Climate Change and the Fossil Fuel Divestiture Movement

Bill McKibben and Tom Steyer are helping to assemble an army of students and activists to take on the investment establishment over climate change and push endowments, foundations and other institutions to divest their holdings in fossil fuel companies.


The Golden State was in the midst of its worst drought on record when University of California freshman Jake Soiffer took the microphone during the public statement session of the UC Board of Regents’ meeting in San Francisco last November. The topic of his comments to the 26-person committee that oversees the state university system: climate change.

Soiffer told the UC regents at that meeting — which happened to coincide with the United Nations Warsaw Climate Change Conference — that “youth are challenging their own institutions and communities to take action to halt the devastating effects of climate change,” spurred by the inability of governments to deal with the issue.

The Berkeley freshman is one of about 100 students spread across the University of California’s nine campuses who are pushing for the institution to take a stand on climate change. They want the UC system to divest its $86 billion portfolio of the world’s 200 largest fossil fuel companies to send a clear political message that the business of these companies is not morally or financially sustainable. Addressing the Board of Regents meeting was just the start. “By the time I leave Berkeley, I want to see UC divest from fossil fuel,” says Soiffer.

Three thousand miles away from Berkeley, at Middlebury College in Vermont, student groups and faculty members also have been pushing for their school to divest from fossil fuel companies. With a nearly $1 billion endowment, Middlebury is dwarfed by the UC system, but it has a reputation as a top liberal arts college and a prestigious board and alumni network. The school boasts the first environmental studies program in the U.S., and many of its students identify closely with Vermont’s intense environmentalism. Middlebury junior Fernando Sandoval Jimenez, who is majoring in environmental studies and geography, is confident that he and his fellow student activists will be successful in forcing divestiture.

“We know it is going to be a fight, but we are prepared for the fight,” he says.

Over the past two years, students at approximately 400 U.S. campuses have been pushing their universities and colleges to divest from the fossil fuel industry. The divestiture movement has spread to municipalities and public pension funds. Not since the campaign to make institutions divest from companies doing business in apartheid South Africa — a three-decade-long effort, which the fossil-fuel-free movement looks to as a model — has one issue ignited such a firestorm. To date, most institutions of any size have resisted calls to divest, but the movement is challenging these organizations to look seriously at how they allocate their assets and to reconsider some of their most closely held beliefs. For the student and environmental activists, divestiture has a political objective: to get lawmakers in Washington to put policies in place that will force fossil-fuel companies to change their behavior.

“The idea that you can build a movement that will fundamentally alter the political context in which decisions are made is proven by South Africa,” says writer and scholar Robert Massie IV, a champion of the carbon divestiture movement and president of Boston-based think tank New Economy Coalition. With climate change, he adds, “the planet is facing a fundamental crisis that our political and economic system does not seem capable right now of addressing.”


The ranks of respected investors and economic thinkers concerned about the financial risk of climate change are growing. In October longtime hedge fund manager Thomas Steyer, former Treasury secretary and Goldman Sachs Group CEO Henry Paulson Jr. and ex-mayor of New York Michael Bloomberg announced they were forming an initiative called Risky Business to assess the economic impact of climate change. Another former Treasury secretary and Goldman chief, Robert Rubin, is advising them on their efforts. Robert Litterman, former head of risk for Goldman Sachs, has long been concerned about the imminent danger of climate change to corporate balance sheets. Hedge fund manager George Soros and Microsoft Corp co-founder Bill Gates are among the billionaire philanthropists alarmed by what is happening to our environment, as are investors Jeremy Grantham, co-founder of Boston-based GMO, and Christopher Hohn, founder of London-based hedge fund firm The Children’s Investment Fund Management (UK).

Concerns about a warming planet go back to the 1950s, when scientists started developing tools to monitor the effects on the atmosphere of carbon dioxide, a by-product of burning the fossil fuels, such as coal and oil, that have powered industrialization. Carbon dioxide is called a greenhouse gas because it traps heat and causes the Earth to get warmer. (Rising levels of methane and nitrous oxide have also contributed to the problem.) In 1950 there were about 280 parts per million (ppm) of carbon in the atmosphere. Scientists estimate that 350 ppm is the maximum safe level. Today the carbon in the atmosphere is at nearly 400 ppm. (See also “Climate Change and the Years of Living Dangerously.”)

