeply compelling; others find it off-putting.
The ethical argument for divestment has been most concisely stated in these terms: “If it’s wrong
to wreck the planet and threaten millions of lives, then it’s wrong to profit from that
destruction.”57 This argument has an intuitive force, and it also (at least superficially) connects
the divestment argument to the much larger issue of local and global inequities—an issue that
climate change will only deepen.
Yet, in the words of Tim Burke, “As an act of public persuasion, making a show of one’s own
moral purity rarely attracts a wide base of admirers and supporters.”58
Economists might add that if others divest from fossil fuel for moral reasons the Board is willing
to ignore, and if there are no financial reasons to divest, the Board could actually reap a premium
(additional profit) in exchange for its willingness to hold “dirty energy” shares and funds. In this
regard, an ethical argument works against a financial argument for divestment. Such are the
paradoxes of investment.
It may be for this reason that Neil Berkett CEO of Guardian Media Group presented the group’s
recent decision to divest its $1.2 billion holdings from fossil fuels in pragmatic as well as moral
terms, with pragmatism and finance leading the way:



Neil Berkett: To say there is a single argument for ultimate divestment in a way undervalues
the debate and the discussion and the ultimate solution. I think the economic argument is as
strong as the values-based argument, and if you were funding an asset that believes strongly
in the value-based (i.e. The Guardian and we were a public company) and you took the view
that economically, this is the right thing to do, I think you could end up at the same position.
I don’t think this is […] a sop to the position that exists in terms of ownership by the Scots
Trust (Scots Trust values, Guardian values, etc. etc.). … Despite the fact that that exists, if
this was a public company, it might have been in truth a more lengthy process, but I think we
would probably end up in the same space. (our emphasis)
Alan Rusbridger: So what you’re saying is, the decision you’re taking today—which is in the
short term engage, in the medium term divest—is a hard-nosed business decision.
Neil Berkett: Absolutely. A hard-nosed business decision, but it is influenced by the values
of our organization. […] The truth is, it’s a holistic decision that’s taken into account all
those things.59
In general, the ethical argument for divestment offers its adherents the energy to sustain a
passionate commitment to the cause of divestment and climate justice. But some who might
otherwise be allies find these ethical claims divisive and alienating, and others worry that ethical
claims will obscure more strategic and financial arguments in favor of divestment.
Despite the range of tactics we may support or propose, we see in our community a shared belief
that climate change, by exacerbating the already striking inequalities of our society, points to the
urgency of co-creating, with communities that have been marginalized and disenfranchised, a
more just and diversely productive world.
Overall, we propose targeted divestment, engaged investing, and limited direct investment in
renewables and energy efficiency (discussed below) as the best means by which the endowment
can serve its purpose of supporting the College’s long-term well-being and providing for
intergenerational equity.




Appendix 5:
Political money, subsidies, climate denial
Part of the conversation around divestment has to do with the flow of money between fossil fuel
companies and national governments. As you are no doubt aware, fossil fuel companies
contribute millions of dollars to political campaigns, though as an industry they were only the
ninth-highest overall contributors to political campaigns in 2013-2014, trailing health, lawyers,
single issue contributors, and others. Open Secrets, a well-respected non-profit online publisher,
listed the top oil and gas contributors to the 2013-2014 Congress as follows:
Koch Industries
Ken Davis Finance
Exxon Mobil
Marathon Petroleum
Western Refining
Occidental Petroleum


As reported in the New York Times on February 25, 2015, Southern Co, another big contributor
to political campaigns ($948,257 in 2013-4), also provided at least $409,000 of funding over the
past decade for prominent climate skeptic Wei-Hock Soon.60 But lobbying costs far exceed
campaign contributions. Open Secrets lists total oil and gas lobbying and contributions to
Congressional campaigns for the 113th Congress (including 2013 and 2014) as follows:
Contributions to Congressional campaigns:
Oil and Gas lobbying total 2013:
Oil and Gas lobbying total 2014 :
TOTAL spent on 113th Congress:


