FREQUENTLY ASKED QUESTIONS
1. Will divestment harm important school programs, like financial aid?
Divesting from fossil fuels does not meaningfully lower returns or increase risk. Several studies conducted independently by MSCI, Impax Asset Management, and Advisor Partners (together with more than $75 billion under management) all conclude that portfolios free from fossil fuel companies perform equally or outperform compared to non-divested benchmark portfolios.
Even if there were small effects on returns, short term changes in the endowment do not actually correlate with cuts to financial aid. For example, in FY 2009 Penn’s endowment suffered a negative return (-15.7%), while financial aid through University Aid Grants increased (13.6%). On the other hand, if one cares more about the long term, then these temporary changes are vastly outweighed by the carbon bubble and material impacts of climate change. In fact, failing to divest can permanently damage the value of Penn's portfolio, threatening important school programs like financial aid.
Sources:
MSCI ESG Research. “Responding to the Call for Fossil-fuel Free Portfolios”
Impax Asset Management. "Beyond Fossil Fuels: The Investment Case for Fossil Fuel Divestment"
Advisor Partners, LLC. "Fossil Fuel Divestment: Risks and Opportunities"
2. Should Penn engage as a fossil fuel shareholder instead of divesting?
In fact, shareholder engagement is not mutually exclusive to Fossil Free Penn’s call to divest in 5 years! During these full 5 years Penn can continue to vote in proxy resolutions and even initiate resolutions (but there have been zero instances of Penn ever initiating any ESG-based resolutions, let alone a successful one). More importantly, as detailed in Evidence, shareholder engagement alone does actually not solve any of the fundamental issues detailed in the Fiduciary Duty, Moral Integrity, and Social Impact sections.
First, shareholder engagement does not solve the fiduciary duty violations because it cannot 1) convert the stranded reserves into cash flows nor 2) suspend the fundamental business which relies on increasing CAPEX for extraction nor 3) completely return the entirety of capital to current investors through dividends. Second, the low success probability and severe infrequency of shareholder resolutions (specifically one initiated by Penn) means our endowment would continue funding climate denial and the exploitation of communities and ecosystems for many years before any meaningful mitigation even had a chance to take place. Third, every dollar that remains in fossil fuel companies has an opportunity cost of a dollar invested in clean energy; the latter has a much higher marginal impact on benefiting the climate.
3. Don't we still need natural gas as a bridge fuel?
Although natural gas is cleaner than coal and gasoline, has many uses, and can be found domestically, it is still a significant danger to the environment. During the process of extraction, natural gas leakage is common. This leakage releases large amounts of greenhouse gases and can cause natural gas lifecycle emissions to be greater than that of coal. Additionally, the method by which natural gas is obtained from the environment is through hydraulic fracturing, or “fracking,” which involves disturbance of the land, causing erosion, the harming of local ecosystems, the altering of migration patterns, and the scattering of wildlife habitats (Union of Concerned Scientists). Correspondingly, the proppants used in fracking have chemicals whose effects on the environment have not yet been fully determined.
Sources: Union of Concerned Scientists: Environmental Impacts of Natural Gas
4. Since humans continue to use fossil fuels, will divestment be hypocritical and foolish of Penn?
While we actively support energy conservation and recycling, Fossil Free Penn does NOT advocate or think it possible for 100% of fossil fuel usage to instantaneously cease by tomorrow. To stay within the carbon budget, some additional fossil fuels may obviously still be consumed by the world. However, this continued usage does not contradict the existence of the massive carbon bubble central to the divestment argument, i.e. the vast majority of reserves must remain unburned, even if a small amount is consumed. This fact naturally leads to the Fiduciary Duty reasoning for Penn to divest based on purely financial and legal grounds (see Evidence for more).
Furthermore, that the world continues to use fossil fuels is no accident. Fossil fuel extractors choose to spend billions each year to explore and develop new reserves, when most of existing reserves are already unburnable from the perspective of the planet and its inhabitants. Moreover, alternative technological solutions (which clearly exist) have not been ubiquitously adopted and thus a zero-fossil-fuels state is currently unachievable by end consumers like Penn - as a direct result of the climate denial and intense lobbying efforts employed by the fossil fuel industry. If Penn were an unthinking institution that only eats, sleeps, and consumes energy, then we can be complacent with the status quo of fossil fuel ubiquity. However, we are capable of critical thinking. The University has responsibility as an investor and active thought leader, not just a consumer.
5. How does fossil fuel divestment relate to racial justice and #blacklivesmatter?
Martin Luther King, Jr. wrote, “Injustice anywhere is a threat to justice everywhere.” This statement broadly outlines why our struggle for fossil fuel divestment is connected to the movement against police brutality and the devaluation of black lives. We draw our strength for this campaign from a passion for justice which requires us to stand up to injustice wherever it happens and thus it is imperative that we support the struggle for racial justice. Additionally, climate change and pollution from fossil fuels are connected to racial justice due to environmental health disparities based on race. Black communities are more likely to be negatively affected by air pollution effects than those that are primarily white, which is another piece of the injustice for which fossil fuel companies are responsible.
Source: Lesley M Russell, PhD. "Reducing Disparities in Life Expectancy: What Factors Matter?"