In 2008, frustrated by the lack of change in Washington and the slow pace of the environmental movement, writer-turned-activist Bill McKibben, a scholar-in-residence at Middlebury, used the 350 number as a rallying cry for where the world needs to be: He co-founded grassroots nonprofit group Since 2012, has moved to the forefront of the carbon divestiture movement, with the charismatic but aloof McKibben as its most valuable spokesman. “Most of the time, environmental activists are playing defense against the fossil fuel industry,” he says. Divestiture “is an opportunity to play offense.”

McKibben builds his case for divestiture on three crucial numbers: 2 degrees Celsius, 565 gigatons and 2,795 gigatons. Two degrees Celsius is the broadly agreed-upon maximum amount of warming that the planet can take before things get really bad; 565 gigatons is the amount of carbon that, released into the atmosphere, would get the world to that level; 2,795 gigatons is the amount of carbon deposits that energy companies currently have on their books.

McKibben’s math is troubling. Since 2011 the U.K.-based nonprofit Carbon Tracker Initiative has published a series of reports demonstrating that the fossil fuel reserves currently owned by global energy companies exceed 565 gigatons. In its most recent study, the group estimates that the 200 largest oil and gas and mining companies spent $674 billion in the past year to find and develop new fossil fuel reserves. If governments regulate carbon emissions, the value of these reserves will drop significantly. The Carbon Tracker reports have helped to popularize the term “stranded assets” to describe the carbon risk that energy companies have on their books — suggesting that the excess carbon is a bubble waiting to burst.

Yet for those investors who take Carbon Tracker’s warnings to heart, what to do about the problem is far from obvious. Although the arguments about climate risk might be compelling, there is still plenty of money to be made in energy companies. Attractive options include investing in emerging-markets energy securities and companies positioned to benefit from the boom in hydraulic fracturing, or fracking, which has the potential to make the U.S. energy-independent and is already providing a boon to economically strapped states such as North Dakota. In the same way that there was plenty of money to be made in U.S. subprime mortgages before there wasn’t, many investors see a lot of opportunities right now in the energy sector.

The way most institutions allocate their assets presents a significant obstacle to divestiture. The endowment style of investing was popularized during the past quarter century by David Swensen, CIO of Yale University’s $20 billion fund. The Yale model favors active management and diversification of revenue streams — especially among alternative assets such as hedge funds, private equity and real assets like oil and other commodities. Endowment investment professionals are very resistant to the idea of divesting from any stock or sector. They believe that the markets and professional money managers are the best judges of an asset’s inherent value and that setting limits on where a manager can invest will almost always lead to losses.

Paula Volent, a Swensen protégée who heads the $1 billion endowment at Bowdoin College in Brunswick, Maine, echoed the views held by most of her colleagues when she told the Bowdoin school newspaper in February 2013 that divesting from the 200 largest publicly traded fossil fuel companies would have reduced investment returns by 5 percent a year over the preceding decade, costing the school more than $100 million. To the minds of such investors, divestiture is fiducially irresponsible.

The endowment investment model is not infallible. Many of its practitioners, including Swensen, stumbled in 2008, when they failed to predict the profound economic impact of the U.S. housing market crash. Joshua Humphreys, president and senior fellow of Croatan Institute, a Durham, North Carolina–based research center, contends that investors are making an even greater mistake with carbon risk. Even at a school like Yale, which is investing in green energy, Humphreys says, “they remain beholden to investing in the carbon economy as part of their diversification strategy.” He adds that “the analysis of the carbon bubble sounds completely incompatible with their strategy.” Some foundations, however, are starting to switch their portfolios out of carbon and reinvest those funds in green technologies. Humphreys is hopeful that these foundations will become the investment leaders of tomorrow.

For most environmental activists tomorrow is too late. They assert that the United Nations 21st Conference of the Parties on Climate Change, which takes place next year in Paris, will be the very last opportunity for governments to come together and solve the problem of a warming planet. Yet the political climate in the U.S. and elsewhere continues to make it virtually impossible for climate change policy, such as a tax on carbon emissions, to gain traction. That’s why, for most environmental activists, the primary goal of fossil fuel divestiture is to change political, not investment, behavior.

As a political movement, the divestiture campaign is as much about social equality and power as it is about climate change. Many on the front lines want to take back power from government and large corporations and address socioeconomic imbalances and oppression. (The last, not coincidentally, can be all the more severe in a resource-rich economy: Witness the political regime in Russia and the environmental degradation and corruption taking place in Nigeria.) As Berkeley student activist Ophir Bruck explains: “We are focused on climate justice, not just climate change. Climate is the symptom of a systemic problem of social inequality.”