In what some see as a weighted exchange, the federal government provides subsidies for fossil
fuel exploration, production, and consumption. These are variously estimated at figures ranging
from $2.4 billion to $52 billion. The enormous range points to major problems with definition
and transparency.
Robert Rapier uses Oil Change International (OCI) to demonstrate common misunderstandings
about fossil fuel subsidies. (Rapier acknowledges that OCI’s data is drawn from intergovernmental agencies—the Organization for Economic Cooperation and Development [OECD]
and the International Energy Agency [IEA], but his criticism is limited to OCI, which indicates
some partisan energy to his analysis. For its part, OCI has shown a lack of professional restraint
in attacks on Exxon.) Despite the appearance of bias, Rapier’s analysis is finely pointed:
The summary of oil-related subsidies in the U.S. for 2010 totals $4.5 billion. That is a
number often put forward; $4 billion a year or so in support for those greedy oil companies.
But look at the breakdown. The single largest expenditure is just over $1 billion for the



Strategic Petroleum Reserve, which is designed to protect the U.S. from oil shortages. The
second largest category is just under $1 billion in tax exemptions for farm fuel. The
justification for that tax exemption is that fuel taxes pay for roads, and the farm equipment
that benefits from the tax exemption is technically not supposed to be using the roads. The
third largest category? $570 million for the Low-Income Home Energy Assistance Program.
(This program is classified as a petroleum subsidy because it artificially reduces the price of
fuel, which helps oil companies sell more of it). Those three programs account for $2.5
billion a year in “oil subsidies.”61
We need clearer and more transparent accounting practices to help us make better sense of
national and international subsidies. Details matter here: we might as a nation decide that the
Low-Income Home Energy Assistance Program was a subsidy worth funding, but that fossil fuel
subsidies for massive agro-business merely push us more rapidly toward a food-constrained
future. Even with the home energy assistance program, we might want to check its efficacy.
International subsidies for fossil fuel consumption, for instance, are usually intended to help the
poor, but
IMF research shows that only 7% of fuel subsidies in poor countries go to the bottom 20% of
households; 43% end up in the pockets of the richest 20%. Petrol subsidies are particularly
regressive (and polluting, see picture), as richer people are more likely to drive cars. Money
saved could be spent on targeted cash-transfer schemes for the poor, as is done in Malaysia.62
Some subsidies may be worth maintaining, but it’s difficult to see any redeeming value in
subsidies for exploration and development. In November 2014, The Fossil Fuel Bailout, a report
jointly issued by Overseas Development Institute and Oil Change International announced that
the G20 nations—19 countries and the European Union, together responsible for 69-85% of
global GDP, depending on the figures used—had spent $88 billion on exploring new reserves of
oil, gas, and coal.63 This was particularly disappointing because the G20 had announced in a
2009 summit that they would “rationalize and phase out over the medium term inefficient fossil
fuel subsidies that encourage wasteful consumption.” In 2013, they reaffirmed that goal, in the
midst of wasting capital on exploration to the tune of $88 billion.
Alison Kirsch and Timmons Roberts of the Brookings Institute note that this report “tracks
where investments from G20 state-owned energy companies are directed. As it turns out, G20
countries continue to fund each other’s fossil fuel exploration.” Kirsch and Roberts also note the
perversity of governments engaging in capex: “fossil fuel subsidies do not support the world’s
poor, and the public ends up paying for the externalities they cause in pollution and public
Elizabeth Bast, Shakuntala Makhijani, Sam Pickard and Shelagh Whitley, authors of the report,
argue that



the G20 countries are creating a ‘triple-lose’ scenario. They are directing large volumes of
finance into high-carbon assets that cannot be exploited without catastrophic climate effects.
They are diverting investment from economic low-carbon alternatives such as solar, wind
and hydro-power. And they are undermining the prospects for an ambitious climate deal in
Beyond divestment
Supporters and opponents of divestment agree that divestment alone is inadequate to the urgent
demands of climate change. We need to work on all possible fronts simultaneously: reduced
usage, increased energy efficiency, renewable energy sources, enhanced carbon sinks, and so on.
As the divestment debate goes on, many people have also been working hard to reduce the
College’s carbon footprint. Connie Hungerford called for “big, concrete ideas” and received an
impressive 160 responses, some of which have already been acted upon. In December, the board
approved a $12 million increase to the construction costs of the BEP building to raise its energy
efficiency to the highest possible level. The Board also financed a sustainability charrette and
other campus sustainability initiatives. As a result of the charrette and subsequent discussions,
the administration—chiefly Connie Hungerford, Greg Brown, and Laura Cacho—are preparing a
subset of larger proposals for the May Board of Managers meeting, including the following:

