Asset AllocationFebruary 10, 2020

Georgetown Is Latest University Pledging to Unload Fossil Fuels—Someday

The Jesuit school said it will get rid of energy stocks over 10 years.

Reported by Sarah Min

Under pressure from student activists, Georgetown University pledged Thursday that it will divest from fossil fuels in its endowment. But the college said it will take a full decade to make the change.

The school’s board of directors passed a policy stipulating that the Jesuit college will dump stocks of public oil and gas companies within the next five years. It will also offload private stocks in the industry over the next 10 years.

“Climate change, in addition to threatening our planet, is increasing the risk of investing in oil and gas companies, as we expect a more volatile range of financial outcomes,” Michael Barry, chief investment officer at Georgetown, said in a statement. “We will continue to evaluate the efforts of these companies,” he added.

Georgetown said it will take a “responsible and expeditious” timeline for divestments, while continuing to seek a market rate of return on renewable energy and energy efficiency. It will also retain commingled investment funds “as needed.” The school had roughly $1.66 billion in its endowment, as of fiscal year 2017.

The sustainable investing push comes amid growing calls from student activist groups such as GU Fossil Free, which campaigned for eight years on the issue. The group called for a referendum, or a non-binding vote from students and faculty, the same day the school’s board announced the divestment.

GU Fossil Free took to its website Thursday evening to express support for the policy change. “We are thrilled that our university has taken this important step in supporting climate justice, student voices, and financial accountability,” the statement read.

In recent years, fossil fuel divestments have picked up speed, particularly as energy stocks lag the broader markets. How attractive are energy investment holdings? They’re a mixed bag. Energy companies lately have not been doing well in the stock market, mostly because of tumbling oil and natural gas prices. Over the past three years, the exchange-traded fund that covers energy, the Energy Select Sector SPDR, is down 5.3% annualized.

In 2019, the energy segment was the worst-performing sector of the S&P 500. But the industry does throw off fat dividends: The ETF’s dividend yield is 7.55%.

Georgetown, which previously announced that it would divest from coal and tar sands, is among a growing list of education endowments pledging to abandon fossil fuel.

Since 2014, more than half of 154 public universities in the United Kingdom have already made commitments to divest from fossil fuels. In September, the University of California vowed to divest of all fossil fuels from its $13.4 billion endowment, as well as its $70 billion pension fund.

Other schools, such as Syracuse University in New York and Middlebury College in Vermont, have also made the leap.

But the calls for investing based on environmental, sustainable, and governance (ESG) principles have divided some institutional investors, who argue that they distract from their fiduciary duty.

Last month, the California State Teachers’ Retirement System (CalSTRS) described fossil fuel divestment as a “last resort action that can have a lasting negative impact on the health of the fund.” The pension plan argued that its active involvement is a better strategy to help steer fossil fuel companies toward reducing carbon emissions.