Achieving change in the current political environment, which allows for big spending by corporations and other interested parties, requires money. The environmental movement finds itself in the ideologically uncomfortable position of harnessing a community of activists, many of whom support campaign finance reform and economic and social equality, while needing the deep pockets of überwealthy finance types like Rubin and Steyer. Yet the very presence of those financial leaders could force others in the investment community to take action.

The San Francisco Bay Area has a long history of social activism, but few events were as emotionally charged as the June 1990 speech by Nelson Mandela before a packed crowd at the Oakland–Alameda County Coliseum just four months after his release from a South African prison. Mandela, who had spent 27 years behind bars, thanked the audience for its solidarity and the role Californians were playing in putting economic pressure on the South African government to end apartheid.

“We salute the state of California for having such a powerful, principled stand on divestment,” Mandela said, as the throng roared its approval.

The anti-apartheid divestiture campaign started in the U.S. in the late 1960s after it became clear that Washington was not going to impose economic sanctions against the segregationist South African regime. By the late ’70s student activists across the U.S. were calling for their universities to divest; they were supported in their efforts by labor unions. Berkeley’s students were among the most active protesters, holding daily rallies in the campus’s Sproul Plaza and building an imitation shantytown to illustrate the injustices endured by South Africa’s black community. On July 18, 1986 — Mandela’s birthday — UC’s regents voted 13-to-nine to pull all of the system’s money from companies with links to South Africa or Namibia. It was a landmark decision, targeting more than $3.1 billion of stocks and bonds.

Bob Massie, who visited postapartheid South Africa on a Fulbright grant and wrote a 1997 book, Loosing the Bonds: The United States and South Africa in the Apartheid Years, believes divestiture was instrumental in leading to the dismantling of the segregationist regime. He contends that pressure from divestiture created a political climate in which House and Senate Republicans and Democrats could join to pass legislation imposing sanctions on South Africa and then override president Ronald Reagan’s veto of the bill. The sanctions weakened South Africa’s economy, causing the country’s president, F.W. de Klerk, to begin negotiations with Mandela and other members of the African National Congress and leading to the end of apartheid in 1994. Massie is hopeful that the climate-change-divestiture movement can provide an equally effective catalyst.

But at the same time the university endowments found themselves at the forefront of the apartheid debate, they were undergoing a radical shift in how they invested, to the endowment model, which would make it extremely difficult for a divestiture movement of a similar scale to ever happen again.

Yale hired Swensen to run its then-$1.3 billion endowment in 1985. Fresh off six years of developing structured products on Wall Street, the university’s new investment chief applied Modern Portfolio Theory to what had been an old-school way of investing, largely using fixed income and cash, with the goal of achieving the best possible returns with the lowest amount of overall portfolio risk. Diversification, especially among more-volatile, equity-based strategies such as hedge funds and private equity, is key. So successful was Swensen at Yale that investors all over the world soon adopted the endowment approach.

For proponents of carbon divestiture, the ascent of the endowment model had two very profound consequences. The first was that, with a grounding in rational market theory, faith in the security selection of its managers and an emphasis on diversification, the endowment-style investor rejected the notion of making decisions based on ethical or other seemingly nonfinancial factors. Subsequent, unsuccessful forays into divestiture — particularly in regard to tobacco stocks during the 1990s and early 2000s — would only serve to strengthen their conviction.

A second consequence was the rise of alternative-investment managers and the adoption of commingled funds. In the 1980s most institutional investors held a mix of stocks and bonds; a significant percentage of the money was indexed and passively managed. More often than not, actively managed money was — especially for larger institutions — kept in separate accounts. This meant that for the most part trustees and board members knew exactly how their institutions’ money was invested. If, say, they chose to divest from a company, it was a relatively simple process to identify their holdings and unwind them. Also, because funds were held separately, no other investors had to divest.

The rise of the endowment model was a gift to alternative-investment managers in general and hedge funds in particular: Institutional money flowed into their coffers and provided high fees. Farallon Capital Management was born out of this industry transformation. Tom Steyer founded the firm in 1986 with $15 million in seed capital, mostly from the partners of private equity shop Hellman & Friedman and their clients. Yale was one of Farallon’s first outside investors; other endowments followed. Today, Farallon has more than $19 billion in assets.

The new approach to investing was more complex and exclusive. As a result, more and more institutions, particularly those that did not have Yale’s sizable endowment, chose to outsource the management of their funds. This led to the growth of so-called outsourced CIOs. Steyer has a stake in one such firm, $27.6 billion Hall Capital Partners, founded by his good friend and former colleague Kathryn Hall.