Still have questions you would like answered? Email [email protected].
Divesting from fossil fuels does not meaningfully lower returns or increase risk. Several studies conducted independently by MSCI, Impax Asset Management, and Advisor Partners (together with more than $75 billion under management) all conclude that portfolios free from fossil fuel companies perform equally or outperform compared to non-divested benchmark portfolios.
Even if there were small effects on returns, short term changes in the endowment do not actually correlate with cuts to financial aid. For example, in FY 2009 Penn’s endowment suffered a negative return (-15.7%), while financial aid through University Aid Grants increased (13.6%). On the other hand, if one cares more about the long term, then these temporary changes are vastly outweighed by the carbon bubble and material impacts of climate change. In fact, failing to divest can permanently damage the value of Penn's portfolio, threatening important school programs like financial aid.
Sources:
MSCI ESG Research. “Responding to the Call for Fossil-fuel Free Portfolios”
Impax Asset Management. "Beyond Fossil Fuels: The Investment Case for Fossil Fuel Divestment"
Advisor Partners, LLC. "Fossil Fuel Divestment: Risks and Opportunities"
2. Should Penn engage as a fossil fuel shareholder instead of divesting?
In fact, shareholder engagement is not mutually exclusive to Fossil Free Penn’s call to divest in 5 years! During these full 5 years Penn can continue to vote in proxy resolutions and even initiate resolutions (but there have been zero instances of Penn ever initiating any ESG-based resolutions, let alone a successful one). More importantly, as detailed in Evidence, shareholder engagement alone does actually not solve any of the fundamental issues detailed in the Fiduciary Duty, Moral Integrity, and Social Impact sections.
First, shareholder engagement does not solve the fiduciary duty violations because it cannot 1) convert the stranded reserves into cash flows nor 2) suspend the fundamental business which relies on increasing CAPEX for extraction nor 3) completely return the entirety of capital to current investors through dividends. Second, the low success probability and severe infrequency of shareholder resolutions (specifically one initiated by Penn) means our endowment would continue funding climate denial and the exploitation of communities and ecosystems for many years before any meaningful mitigation even had a chance to take place. Third, every dollar that remains in fossil fuel companies has an opportunity cost of a dollar invested in clean energy; the latter has a much higher marginal impact on benefiting the climate.
3. Don't we still need natural gas as a bridge fuel?
Although natural gas is cleaner than coal and gasoline, has many uses, and can be found domestically, it is still a significant danger to the environment. During the process of extraction, natural gas leakage is common. This leakage releases large amounts of greenhouse gases and can cause natural gas lifecycle emissions to be greater than that of coal. Additionally, the method by which natural gas is obtained from the environment is through hydraulic fracturing, or “fracking,” which involves disturbance of the land, causing erosion, the harming of local ecosystems, the altering of migration patterns, and the scattering of wildlife habitats (Union of Concerned Scientists). Correspondingly, the proppants used in fracking have chemicals whose effects on the environment have not yet been fully determined.
Sources: Union of Concerned Scientists: Environmental Impacts of Natural Gas
4. Since humans continue to use fossil fuels, will divestment be hypocritical and foolish of Penn?
While we actively support energy conservation and recycling, Fossil Free Penn does NOT advocate or think it possible for 100% of fossil fuel usage to instantaneously cease by tomorrow. To stay within the carbon budget, some additional fossil fuels may obviously still be consumed by the world. However, this continued usage does not contradict the existence of the massive carbon bubble central to the divestment argument, i.e. the vast majority of reserves must remain unburned, even if a small amount is consumed. This fact naturally leads to the Fiduciary Duty reasoning for Penn to divest based on purely financial and legal grounds (see Evidence for more).
Furthermore, that the world continues to use fossil fuels is no accident. Fossil fuel extractors choose to spend billions each year to explore and develop new reserves, when most of existing reserves are already unburnable from the perspective of the planet and its inhabitants. Moreover, alternative technological solutions (which clearly exist) have not been ubiquitously adopted and thus a zero-fossil-fuels state is currently unachievable by end consumers like Penn - as a direct result of the climate denial and intense lobbying efforts employed by the fossil fuel industry. If Penn were an unthinking institution that only eats, sleeps, and consumes energy, then we can be complacent with the status quo of fossil fuel ubiquity. However, we are capable of critical thinking. The University has responsibility as an investor and active thought leader, not just a consumer.
5. How does fossil fuel divestment relate to racial justice and #blacklivesmatter?
Martin Luther King, Jr. wrote, “Injustice anywhere is a threat to justice everywhere.” This statement broadly outlines why our struggle for fossil fuel divestment is connected to the movement against police brutality and the devaluation of black lives. We draw our strength for this campaign from a passion for justice which requires us to stand up to injustice wherever it happens and thus it is imperative that we support the struggle for racial justice. Additionally, climate change and pollution from fossil fuels are connected to racial justice due to environmental health disparities based on race. Black communities are more likely to be negatively affected by air pollution effects than those that are primarily white, which is another piece of the injustice for which fossil fuel companies are responsible.
Source: Lesley M Russell, PhD. "Reducing Disparities in Life Expectancy: What Factors Matter?"
Still have questions you would like answered? Email [email protected].