Create a Center for Just Sustainability
Invest heavily in energy efficiency on campus
Build photovoltaic array over leaf composting center
Engage Swarthmore Borough and Chester in Power Purchase Agreements for utility scale
renewable energy
Obtain data for informed investments (endowment transparency, stranded asset
Become a zero waste campus
Fund Climate Change Fellows: recent graduates to work on sustainability initiatives

We applaud these gestures—and suggest that the College community might consider or
encourage the board to consider two other options: 1) direct investment in energy efficiency on
campus and in our community; and 2) commitment to invest $220 per metric ton CO2 equivalent
(MT eCO2) toward energy efficiency and renewables in recognition of the high social cost of
Social cost of carbon
As described earlier, carbon emissions have a large negative social impact, not currently
included in the price of fuel or energy. The US government estimates the social cost of carbon at
$37/MT eCO2 currently, but a recent study out of Stanford, published in Nature Climate
Change, argues that this price fails to take into account the way global warming slows
development in poor countries, with more modest effects on growth in rich countries. They
propose the higher rate of $220/MT eCO2 as a more accurate social cost of carbon.66 Our
proposed resolution cites the higher figure since our goal is to reduce carbon emissions more




rapidly and radically. The College’s net emissions for 2013 were 8,012 MT eCO2, so the money
automatically slated for investment in energy efficiency and renewables would have been
$178,640 in 2013.
Direct investment in renewables and energy efficiency on campus
Most proponents of divestment also urge reinvestment in clean energy. We urge the board to take
the funds divested from fossil fuels and create a revolving energy efficiency and renewables
investment fund. We estimate the cash potentially produced by the College’s divestment from
separately managed investment in fossil fuels to be roughly $5 million.
The obvious first thing to do with those funds is to invest them in the energy efficiency of the
campus: this reduces our emissions directly and saves money at the same time—money that
could return to a revolving energy efficiency investment fund. This option is on the list of
possibilities designed for presentation to the Board at the May meeting.
This first step appears non-controversial, but there are some complications involved in its actual
implementation. An energy retrofit of our dorms, for instance, requires such extensive work that
the building could not be occupied while the work was accomplished. This in turn requires
putting students elsewhere—either delaying the growth of the student body so that the new dorm
(currently in planning) can take the students displaced from an older dorm, or finding some other
solution. The Property Committee might need to work with Facilities and other members of the
Board to develop an overall energy retrofit plan. Photovoltaic arrays over the leaf composting
area represent another proposal that should be assessed seriously at the earliest possible moment.
Direct investment in energy efficiency in our region
Both board and faculty recognize that it does us and others little good if we become an island of
carbon-neutrality in a disastrously warming world. Here too arguments of moral purity are best
avoided. Rather, we need to scale up our efforts and network with others in ways that fit our
central mission.
There are many benefits to investing some of our endowment funds in our broader community;
there are also many difficulties and risks. Such investment strengthens the region and pre-empts
the kind of broader economic and safety crises that can threaten a university and that led the
University of Pennsylvania (for instance) to invest billions of dollars, leveraging trillions, to
stabilize and gentrify the neighborhood of West Philadelphia. David Orr’s work with “The
Oberlin Project” and now the “Lake Erie Crescent” began by using ordinary college procurement
as a means of investing in the region: his efforts have now been recognized by both the White
House and Congress as a model of social innovation.
The difficulties of direct investment in local communities must not be underestimated, however.
In particular, according to the IEA (which, as you recall, is generally respected but has been
criticized for institutional bias toward fossil fuels) “energy efficiency currently lacks the
attractiveness of investment in clean energy supply, such as renewables, reflecting different
policy frameworks and a set of specific barriers, including small transaction sizes and
verification and measurement issues.”67 In addition to the complexity associated with numerous
smaller investments, the sheer labor of project management would require additional staffing,



making the cost of such investment prohibitive. The communities in which we might most wish
to invest for reasons of social responsibility, such as Chester, seem financially risky sites for
investment. And we would want to avoid the pitfalls of cronyism or apparent cronyism:
benefiting specific individuals with whom we have established relationships rather than the
community as a whole.
On a broader scale, however, investing regionally in energy efficiency and renewables does more
than protect our self-interest by increasing regional resilience: it can pay major dividends in
helping us all move toward a low-carbon economy without excessive burdens being placed on
the most economically underprivileged. According to the IEA, holding average global warming
at or below 2 degrees Celsius will require a massive increase in energy efficiency investing, in
ways that may strain small businesses and households:

A decarbonisation of the energy sector sees energy efficiency investment increase to $1.1
trillion in 2035, double the amount seen in our main scenario. Spending per household on
efficiency increases four times, while household income grows by only 50%. Cumulative
investment of $14 trillion in efficiency helps to lower energy consumption by almost 15% in
2035, compared with our main scenario.

