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How to Make the Case for University Investment in Clean Energy

Resources: Making the Financial Case for your University Endowment to Invest in Clean Energy

Table of Contents:

I. Background Reading: Endowment Investment Strategy

II. The Risk: The Future for Fossil Fuel Investments

III. The Opportunity: Clean Energy Investing on the Rise

IV. Guides: How To Adapt Investment Portfolios to the New Age of Energy

I. Background Reading: Endowment Investment Strategy

Investopedia: How to Invest like an Endowment

II. The Risk: The Future of Fossil Fuel Investments

“The Carbon Bubble”

The “Carbon Bubble” is the concept that the market has overvalued investments in fossil fuel companies (in the same way that the market mispriced the risk of the 2008 subprime mortgage crisis) and when the political will arrives to implement policies to limit greenhouse gas emissions, the “bubble” will burst for companies with fossil fuel reserves on their balance sheet.

The original Carbon Tracker Initiative 2012 report set the stage for the whole divestment movement by identifying the 200 companies with the most carbon reserves, showing how if policies are put in place to avert a climate disaster, investments in these companies will be at significant investment risk.

MSCI is one of the leading global risk analyst agencies, and incorporates Environmental, Social, and Governance (ESG) data into their accounts. This is a FAQ on “climate risk” and a commentary on the 2012 Carbon Tracker numbers.

HSBC is one of the largest banks in the world. This report examines how oil and gas companies would be negatively impacted in the event of European climate policies.

Standard & Poor’s is one of the Big Three credit rating agencies in the world. This report looks at how fossil fuel company credit ratings may drop if government were to enact climate policy.

As You Sow is a nonprofit that promotes environmental and social responsibility through shareholder advocacy.  This white paper looks at how, faced with competition from natural gas and renewable energy, the financial viability of coal is declining, for companies and investors.

Green Alpha Advisors is a fund manager that specializes in “green” investments, with clients such as the Sierra Club. This op-ed is a succinct summary of 10 reasons why fossil fuel stocks may be poor investments.

III. The Opportunity: Clean Energy Investing on the Rise

As the cost of clean energy continues to decline and the cost of fossil fuels continues to rise, clean energy is becoming an attractive investment to investors small and large. As a result, record amounts of clean energy is being installed every year. Here are some reports that present clean energy investment research, trends, facts, and arguments for investment.

McKinsey & Company is a global management consulting firm that consults with public, private, and social organizations. This article highlights five solar customer segments that could be particularly attractive over the next twenty years and outlines steps for companies to competitively position themselves in the market.

The SEIA is the national trade association in the U.S. for the solar energy industry. In partnership with GTM Research, the SEIA surveys nearly 200 utilities, state agencies, installers, and manufacturers every quarter to collect granular data on the U.S. solar market. This report identifies and analyzes the upward trends in U.S. solar demand, manufacturing, and pricing by state and market segment.

Kachan & Co. is a boutique cleantech research and advisory firm. As You Sow is a nonprofit that promotes environmental and social responsibility through shareholder advocacy. The paper presents recent investment research on the cleantech industry and argues that the investment opportunities are lucrative and vast.

Bloomberg New Energy Finance is a source for insight, data, and news on the transformation of the energy sector. The factbook presents the state of U.S. energy along with the roles new technologies and innovations now play. It also provides information on finance and investment trends in clean energy resources.

Clean Edge is a research and advisory firm devoted to the clean-tech sector. The report tracks the annual trends of the clean energy sector and profiles trends to watch for in the future.

IV. Guides: How to Adapt Investment Portfolios to the New Age of Energy

There are many thoughts on how divestment from fossil fuels may impact portfolios. Here are some analysts’ takes on why the impact may be small, and in the long run, positive.

Aperio Group is an investment management firm that specializes in indexing. This report calculates risk and projects returns for negative screens of different levels of divestment, as well as positive screens for reinvestment, based off of the Russell 3000 index.

The Tellus Institute is a non-profit research and policy organization with an environmental focus. This report examines how divestment and sustainable reinvestment would play out in terms of risk and return for several different levels of divestment, and across many asset classes.

Mercer is one of the top consulting firms for the financial services industry. Though the research for this report is from 2011, this remains one of the most comprehensive analyses of how investors can adapt to climate change across all asset classes, on macroeconomic as well as sector-level scales.

USSIF is the Forum for Sustainable and Responsible Investment, a network of professionals, firms, and institutions involved in sustainable and responsible investing. This report, geared towards institutional investors, outlines pathways for divesting from fossil fuels and investing sustainably, as well as examining the potential impacts of each type of action.

HSBC is one of the largest banks in the world, and this detailed analysis examines the current market for bonds that align with a low-carbon economy – size, themes, outlook, and credit ratings.

Ceres is a network of investors, companies, and public interest groups that advocates for environmental solutions. This report lays out how an institutional investor might go through the process of incorporating environmental criteria into their investment policy across a variety of asset classes, and how they might structure their decision-making accordingly.

Trillium Asset Managers is “the oldest independent investment advisor for sustainable and responsible investing.” While this report is targeted at individual rather than institutional investors, it outlines a ways for fund managers to choose fossil free portfolio options.

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