Middlebury College is among the many schools that have taken the outsourced CIO route. In 2005, Middlebury became one of the first clients of Investure, a Charlottesville, Virginia–based firm set up by Alice Handy, who previously managed the University of Virginia’s endowment. Handy intended to provide the sophistication of the endowment model to midsize institutions by pooling their capital and investing in a handful of actively managed funds, selected and monitored by the Investure team. Hiring Investure improved the Middlebury endowment’s investment returns, but it would prove problematic down the road.

Middlebury, Vermont, is as remote as it is beautiful. The Otter Creek Falls tumble in the center of the village, not far from an old marble works. Middlebury College was founded on the outskirts of town in 1800. During the winter months its buildings of Vermont limestone, granite and marble blend with the slate-gray skies and snow-covered terrain. Winters in Vermont are not for the fainthearted. McKibben should know: He has been a scholar-in-residence in Middlebury’s environmental studies department since 2001.

Published in 1989, McKibben’s The End of Nature was the first book on climate change written for a general audience. In his 2013 book, Oil and Honey: The Education of an Unlikely Activist, McKibben describes his recent decision to take a more politically active stand: “Sometime in the course of the past decade I figured out that I needed to do more than write — if this fight was about power, then we who wanted change had to assemble some. Environmentalists clearly weren’t going to outspend the fossil fuel industry, so we’d need to find other currencies: the currencies of movement. Instead of money, passion; instead of money, numbers; instead of money, creativity.” But the movement also needed something else — money.

In January 2005, Middlebury organized an on-campus conference titled “What Works New Strategies for a Melting Planet.” The three-day event aimed to develop an effective means for combating climate change. Subsequently, McKibben and a group of Middlebury students launched Step It Up, a 2007 grassroots action campaign, when citizens around the U.S. drew attention to the issue of climate change and asked Congress to act.

Step It Up was a program of the Sustainable Markets Foundation, a New York–based nonprofit headed by attorney and political strategist Jay Halfon, who has links to Ralph Nader. In 2008, the Sustainable Markets Foundation launched a new project — It received a $100,000 grant from the Rockefeller Brothers Fund for the program. As got under way, McKibben was appointed the Schumann Distinguished Scholar at Middlebury. The position was funded by a $1 million-plus grant from the Schumann Center for Media and Democracy, a Montclair, New Jersey–based nonprofit affiliated with the Schumann family and journalist Bill Moyers. “Bill [McKibben] decided he wanted to move from just writing about the challenge to acting to confront it,” Moyers explains. “He left the board in September of 2010 for that reason.”

The grant was a way to underwrite McKibben’s mentoring role at Middlebury, which he had been doing on a pro bono bases, Moyers says. It was undertaken at the Schumann “board’s and not McKibben’s initiative. Having come to know him well over the previous decade, there was no one we knew who possessed better credentials for such a role; the board’s loss was the environment’s gain.”

With the 2012 presidential elections under way and neither Barack Obama nor Mitt Romney saying much of anything on climate change, decided to make the controversial Keystone XL Pipeline a rallying point for the environmental movement. At the time of the election, the White House, with guidance from the State Department and the Environmental Protection Agency, was under pressure to make a decision on whether to approve an extension of the pipeline that would allow energy company TransCanada to ship oil from Alberta to refineries on the Gulf Coast. Environmental activists rallied on Washington to draw a line in the tar sand.

Although the activists succeeded in raising the profile of the Keystone Pipeline, their impact on the discourse of the presidential campaign was limited. McKibben and his allies realized that to have an impact on Washington they needed to discredit the large oil companies that were spending billions of dollars in lobbying fees and political donations. Divestiture was their solution.

“We are less of a movement than a series of campaigns,” McKibben says of Part of any fight, he explains, is “calculations about power: who has it and how do you change it. Part of this kind of fight is also changing the zeitgeist. When change comes, change can happen quickly.”

For their part, activists and students were already mobilizing. In the fall of 2010, the Washington-based Wallace Global Fund and Oakland’s As You Sow came up with the idea of starting a national fossil-fuel-divestiture campaign on college campuses. Working with a coalition of other nonprofit organizations, including the Brooklyn-based Responsible Endowments Coalition, founded in 2004 by five student activists, the group devised a divestiture strategy focused on ten coal-fired utilities and five coal extraction companies, dubbed the Filthy 15. Students at Swarthmore College, who had been working on their own divestiture effort, joined the national campaign, along with students at Brown University, Lewis & Clark College, the University of Illinois, the University of North Carolina and Vassar College. By January 2012 the group had been joined by the California Student Sustainability Coalition and was spreading across the U.S.

