Christiana Figueres, Executive Secretary of the UN Framework Convention on Climate Change, has written to the students, the Chair of the Board of Managers and the Chair of the Board's Investment Committee at her alma mater, Swarthmore College in the United States, explaining her views on investment in fossil fuels and what it means for the future of global efforts to meet the challenge of climate change.
The Full Text of the Letter Follows
I write as a proud alumnus of Swarthmore College, a college which imbued me with many of the values and principles with which I today exercise my responsibility at the helm of the United Nations Framework Convention on Climate Change.
It is with both optimism and reflection that I learn of the sit-in on the Swarthmore campus. The passion and commitment of students always renews my optimism. The complexity of the decisions faced by the Board of Trustees is one that calls for thoughtful exercise of responsibility.
Science has left no doubt that global climate change is due to the escalated human use of fossil fuels over the past 150 years. In order to avert the worst effects – which will be unfairly borne by the most vulnerable and by future generations – humanity must, over the next few decades, make an unprecedented shift in global investment from high to low-carbon patterns of development. This transition is already underway. But science has also left no doubt that this transition needs to be massively accelerated. Simply put, we are running out of time to do the right thing.
When students, faith leaders and citizens all around the world call for a shift in investments from high to low-carbon they are voicing the moral imperative to align financial decisions with our highest sense of accountability, both across segments of society as well as across generations. As a mother and a concerned global citizen I align myself with that clarion call and I know that no reader of this letter would distance themselves from this charge. Yet this cannot be the only consideration when it comes to investment decisions.
I am sure that the members of the Board of Managers, in exercising their responsibility to protect the college endowment, are acting according to their highest understanding of fiduciary duty, and I thank them for that. With this letter I would however like to point out that the risk return analysis of fossil fuel investments has shifted in the past five 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.
When financial institutions, investors and asset owners announce that they are starting a process of decarbonizing their portfolios, they are responding to the increasingly evident economic imperative of sound long term investment. The latest academic evidence and market analysis shows us that incorporating sustainability and climate factors into investment decisions adds financial value. Forecasts of the deployment of renewables have consistently been broken as costs fall faster than expected. Likewise, coal markets both in the USA and in China have been contracting faster than expected, severely impacting share valuations. This materiality will accentuate in the years ahead as investors recognize that unabated coal has no place in the future energy mix, and the social and environmental impact of other fossil fuels is increasingly regulated and priced, nationally and internationally.
Regulation and incentives will have to be at the heart of the energy transformation. The number of cities, states and countries which are regulating and/or putting a price on greenhouse gas emissions is on a steady rise. Under the UNFCCC all governments of the world are currently constructing a universal framework that will provide an even stronger directional signal to capital markets.
The pathway that is followed by large scale investments over the next five to ten years is critical. That is why I am in constant dialogue with institutional investors and shareholders of fossil fuel companies and with fossil fuel companies themselves, in particular those that want to be part of the solution through an orderly transition of the impressive technical and financial resources they command. This transition is one which we should all support and encourage, as the speed and scale of it will largely determine our success in addressing climate change in a timely manner.
Small scale investments also have a role to play. The thought that one institution’s small investment level is inconsequential to change is analogous to the dangerous sentiment that in the context of a democratic system one vote is irrelevant because it does not constitute the majority. Or, in the context of an academic institution, it is analogous to the unacceptable belief that the education of one student is unimportant because a single person does not effect change. Using the power of our capital, be it small or large, we can drive market innovation to promote climate change solutions in a planned and sensible manner.
All investment is about foresight. Historically, our college has benefitted from an investment strategy based on active decision-making matched by an engaged stewardship of our holdings. Today those approaches can also be deployed in the already unavoidable transition toward a low-carbon economy. It is financially prudent to be on the forefront of this transition. While the investment shift is not easy and cannot be done abruptly or irresponsibly, there are several well reputed climate and clean energy indexes now available as guides for the transition.
As Executive Secretary of the United Nations Convention on Climate Change, I see that history is calling all of us to smoothly usher in the next phase of global economic development. Swarthmore cannot determine the pathway of global investments, but it can protect its endowment and play its part in history.