Fiduciary Responsibility

The issue of ‘fiduciary responsibility’ is offered as a reason for not divesting from fossil fuel stocks. That is, those who control endowments claim that there would be a “financial loss,” or rather a missed opportunity to profit maximally, if they sold the stocks of companies whose products and services are the biggest contributors to the current climate destabilization of Earth. This is a false argument.  In fact, the opposite is true.  It is fiduciary irresponsibility on to ignore the economic risk of holding on to the stocks of industries that humanity must abandon quickly and thoroughly to ensure our survival. 

The Intergovernmental Panel on Climate Change (IPCC) established a global carbon budget of 469 billion tons, beyond which will exceed the internationally agreed-upon target of limiting global warming by 2°C. This will result in “runaway climate change” from which there would be no hope of recovery on any timescale relevant to civilization. Based on this global carbon budget, the International Energy Agency (IEA) explained that 66% of all known fossil fuel reserves must be left in the ground to have a 50% chance of meeting the 2°C target; the Carbon Tracker Initiative took this a step further, stating that 80% of all reserves must be left in the ground to have an 80% chance of meeting the target. We endorse the Carbon Tracker Initiative’s estimate, as humanity deserves more than a 50/50 chance.

If companies violate this unequivocal opinion of science and insist on developing all of their reserves for short-term profits, it will be the greatest intergenerational crime of all time. On the other hand, if governments rise to their obligation of requiring 80% of known reserves to be left in the ground, ‘stranded’ as they were, then the market price of such stocks will end up inflated beyond their real value. When the market is forced to contend with these toxic stranded assets, endowments still in possession of those stocks will take a bath.

United Nations Framework Convention on Climate Change (UNFCCC) Executive Christiana Figueres proclaimed the above in her response to Brown University’s decision not to divest from the stocks of coal companies: As a society we are on an irreversible path toward low carbon. In this process, high carbon assets will lose their value, becoming stranded by the new economy. It is financially prudent to be on the forefront of this transition, in particular given the increasing options for profitable investments in clean technologies. Several large financial institutions have already stated publicly that they will no longer invest in coal. Long-term institutional investors that are still vested in high carbon are realizing that they could be in breach of their fiduciary responsibility.

Thus, the fiduciary responsibility of the Global Pension Fund supports the avoidance of the risk that it will be left holding stocks at inflated prices when the reckoning finally comes.  And so, divesting from fossil fuel stocks now is a matter of double risk avoidance.