“Through 2012 more and more student groups became interested in divestiture,” says Daniel Apfel, the current executive director of the Responsible Endowments Coalition (REC). “Many of them were already on responsible-investment or climate change campaigns on their campuses. This has just taken it to a totally new level.”

When Katie Hoffman joined UC Berkeley as a transfer student in the fall of 2011, she brought the fossil-free campaign with her. Hoffman, whose father, Paul, is a noted civil and human rights attorney, had been active in the divestiture campaign at her community college, but Berkeley had no such group. So Hoffman, who graduated last June and now works as a campaign director for the California Student Sustainability Coalition, built one. “To start with, we were just a ragtag bunch of student activists,” she says.

In June 2012, McKibben wrote an article for Rolling Stone titled “Global Warming’s Terrifying New Math.” He helped expand the divestiture push from the Filthy 15 to the entire Carbon Tracker 200, including companies such as BP, Exxon Mobil Corp. and Royal Dutch Shell. After the U.S. presidential elections in November, McKibben embarked on a nationwide “Do the Math” tour, based on the material in his Rolling Stone article. The tour featured special guests, including Archbishop Desmond Tutu and Canadian author Naomi Klein, who was instrumental in formulating the plan for to target divestiture. It stopped at university campuses, high school auditoriums and other venues.

Sandoval Jimenez, in his first year at Middlebury at the time, was among a group of students who took a bus to hear McKibben speak in Burlington, Vermont. Already passionate about environmental issues, Sandoval Jimenez, the son of Mexican farm workers, says he came away from the talk in shock: “I thought to myself, I can’t believe Middlebury profits from fossil fuels while advocating for a world without them.” He immediately got involved with the on-campus divestiture efforts.

Cal senior Ophir Bruck heard McKibben speak on the Berkeley leg of the tour. He vowed to get more involved and was invited to join Cal Students for Sustainable Investment by Hoffman, who was in his class on social inequality, taught by former Clinton administration Labor secretary Robert Reich.

The divestiture movement, and McKibben’s prominence in it, presented a problem for Middlebury. On the one hand, the university, its board of trustees and the administration were proud of the school’s reputation as a leader on environmental issues. On the other, they took their responsibility as fiduciaries of the $1 billion endowment equally seriously and did not want to do anything that was not completely financially sound. Middlebury president Ronald Liebowitz and chief financial officer Patrick Norton felt the best way forward was to have an open, honest debate.

“My only request is that students ‘do the math’ — that they get the full picture,” says Liebowitz. He wanted them to consider, for example, the potential economic hardship from rising coal prices for people living on the poverty line in developing countries.

The Middlebury students already had a Socially Responsible Investment Club. In 2010, working with REC and others, they had encouraged Investure to launch a sustainable-investment fund. In the spring of 2012, the students ran a campaign focused on the endowment’s transparency and accountability, says investment club member Jeannie Bartlett. The students began a carbon divestiture campaign in earnest the following fall.

Under pressure from students to divest, the Middlebury administration and trustees started reviewing the investment portfolio to see their options. “Our investment committee was very engaged,” says CFO Norton. The review took months of work and found that only about 3.6 percent of the holdings were in fossil fuel. Their most troubling exposure was to Coal India, the largest coal producer and thermal coal reserve holder in the world. The company is an activist position of Hohn’s TCI hedge fund. Hohn’s thesis is that the company is selling its coal for less than half of what others charge and should raise the price. That would help force India to transition to more-climate-friendly energy options.

It was pretty clear that Middlebury’s decision to outsource management of its investments was a major obstacle to portfoliowide divestiture: The school’s money is commingled with that of other endowments and almost entirely invested in active managers. In January 2013, Investure CEO Handy attended an on-campus panel discussion to debate the divestiture issue. “For us divestiture is very difficult, but it is not impossible,” she explained.

McKibben participated in that panel, which he describes in Oil and Honey: “I spoke last, after four investment professionals, and so we may have been behind on points — but I had a couple of aces up my sleeve.” His best card by far was Tom Steyer.

At Farallon, Steyer discovered how determined environmental activists could be when they worked with labor and student protesters. In 2002 his firm became the target of protests focused largely on a co-investment it had made with Yale in a Colorado-based water development project. Farallon’s critics contended that the investment was damaging the environment. By then Steyer and his wife, Kat Taylor, had already become interested in issues relating to the environment.

