Stanford Getting Rid of $18 Billion Endowment of Coal Stock 208
mdsolar sends this report from the NY Times:
"Stanford University announced Tuesday that it would divest its $18.7 billion endowment of stock in coal-mining companies, becoming the first major university to lend support to a nationwide campaign to purge endowments and pension funds of fossil fuel investments. The university said it acted in accordance with internal guidelines that allow its trustees to consider whether 'corporate policies or practices create substantial social injury' when choosing investments. Coal's status as a major source of carbon pollution linked to climate change persuaded the trustees to remove companies 'whose principal business is coal' from their investment portfolio, the university said."
Activist investors (Score:5, Insightful)
They are not acting in the best interest of those the endowments are there to serve. They are using the financial clout of the endowments to make a political statement, often to the detriment of the endowment's beneficiaries.
Stupid.
Re:Activist investors (Score:4, Insightful)
Re:Huh? (Score:3, Insightful)
Wow, your time as a University trustee seems to have left you really bitter. Oh wait, you were *never* entrusted with maintaining a 120-year-old institution and its 11-figure endowment? Huh.
Stanford is a (very rich) non-profit educational institution, so while they have plenty of sharp investment managers it is not their sole obligation to maximize returns no matter what it takes. Their reputation is worth quite a bit to them. They bring in just about as much money in alumni donations as they do from the endowment.
Re:Activist investors (Score:5, Insightful)
so what's to stop some activist group form using this as a precedent?
The fact that the endowment managers can pick and choose which activists they pay attention to. They didn't divest from coal because of a few whining activists. They divested because of broad support among students and faculty for the divestiture. It is also likely that they looked at coal mining companies, and decided that they weren't a very good investment in the first place. Coal mining may not be a good long term growth industry.
Re:Activist investors (Score:4, Insightful)
Re:$18.7 billion?! (Score:5, Insightful)
Endowments return significant operating funds in up years, and sales from the endowment assets smooth out what would otherwise be significant operating losses in the down years; they decouple university operating finances from the business cycle and local politics. They _stabilize_ finances. They can also used as collateral allow for much larger debt funded initiatives to be floated. I dearly wish my university employer had a large endowment....
Put another way: you don't eat your seed corn. The endowment is the seed corn. Selling off an endowment for short term, short sighted "it seems wrong to have so much money!" would be criminal
To the Contrary. The last ones out get burned. (Score:5, Insightful)
To the contrary, Stanford is simply astute enough to be the first to sell, while the price of companies involved in coal are still high. Its now just a trickle, but soon it will be a flood. The smart ones always get out first. The rest won't be able to afford not to and will begin to sell as their portfolios in these companies as they decrease in value. With new solar technologies capable of energy capture at up to 70% likely to start hitting the market within 5 years and wind energy becoming cheaper and cheaper and the electric car industry just around the corner, fossil fuel dinosaurs will be returning once again to the depths. Only those locked in will ride coal and ultimately fossil fuels all the way to the bottom.
The energy barons of the future will be those that invested in renewables first. Its inevitable and of course, the reason that China is now spending 3 times more on solar ($147 billion in 2011) than the US ($52 billion in 2011). No one can say the Chinese don't know how to grow their economy, which will be the world's largest this year, if it isn't already.
Re:Summary is WRONG (Score:4, Insightful)
I'm happy to buy (Score:-1, Insightful)
Re:Activist investors (Score:4, Insightful)
No, they aren't. If you auction off a commodity, I don't lower the sale value by not bidding. The sale value will be whatever the economic usefulness of the item dictates, so long as there are enough willing buyers to soak up the entire supply. To put it another way: the value of coal stock is a feature of the value of coal. Complete divestiture by everyone on the planet wouldn't even kill those companies - in fact they'd be able to buy all their own stock back for a pittance! The only thing that will kill the companies is refusing to buy their *product*. Stanford should rather have calculated their profits from these investments and used that money to divest themselves of their use of coal.
Re:Activist investors (Score:4, Insightful)
They are not acting in the short term interest of those the endowments are there to serve. They are using the financial clout of the endowments to make a political statement, often to the detriment of the endowment's beneficiaries.
FTFY. They are allowed to divest of companies that will create substantial social injury. Being a major contributor to global warming will indeed to significant social (among other types) injury. Such harm will indeed do harm to the endowment's beneficiaries in the long term. Therefore, they are acting in the long term interest of the beneficiaries (and their children, and their children's children, and their children's children's children...etc).
Re:Great, more profit for the rest of us (Score:2, Insightful)
Hah. And here I've been writing paragraphs on other sites trying to explain this to people. Well put.
turkeyfish, stock sales don't put downard pressure on the value of a company. The put a temporary downward pressure on the trade value available on an exchange. But all that effects is liquidity. As long as even two sufficiently-capitalized bidders understand the value of the underlying company, coal stocks would maintain their price with only those two bidders. Why would one of them turn down the stock at a bargain price?
The value of these companies, and thus the value of their stock, is driven by the value of coal. That value is realized on the energy market, not the stock market. The stock market is only where that value is *traded*. Theoretically, sure, massive investor actions could upset underlying dynamics. But it doesn't take a Stanford grad to know that coal energy will never be stopped, or even much affected, by voluntary divestment activity. There are simply too many remaining sources of capital, to the extent that these companies even need new capital at this point. And there will always be enough people happy to soak up the profits of the companies, as long as there are buyers of coal energy.
Far smarter for Stanfard to point this out, then dedicate all coal-energy profits to avoid purchasing the *energy* from coal, and also toward reducing the cost of alternatives, not just for Stanford, but for everyone. They actually chose PR *over* environmental responsibility, not to mention over simple economic intelligence.
Re:Activist investors (Score:5, Insightful)
People have called into question just how much of the effectiveness of that campaign came from the financial impact and how much came from the increased publicity, but I think its pretty widely considered to have played a non-trivial role in ending apartheid.
So yes, it is certainly possible that this campaign will prevent some environmental damage. Additionally, let me point out that Standford is not impoverishing themselves here. Money currently invested in coal can be invested in other things, with minimal opportunity loss - coal stocks aren't exactly skyrocketing right now. So the idea that the environmental gains could out way the financial losses is completely plausible.