Thursday, October 2, 2014

Divesting from Fossil Fuels will Soon be a Fiduciary Duty

There is a powerful argument that can be made suggesting that fiduciaries for endowments will soon have a legal responsibility to divest from fossil fuels. Whether they are for universities, colleges, foundations or other institutions, they are charged with "the duty of care."

Here's how that duty is described in the American Law Institute's 1991 Restatement of Trusts, Third, Section 227:

"This standard requires the exercise of reasonable care, skill and caution, and is applied to investments not in isolation but in the context of the ...portfolio and as a part of an overall investment strategy, which should incorporate risk and return objectives reasonably suitable to the [purposes of the endowment]".

Fossil fuels are known to be the primary drivers of climate change. Given the dangers and risks associated with this carbon intensive form of energy, divestment will soon be a legal responsibility.

This is the view of Tom Steyer, a summa at Yale and graduate of Stanford Business School, and founder of Farallon, and a contributor to the Risky Business report alongside Michael Bloomberg and Henry Paulson.

"At some point down the road towards the red light of 2 Degrees Centigrade, however, it is entirely plausible, even predictable, that continuing to hold equities in fossil fuel companies will be ruled negligence," Steyer said.

Those endowments that do not divest risk being subject to lawsuits from stockholders.

Related
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Climate Change is a Heath Problem and Divestment is the Cure
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Bill McKibben Talks about Divestment from Fossil Fuels in a Fortune Interview
Video - Investment and Divestment: Making Sustainable Choices with Campus Endowments European Commissioner for Climate Action Urges Development Banks to Divest from Fossil Fuels
Video - Bill McKibben on Faith and Fossil Fuel Divestment
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Video - A Debate about the 350.org Fossil Fuel Divestment Campaign
Video - Bill McKibben Makes the Case for Fossil Fuel Divestment at Middlebury College
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