In October 2012, Steyer announced that he would retire from Farallon at the end of that year. He wanted to commit himself full-time to environmental activism. A few months later he was backing McKibben in the environmentalist’s call for Middlebury to divest, writing — in a letter addressed to the school’s trustees that McKibben read aloud at the public forum — that taking money away from fossil fuel companies was a sound investment decision.

After much discussion and deliberation, president Liebowitz last August published an open letter to the Middlebury community. In it he explained that the endowment had chosen not to divest from fossil fuel companies but pledged to work to develop principles around environmental, social responsibility and corporate governance (ESG) issues, to be applied to both the fund and the college. The endowment, he said, would increase its investments in ESG-type funds, including a commitment to green energy and clean technology. Two student representatives would be allowed to attend the investment committee meetings, and a small portion of the endowment would be allocated to students to invest in an ESG-friendly way. The college also pledged to apply ESG principles to itself. It is undergoing a review of its own corporate governance practices and procedures.

The Middlebury students are pleased with the gains they have made but adamant that they will keep the conversation going and continue pushing for divestiture. CFO Norton is planning a final panel discussion, scheduled to take place this month, that will focus on ESG investing as well as the views of investment professionals on fossil-fuel-free strategies. “We are an educational institution, so we are going to address the issue,” Norton says. President Liebowitz says he was surprised by how many college administrations refused to discuss the issue with students. “I felt we all benefited” from the debate, he adds.

In early October, Harvard University president Drew Gilpin Faust issued a statement on the Cambridge, Massachusetts, school’s $32 billion endowment. Faust dismissed the idea of divestiture as neither “warranted” nor “wise.” She questioned the whole divestiture strategy and asserted that “despite some assertions to the contrary, logic and experience indicate that barring investments in a major, integral sector of the global economy would — especially for a large endowment reliant on sophisticated investment techniques, pooled funds and broad diversification — come at a substantial economic cost.”

Harvard’s student activists are continuing to fight for change. They have gathered the support of some key advisers and alumni, including former Securities and Exchange Commission commissioner Bevis Longstreth, to help them make their case. “Students at Harvard aren’t only working on divestiture; many of them also want the endowment to be more transparent and more accountable,” says REC’s Apfel. “They believe that will actually produce better investment results.”

To McKibben the very fact that universities across the country are talking about the issue is having an effect. “Nobody is saying, ‘Fossil fuel is the best thing in the world; we love buying coal and making money in the process,’” he says.

At the University of California, the Fossil Free UC campaign is well under way. The students of the university’s various campuses decided to focus their divestiture efforts on the UC Board of Regents, with its $85.7 billion in pension and endowment assets, rather than targeting the individual endowments of the UC schools. Starting in 2013 they began speaking in the public comment sessions at the UC regents’ meetings. In May of last year, the student body voted overwhelmingly to divest from fossil fuels.

In December, Daniel Kammen, an energy professor at UC Berkeley and director of its Renewable and Appropriate Energy Laboratory, wrote an op-ed in the Daily Cal, the university’s student newspaper, supporting the move. “The UC system should divest,” says Kammen, who sees the action as a way to start working with energy companies to get them to adapt to a low-carbon future. “We need an industrial revolution. We know roughly the timetable,” he adds, referring to the scientific claim that the world must reduce carbon emissions by 80 percent by 2050 to avoid a catastrophic increase in global temperature. “A huge amount of expertise is needed to make that happen.”

Kammen is helping to coordinate a UC faculty vote on divestiture, which is planned for this spring. “A faculty vote that is successful would certainly call for action by the regents,” he says. In January four of the regents met with some of the Fossil Free UC student activists, including Bruck. He and the other students are hopeful that they can get divestiture on the regents’ agenda as early as this month.

Weather itself remains one of the biggest obstacles to convincing people that the planet is getting warmer. James Hansen, longtime head of the NASA Goddard Institute for Space Studies in New York and the American scientist most closely associated with climate change, identified the problem in a 2012 white paper titled “Perception of Climate Change,” in which he explained that the natural variability of weather can obfuscate the scientific fact of global warming. In his paper, however, Hansen noted that weather patterns have changed so much that “a perceptive person old enough to remember the climate of 1951–1980 should recognize the existence of climate change.”

Global warming is not just about heat. Scientists say it also results in changing weather patterns, as evidenced by the snowfall that blanketed much of the southeastern U.S. this winter and by the U.K.’s dramatic flooding. People tend to equate more snow with cooler winters, but, Hansen writes, “observations confirm expectations that a warmer atmosphere holds more water vapor, and thus warming may cause snowfall to increase in places that remain cold enough for snow.”

