Harvard Endowment Reports on Its Net-Zero Progress

The Harvard University endowment, which has pledged to move its portfolio to net-zero carbon emissions by 2050 issued a progress report this month. The verdict: Movement is slow, but the fund can record some headway.

The Harvard Management Company (assets under management as of mid-2022: $51 billion) takes credit for being the first endowment to make the pledge, in 2020.

In an interview with a university publication, Michael Cappucci, the managing director for compliance and sustainable investing for the endowment, said, “It is still early, but we’re off to a good start.”

In the near term, Cappucci said, HMC achieved the goal in its own operations in fiscal 2022. Sure, a university endowment is not a smokestack industry. Still, the fund has heating and cooling equipment, information technology services, business travel and commuting, which do consume carbon-based energy.

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It has found “opportunities within office infrastructure to increase efficiencies,” the report stated. HMC was carbon neutral for the first time in its facilities and operations in fiscal year 2022, the report stated. The endowment’s operations put out 1,864 tons of carbon emissions in 2022, although pandemic-related reductions in commuting and travel are “not expected to be a representative baseline” for future years. The report noted that the endowment is separate from the university, but that Harvard as a whole is also improving its carbon situation, having started in 2006.

HMC is one of several endowments to press for the net-zero objective. Others include the University of Michigan, Northwestern University and Princeton University.

The main focus of HMC’s effort is in its investment portfolio. By next year, the fund expects to have settled on a “baseline assessment,” measuring where it is and how to get where it wants to go. Then, the report said, HMC will “have a clearer sense of timing.”

Meanwhile, HMC is concentrating on its hedge fund and private equity investments, as well as its own direct holdings. Harvard’s directly owned securities have no fossil fuel exposure, and the fund makes no “new investments” in PE programs that explore for and develop carbon-based fuels: oil, natural gas and coal. Some of its PE and hedge funds contain previous investments in carbon fuels. Harvard will gradually get rid of these funds. The carbon investments make up 2% of the portfolio, the report found.

The Harvard fund is a signatory of the Glasgow Financial Alliance for Net Zero, a consortium of institutional investors sharing the goal of decarbonization, allowing HMC to share information and strategy more easily with others.

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Tags: 2050, carbon neutral, Glasgow Financial Alliance for Net Zero, Harvard Management Company, Michael Cappucci, Net Zero

The County Employees Retirement System says it is unable to comply with a new Kentucky law requiring state agencies to disassociate with companies that boycott the energy sector because doing so would be “inconsistent with its fiduciary duties.”

Last month, Kentucky State Treasurer Allison Ball released a list of financial companies that she said are engaged in boycotting energy companies. She said that under the new law, Senate Bill 205, which passed in April 2022, state agencies—including the state’s pension funds—are required to notify her if they own direct or indirect holdings of the companies on the list. Any state agency that has holdings in the companies is required to send a notice to those companies demanding that they halt any energy boycott or face divestment.

However, in a special meeting on February 8, the trustees of CERS—which represents 64% of Kentucky Retirement System members—approved a letter to the state’s treasurer saying that SB 205’s requirements would force CERS to breach its fiduciary duties. The trustees said CERS is therefore not subject to the law’s requirements.

In the February 13 letter to Ball, CERS board chair Betty Pendergrass wrote that “CERS has determined that the requirements set forth in [Kentucky Revised Statutes] 41.470 to KRS 41.476 are inconsistent with its fiduciary responsibilities with respect to the investment of CERS assets or other duties imposed by law relating to the investment of CERS assets, thus, per the law, it is not subject to the notification and other requirements set forth in KRS 41.470 to KRS 41.476.”

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Kentucky SB 205 defines an energy company boycott as the refusal to deal with, ending business activities with or otherwise seeking to penalize a company because it “engages in the exploration, production, utilization, transportation, sale or manufacturing of fossil fuel-based energy and does not commit or pledge to meet environmental standards beyond applicable federal and state law.” The law also applies to a “boycott” of companies that do business with such a company.

The law defines a state governmental entity as any “state board, bureau, cabinet, commission, department, authority, officer or other entity in the executive branch of state government that makes investments, deposits or transactions” of more than $1 million annually.

The Kentucky Retirement Systems include CERS, the Kentucky Employee Retirement System and the State Police Retirement System.

The list of companies targeted by Ball includes BlackRock, BNP Paribas, Citigroup, Climate First Bank, Danske Bank, HSBC, JPMorgan Chase & Co., Nordea Bank, Schroders, Svenska Handelsbanken and Swedbank.

“Our responsibilities to our members and our fiduciary duties are clearly defined in federal law and state statute,” a spokesperson for the Kentucky Public Pensions Authority, which manages the systems, said in an emailed statement to CIO. “We have and will continue to uphold those responsibilities and fiduciary duties.”

A spokesperson for Ball did not immediately respond to a request for comment.