Finance Must Combat Climate Change – or Else
Despite the increasing urgency of the climate crisis, many of the world’s most powerful financial actors have continued to invest in the fossil-fuel industry. But a new trend in the law is forcing institutional investors to decarbonize their portfolios – or be held legally accountable.
CAMBRIDGE – This summer, the Intergovernmental Panel on Climate Change released its latest report, and the scariest part is just how unsurprising its contents were. Avoiding the worst, the report made clear, is still possible, but only if humanity moves to a carbon-neutral economy as quickly as possible. “This report,” said United Nations Secretary-General António Guterres, “must sound a death knell for coal and fossil fuels, before they destroy our planet.”
And yet, with the planet on fire, institutional finance is fanning the flames. Many of the world’s most powerful financial actors continue to invest in the fossil-fuel industry, even as its actions predictably lead to massive economic disruption, ecological catastrophe, and social injustice. Until now, they have gotten away with it. But a new trend in the law is forcing institutional investors to decarbonize their portfolios – or be held legally accountable.
Harvard University is a case in point. For a decade, Harvard’s leaders had ignored calls from students, faculty, and alumni to divest the university’s $53 billion endowment from the fossil-fuel industry. But, recognizing scientific and financial reality, in September Harvard finally pledged to divest from companies whose business models, by relying on sustained carbon extraction, are incompatible with a livable future. “Given the need to decarbonize the economy and our responsibility as fiduciaries to make long-term investment decisions that support our teaching and research mission,” wrote university President Larry Bacow, “we do not believe such investments are prudent” (emphasis added).