With California experiencing its driest winter on record, Governor Jerry Brown declared a state of emergency on January 17, 2014, saying, “We can’t make it rain, but we can be much better prepared for the terrible consequences that California’s drought now threatens, including dramatically less water for our farms and communities and increased fires in both urban and rural areas.” He called for Californians to voluntarily reduce their water consumption by 20 percent and took steps to reduce water usage elsewhere.

Five days later and other groups, including the California Student Sustainability Coalition, held the California Divestment Forum at Berkeley, bringing together students, environmental activists, elected officials and money managers. The forum included city schoolteachers, who wanted their pension assets divested of big energy companies, and members of Occupy San Francisco (some of whom could remember organizing on the Berkeley campus to protest South Africa), as well as church leaders and community organizers. Bob Massie gave the keynote address.

In addition to his other achievements, Massie, an ordained minister and former Harvard Divinity School professor, was from 1996 to 2003 executive director of Ceres (founded in 1989 as the Coalition for Environmentally Responsible Economies). In 2003 — aware that the Bush administration, with its ties to big oil, would not take action on climate change and that the Republican-led Congress was all but silent on the issue — Massie co-organized the inaugural Institutional Investor Summit on Climate Risk at the United Nations. The gathering attracted some of the U.S.’s most influential institutional investors — including state pension funds from California, Connecticut, Maryland and New York, representing more than $1 trillion in assets — to discuss climate change for the first time. When a few months later the California Public Employees’ Retirement System and the California State Teachers’ Retirement System formally pledged to put $1.4 billion into green-venture investing, it looked like investors’ attitude toward climate change might be starting to make a seismic shift.

A decade later relatively little has changed. “I think we are running out of words to express how difficult and deep and profound a challenge this is,” Massie told the Berkeley audience in January. “And we’re also running out of words to express, I think, our frustration at the inability of governments and others to address a problem of this magnitude. Even in the justification of a market system, we are witnessing the largest market failure in history.”

Given the economic concerns, Massie continued, “it is only a matter of time before somebody takes a swipe at either a group of fiduciaries or a group of pension consultants and says the failure to address a fundamental, known, massive destructive force is a breach of fiduciary duty and therefore grounds for a lawsuit.”

If climate-focused investing is going to storm the barricades of the ivory tower and disprove the deep-seated belief by most Modern Portfolio Theory practitioners that it is a surefire way to lose money, it needs to produce thought leaders and practitioners who are equal in stature to Yale’s Swensen. The smattering of universities that have voted to divest from carbon do not have capital pools of sufficient size or credibility to qualify them as investment leaders. A significant source of hope for the sustainable-investment community is the number of foundations that are starting to go fossil fuel–free or tilt their portfolios away from carbon.

On January 30 a group of 17 foundations representing $1.8 billion in assets announced that they would divest from fossil fuel companies and reinvest those assets in the green economy. Funds participating in the Divest-Invest Philanthropy campaign include the Schmidt Family Foundation, the $304 million charity of Google chairman Eric Schmidt and his wife, Wendy; the Wallace Global Fund; and the Sierra Club Foundation. “This is a great opportunity for foundations to leverage the full range of their assets, including investment capital, toward their mission and prove the investment thesis that there are returns in the green economy,” says John Goldstein, co-founder of San Francisco–based Imprint Capital Advisors, one of the few investment consulting firms to focus on impact and ESG investments and an adviser to the 17 foundations.

The Divest-Invest coalition members are not the only funds forging a new trail. Foundations with an environmental focus have an incentive to be among the thought leaders in responding to climate change — all the more so if they have the support of investment professionals who are passionate about the cause. The Washington-based World Wildlife Fund is being particularly innovative. Former Goldman Sachs risk chief Litterman, who has become one of the foremost authorities on climate investment risk, is a WWF board member. He has encouraged the fund to consider the threat a carbon tax would pose to its $330 million endowment. Rather than get tangled up in the process of divesting, the fund has with Litterman’s guidance hedged its exposure to the companies at greatest risk from carbon pricing — those dealing with coal and tar sands — through the over-the-counter derivatives market. The derivatives contract, Litterman says, is “a very inexpensive and undisruptive way to eliminate carbon risk.” The fund is also seeking to invest directly in the green economy, hiring managers such as London-based Impax Asset Management.

