The Rockefellers blaze a new path to profits…in fossil-free investments 

Climate Economy

The Rockefellers blaze a new path to profits…in fossil-free investments 

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Exactly 150 years after John D. Rockefeller founded Standard Oil, his heirs want you to know that for the future, oil spells disaster  

Five years ago, the board of the Rockefeller Brothers Fund (RBF) announced that they would begin divesting their $860 million portfolio of fossil fuels and instead focus on climate-friendly energy and other fossil free alternatives. At the time, the shift made big headlines, and is now seen as the catalyst for the cascade of subsequent institutional divestment from coal, tar sands, oil and gas. 

When announced, climate doubters jeered and even supporters feared that in getting out of oil, the fund would suffer a real decline in profits. 

In May, the RBF put those fears to rest, announcing their now $1.1 billion endowment had posted an average annual net return of 7.76% over five years, exceeding expectations—and beating the market norm. Results for a comparative index portfolio made up of 70% stocks and 30% bonds that included coal, oil and gas in the same period had returned only 6.71% annually. 

I spoke recently with RBF Board Chair Valerie Rockefeller, the great- great-granddaughter of John D. Rockefeller, and Stephen Heintz, President of the RBF, about the results and why it’s great news for the global divestment campaign. 

 

Stephen Heintz and Valerie Rockefeller.


“We do feel proud, of course, because not all risks pay off,” says Valerie Rockefeller. “We try to be as honest about mistakes and lessons learned as we can, but I remain surprised five years in about how much impact the divestment decision and public announcement had.” 

Surprise indeed. A global divestment campaign led by a handful of campaigning organisations, charities, philanthropies, churches and several universities was initiated in 2014 with a collective commitment of $62 billion. As of this year, the movement has swelled to include more philanthropies, churches and universities—and now an ever-increasing number of mainstream institutional investors—from around the globe. The total value of assets divested from fossil fuels so far? An estimated $12 trillion.

 

“If our returns are good in another five years, and we are pretty confident they will be, we’ll feel like we delivered.” 

“We are proud of the results, but also a little humble because five years is not a very long period in a business cycle,” says Heintz, of the fund that now has a 2020 grantmaking budget of $39 million. “If our returns are good in another five years, and we are pretty confident they will be, we’ll feel like we delivered.” 

In 2014, the decision to remove polluting energy from the RBF portfolio seemed risky but an important step as part of the new global fossil fuel divestment campaign. The RBF directs $15 million, just under half of its $39 million grant program, each year into climate change solutions, including research and programs to support carbon emissions reductions, sustainability and renewable energy. For the RBF board, it made no sense to continue investing in the source of the very problem they wanted to solve. 

COVID-19 and the global climate movement

“The rationale for continued investment in gas and oil is fading fast,” says Heintz. “We spent the last five years proving oil was bad not only for the environment but for the bottom line. And then COVID-19 did it in two months.”

Valerie Rockefeller says the board was aware that their 2014 announcement, planned for the day after more than 600,000 took to the streets for the People’s Climate March, would be big news. After all, John D. Rockefeller’s fortune is all about oil. But when September 22 came around: “I was surprised the decision captured headlines, and public attention in the way that it did.” 

“When we joined the divestment movement, we were convinced that a more profitable and less risky investment portfolio could be constructed without exposure to fossil fuels,” wrote Rockefeller in the fund’s results report. “Now, we have five years of financial data to back it up. Oil is a definitional part of my family’s past, but it has no place in our future.”

“When we joined the divestment movement, we were convinced that a more profitable and less risky investment portfolio could be constructed without exposure to fossil fuels,” wrote Rockefeller in the fund’s results report. “Now, we have five years of financial data to back it up. Oil is a definitional part of my family’s past, but it has no place in our future.”

Heintz says he is very proud of the leadership of the Rockefeller family and the board through the divestment process.  

Five generations of fossil fuel leadership

“The family has invested its capital in the broadest definition of that term—financial capital, reputational capital, leadership capital—in what it believes we should be doing,” Heintz said. “If this had been the John Smith foundation it just wouldn’t have had the impact. It’s a wonderful example of how a family now in its fifth generation of leadership continues to really be a leader.” 

When RBF announced their financial results, the board cited recent statements by financial heavyweights BlackRock and Goldman Sachs to begin moving out of coal, oil and gas as a testament to their taking early steps to show it could be done and that it made financial sense. 

Since 2013, over 100 significant financial institutions have divested thermal coal, including 40% of the top 40 international banks and 20 major insurers. Banks that have restricted funding to coal include Morgan Stanley, BNP Paribas, Deutsche Bank, ABN AMRO Bank N.V., HSBC, ING, RBS, Standard Chartered Bank and Barclays Investment Bank. In June, Goldman Sachs reported that in 2020, investment in renewable energy is set to surpass oil and gas  for the first time and that clean energy affords a $16 trillion investment opportunity through 2030. 

Heintz points out that the RBF divestment decision followed from a move in 2010 to allocate 10% of the total endowment to impact investments, but only those expected to meet a very high return bar on par with traditional returns. That and the process of deciding to act as a shareholder activist as early as 2004 meant the fund’s board and investment committee were ready.

“People worried that we were going to try to do it too fast and we wanted to do it as quickly as we could, but we knew we had to be prudent because we didn’t want to lose money,” Heintz says. “I have to say the family was nearly uniformly enthusiastic and from a leadership point of view, we felt it was exactly the right thing to do.”