Currently, about 60% of efficiency investments rely on self-financing with most of the
rest financed through loans. Spending on energy efficiency accounts today only for a small
part of disposable income for households and of revenue for businesses but financing
mechanisms need to be in place that address the initial capital hurdle. Financing tools that
use future fuel savings to cover the initial investment cost would be suitable for this
purpose. As the size of efficiency loans is too small for investors, securitisation – bundling
different projects of smaller size – can build a bridge between energy efficiency projects and
capital markets. (our emphasis)

Over the period to 2035, households need to make about half of total investment,
businesses 40% and governments 11%. Mobilising the necessary financing from households
is a huge task given the low priority attributed to energy efficiency by consumers and
prevailing economic preoccupations in many regions. … Businesses invest in improving
processes in industrial facilities, refurbishing buildings and buying more efficient vehicles.
Energy efficiency investments of businesses were partly reduced during the financial crisis of
2007-2008, with credit conditions today still not back to pre-crisis levels.68

We believe Swarthmore should pursue the possibilities inherent in Orr’s model of regional
redevelopment, but we should also consider working with more direct investment of a small
portion of the endowment, perhaps $10 million.
But Swarthmore cannot and should not take on the project or transaction management of
numerous small refit projects. Rather, we should partner with a firm that offers energy




efficiency project underwriting and project and transaction management (EEPUPTM).69 Such a
project management firm could help the College
• assess the viability of the community partner and energy efficiency project
• create metrics to define and avoid cronyism
• conduct an energy audit
• cost an efficiency retrofit and develop a repayment plan
• manage project to completion
• manage loan and interest payments.
From the perspective of community partners, the College’s investment would provide the upfront
capital needed to perform an energy efficiency retrofit. The community organization—one
obvious example might be Chester-Crozer Hospital—would receive an energy efficiency retrofit
with no or little immediate investment required on their part. The cost savings resulting from the
project would be used to pay back the College’s capital with a fixed interest between 6 and 8%
(higher than average market values at present, though short of the returns provided by our
commingled funds). Project management and transaction fees would also come be paid out of
cost savings. Once the capital and interest were repaid, the hospital or other community
organization would continue to benefit from cost savings, and the global community would
benefit from their reduction in emissions.
In such a partnership, the EEPUPTM would provide underwriting of projects to protect our
investments, and they would serve as fund, transaction, and project managers. Swarthmore
would provide senior debt and program origination.70 Our students could be trained to originate
projects, and conduct energy audits; the EEPUPTM could also hold workshops on creative
financing for our students.
As colleges and universities debate best practices for investing amid the growing risks of climate
change, many are searching for better models than those we have at present. In pursuing this
investment plan, Swarthmore could offer a prototype of strategies encouraging critically
important investment in direct emissions reduction, while still earning respectable returns.
Green venture capital
Another possibility, more familiar in the investment world, would be investing in a venture
capital firm focused on renewable energy. In his Op-Ed “Against Divestment,” Tim Burke
argued that
Even with investment itself, it’s entirely plausible that taking $20 million from Swarthmore’s
endowment and designating it as a fund for direct investment in alternative energy firms or
other sustainability-oriented start-ups might be a more powerful persuasive gesture in terms
of altering how the American public sees the fossil fuel industry. That’s direct skin in the


Spark Fund, which specializes in small to midsize projects (under $2 million) is one such firm: the company
offers “streamlined energy efficiency project financing” to simplify the process and mechanisms of direct
investment in energy efficiency.
Senior debt is secured by collateral, and that collateral can be sold to repay the senior debt holders. As such,
senior debt is considered lower risk and carries a relatively low interest rate.


game, and attempt to build something up at the same time that it tries to tear something




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