By far the most important foundation to take a stand on divestiture is the $840 million Rockefeller Brothers Fund (RBF). The Rockefeller family made its original fortune in the oil industry, but it has a long history of philanthropic leadership, including a focus on the environment. In 2008 members of the family helped lead a failed shareholder engagement effort designed to get ExxonMobil, one of the successor companies to John D. Rockefeller’s Standard Oil, to start adapting its business model to better respond to climate change. RBF, one of several family charitable foundations, is a longtime client of Investure, but it has begun redeeming its assets from the outsourced-CIO firm and plans to invest in its own climate-friendly, fossil-fuel-free portfolio.

For foundations like RBF that are supporting calls to divest through their grant-making operations, there is a certain pressure to walk the talk. The challenge is even more profound for the financial professionals who are taking an active role in the divestiture movement. GMO co-founder Grantham’s charity, the Grantham Foundation for the Protection of the Environment, gave $350,000 to in 2011, but GMO, which manages some money for the foundation, continues to invest in the carbon economy. Former hedge fund manager Steyer has funded through the TomKat Charitable Trust and personally committed capital to green investments through his family office. And yet Steyer long had exposure to the fossil-fuel economy through his investments in Farallon. At his request, Farallon has created a fossil-fuel-free sleeve for its founder’s assets, but divesting from the commingled fund will take time.

In public and private speeches, Steyer has stressed the need to change the discourse in Washington and achieve new, climate-friendly legislation. He believes that when the right public policy is in place, the big energy companies will become the lead innovators in pushing the change that is needed to produce a fossil-fuel-free economy (in much the same way that the breakup of the original AT&T Corp. helped result in a technological revolution). Although the divestiture movement may help bring into doubt the legitimacy of the big coal and oil companies and raise questions about their long-term suitability, it will need money to change the debate in Washington. In 2013, Steyer launched NextGen Climate Action Committee, a political action committee (PAC) focused on climate change.

Super PACs came into being as a result of the 2010 decision by the U.S. Supreme Court to overturn key elements of campaign finance laws limiting the political giving of individuals, corporations and unions. A Super PAC can raise unlimited funds from any of these entities and spend them on any political issue of its choosing, as long as that spending is not coordinated with a candidate’s campaign. The energy lobby has long used political spending to its advantage. ExxonMobil is well known for doing so and for supporting the publication of research critical of climate change. The Koch brothers, Charles and David, who head Koch Industries, a privately held conglomerate, are notorious for spending billons of dollars to support conservative causes, including opposition to climate change legislation.

In October thousands of youth leaders from around the U.S., including students from Middlebury and UC, came together in Pittsburgh to attend Power Shift, a four-day conference dedicated to climate change and social and economic justice organized by the Energy Action Coalition, a Washington-based alliance of student-led climate action groups. McKibben and Steyer were among the keynote speakers. There were workshops and concerts. The gathering had the feel of a political call to action — shades of Obama’s 2008 campaign or even the end-apartheid rallies of the 1980s.

Steyer was part of the Saturday night Power Shift speaker lineup. “This is a political fistfight in an alley,” he told the audience, wearing a white button-down shirt and his trademark red plaid tie. “And the question is, How are we going to win this fistfight Because we are up against the biggest, richest industry in the history of the world.” His answer: “We are going to win it with people.”

Middlebury and Berkeley students at Power Shift say they found the event inspiring and motivating. They were particularly excited to coordinate with other divestiture groups. Some felt a little uneasy after all the political rhetoric; others were motivated to get more political. The presence of Steyer did not go unnoticed. “It bothers me that people like him are in control of the movement,” says Berkeley freshman Soiffer, who since high school has been actively involved in campaign finance reform. “But it’s a reliable tactic. You have to use money to fight money.”

In 2013, NextGen raised $9.3 million, all from Steyer, and spent $8.25 million, focusing its efforts on races in Virginia and Massachusetts. Now Steyer is raising funds to target the 2014 U.S. congressional elections. An even more high-profile target, however, is likely to be the 2016 presidential campaign. Any Democratic politician with aspirations of being president can recall the damaging effect that Green Party candidate Ralph Nader’s 2000 campaign had on Al Gore’s efforts to win the presidency. Hillary Clinton herself knows well how successful political fundraising can be when combined with grassroots activism. With his Super PAC and big-money contacts, Steyer has the potential to be an important source of funds. He can also, through and the carbon divestiture movement, tap into a whole network of students and activists across the U.S. — a climate change army mobilized for action. • •

See also “Climate Change and the Years of Living Dangerously.”