The big investment gamble of 2014

One of the fund’s major challenges was having to change fund managers to enact the divestment decision. Their very profitable funds manager at the time, Investure LCC, worked with a business model of investing on behalf of 14 institutional clients—endowments, colleges, etc.—and the funds were co-mingled. To make a change to the approach, all 14 clients had to agree. 

“Many of those we were investing were not willing to take the risk to divest so we weren’t making much progress,” Heintz said. “We decided ultimately that we had to go back into the marketplace to find a funds manager with a very explicit mandate to help us accomplish our goals.”

Heintz said they had 13 responses to their call for proposals. Some had no experience but loved the sound of the adventure, others already had some impact investment wins under their belt and an understanding of how it could work. They interviewed six and ended up selecting investment firm Agility

“I’ll never forget that interview,” Heintz says. “The Agility team were clear they didn’t have a track record but they felt this was where the world was going. They wanted to work with us to get to know how to create a niche for themselves in this and said they would hire staff who would have the capability to support us.” 

Five years later, Rockefeller says Agility has kept every commitment despite the RBF continuing to step up its impact investment and divestment demands. “We do keep making their job more challenging.” 

Divestment goes mainstream 

Looking back, the very public way that the RBF committed to divesting as part of the global campaign and to openly share the challenges and how and why they were divesting, it’s clear that it was an important turning point. Previously, the campaign for climate action had been largely symbolic. The next landmark was set in 2015, when the world’s largest sovereign wealth fund—Norway’s—announced it was divesting $900 billion from coal. Suddenly divestment was going mainstream. In the years since, whole governments such as Ireland and universities including Oxford, the University of California and Cornell have divested all of their endowments from fossil fuels. 

The new RBF report includes 2020 first quarter data that suggests its early dropping of fossil fuels helped shield the endowment from some of the market volatility due to Covid-19 induced market upheaval. The fund showed 27% less “annualised standard deviation” than the market yardstick with smaller swings in its value making it less risky than the mainstream. 

“We couldn’t have predicted the fall in the price of oil and obviously that started even before COVID, but it does underscore this message that it’s risky to remain invested and increasingly so,” says Rockefeller.  “If you look at it from the moral perspective, climate change is a systemic risk that we can predict. Now there’s the financial data to back that up, and fossil fuels are stranded asset risks.”

At the time of the RBF announcement around 50 philanthropists and philanthropic funds had joined together through the Divest-Invest network led by the Wallace Global Fund to build power and pressure more philanthropists to become more active on climate change through divesting. The network then represented 67 foundations with combined assets of $4.2 billion.

“In all honesty, not as many foundations as we would have expected joined in, or universities and other sorts of nonprofits endowments,” Valerie Rockefeller admits. “It was a bit of a disappointment.”  

“Sooner or later, fewer people are going to buy. That’s what I think is beginning to happen now, especially when you get $12 trillion of assets under management being divested from fossil fuels.”

The Divest-Invest partners “were critical to this whole process,” Heintz points out.  “They really helped us think it through and move faster than we might have without their help. They’ve been wonderful partners all the way through and their leadership has just been spectacular.”

One criticism of the divestment effort is that it opens the door to “bottom feeders” or those willing to snap up low cost fossil fuel assets dropped by others and continue to run them rather than seeing them shut down. I asked Heintz if that was a worry for the RBF? 

“That’s true up to a point, but sooner or later, fewer people are going to buy. That’s what I think is beginning to happen now, especially when you get $12 trillion of assets under management being divested from fossil fuels. These companies are going to become starved for capital sooner or later, which is what we need to happen.”

RBF’s five-year results are a great success story. Still, the world is not doing enough to reduce emissions. In mid-June, the highest temperatures on record were recorded in Siberia inside the Arctic Circle. Due to the coronavirus, the next UN Climate Change meeting, originally scheduled for September 2020, has been postponed until 2021. I asked Valerie and Stephen if they thought we still had time to address climate change before warming and other impacts overtake us.

“As a fund, we’re ready to embrace the tough challenges ahead.”

“Scientific data still indicate it’s possible to hold warming to 1.5C, as we must for any environmental and social justice, by 2100,” concludes Rockefeller. “As a fund, we’re ready to embrace the tough challenges ahead to do that.”

I think we are at a hinge moment — maybe this is the tipping point moment when we move more rapidly to get out of fossil fuels and save the climate,” adds Heintz. “But there is also the possibility because of the devastating effect of COVID on the economy that governments think we have to further deregulate and go back to the ‘robust’ old economy.

“It’s going to be a fight. A new coal fired power plant was just opened in Germany of all places and support for the Greens there, which reached a peak last year at 27%, since COVID has dropped to 16%. It worries me. The outcome of the U.S. election couldn’t be more critical. Now more than ever, we have to make this moment  the moment that really transforms the future.”

Read the full RBF report: Investing in Our Mission: A Five Year Case Study of Fossil Fuel Divestment at the Rockefeller Brothers Fund.

Illustration by Wenting Li.

Written by

Blair Palese

Blair Palese is a writer and project manager on a range of climate change projects. In 2009, she cofounded 350.org Australia and was its CEO for 10 years. Previously, she was a communications director for Greenpeace International and Greenpeace USA, head of international public relations for the Body Shop, editor-in-chief of Greenpages magazine, and worked at Washington Monthly and ABC.