Money Managers Are Starting To Heed Activists' Calls To Divest From Fossil Fuels

Rakhi Kumar cares about climate change, but she's not an activist. She's an accountant, by training — focused on cold, hard numbers.

These days, Kumar is the head of environmental, social and governance investments at State Street Global Advisers in Boston, a firm that manages more than $3 trillion. And the numbers tell her fossil fuel investments simply aren't as promising as they once were.

"It's about protests on the streets, it's about kids leaving their classrooms, it's about the hurricanes — all of that," Kumar said.

For decades, environmentalists have warned that climate change endangers the planet. Now, some asset managers see a threat to the bottom line.

Kumar notes that severe weather events can disrupt business. And she sees young protesters as the most vocal members of an entire generation of consumers — consumers who want to buy things that are better for the planet.

"We raised the question of people wanting to buy electric vehicles," Kumar said, "and one of the oil companies told me that, 'Oh, you know, that's only 20% to 30% of our demand, coming from cars.' I just looked at them, and I said, 'Well, if any other sector had told me that 20% to 30% percent of the demand was at risk, it would be of concern.'"

State Street isn't the only money manager that's concerned. BlackRock, the world's largest asset manager, recently told clients that environmental sustainability will be a key factor in investment decisions, going forward.

"I have not done this with the idea of focusing on any activist groups or any other voice," BlackRock Chief Executive Larry Fink explained on NPR's All Things Considered. "We are a voice to the investors. Our job is to be speaking on behalf of our investors. And I wrote this letter not as an environmentalist. I wrote this letter as a capitalist."

In other words, it isn't so much about going green as it is about making green — as in money. Lately, there have been better ways to do that than in the S&P 500's energy sector, which is made up of fossil fuel giants like Exxon Mobil and Halliburton.

It's yielded the worst return of the index's 11 business sectors in back-to-back years.

"If a fiduciary's main goal is to maximize the returns, then why are they still holding on to these investments?" said Randi Mail, political director of the MassDivest Coalition. The group encourages asset managers, like Boston-based Liberty Mutual, to dump fossil fuels from their portfolios.

"When we're thinking about how are we going to avert the climate catastrophe that we're facing, we need to think in trillions."

Randi Mail, political director of the MassDivest Coalition

Liberty Mutual declined an interview request but says it has cut fossil fuel investments in half over the past few years. The company recently announced it will stop investing in businesses that generate more than a quarter of their revenue from coal mining.

Mail calls this progress but says the changes don't go far enough.

"When we're thinking about how are we going to avert the climate catastrophe that we're facing, we need to think in trillions," she said. "And the way that we do that is by putting pressure on the institutions that we get our services from."

One high-profile pressure campaign focuses on Harvard's $41 billion endowment, which includes an undisclosed amount of fossil fuel investments. During last fall's Harvard-Yale football game, demonstrators rushed the field at halftime and chanted, "Fossil fuels have got to go!"

Divestment for Harvard would mean pulling its endowment money out of oil, gas and coal businesses. Harvard's largest faculty group voted in favor of the idea last month. And university President Lawrence Bacow has agreed to present divestment to the Harvard Corporation, which decides such things.

Campus activists have been pushing divestment as the right thing to do for years. Now, the fiscal case may be stronger.