The Office of Climate and Sustainability hosted the sixth installment of its Investing for Mission-Driven Institutions seminar series Tuesday evening, which explored the power shareholders wield in investment decisions in the wake of recent regulatory controversies.
Duke students and faculty met in the Rubenstein Library’s Holsti-Anderson Family Assembly Room for the conversation moderated by senior Emily Nagamoto, Undergraduate Environmental Union president, and Sarah Bloom Raskin, Colin W. Brown distinguished professor of the practice of law.
Raskin couched the discussion in the context of two recent developments in the regulatory world: an update to the U.S. Securities and Exchange Commission’s policy on reporting carbon emissions and a lawsuit against company shareholders by ExxonMobil.
Jim Cox, Brainerd Currie distinguished professor of law and former chair of the Advisory Committee on Investment Responsibility, and Danielle Fugere, president and chief counsel of shareholder advocacy group As You Sow, joined via Zoom while senior Abby Saks, Duke Climate Coalition co-president, spoke in person.
Much of the Q&A portion of the session focused on how shareholder influence can be applied to the management of Duke’s endowment by the Duke University Management Company (DUMAC), which has been a topic of controversy in recent months as debates over divestment from fossil fuels have heated up on campus.
Cox, who serves on DUMAC’s risk management and audit committee, contended that the principal reason for the company’s difficulty controlling exactly where funds are invested lies in the fact that investment decisions are outsourced to other managers.
“We don’t buy stocks … we give a traunch of money to an investment manager, and then that investment manager goes out and spreads it around,” Cox said. “It’s pretty remote.”
The speakers were divided over questions of whether DUMAC could successfully divest from fossil fuels and if the company has a responsibility to do so.
Cox believes that institutions with large endowments cannot maintain the level of financial returns necessary to sustain their operations if they divest from fossil fuels.
“It is foundational to managing risks of large pools of money that you can’t do that by running away — unfortunately — from fossil fuels,” he said, noting that “the amount of money that DUMAC manages is over $22 billion now.”
Fugere disagreed, saying that her company has seen increasing numbers of funds that do not invest in fossil fuels that “actually are making more than those that have fossil fuels.” She expects that global trends toward clean energy alternatives will make divesting from fossil fuels a more attractive financial strategy over time.
Saks is positioned staunchly against investing in fossil fuel companies for both practical and ethical reasons. She agreed with Fugere that divestment makes financial sense in a decarbonizing world but maintained that the negative impacts of climate change on the social, economic and environmental health of communities around the world provides the strongest arguments for making divestment a critical priority.
“We’re very dissuaded with the idea of working with fossil fuel companies when they have done nothing but lie to us and destroy our future,” Saks said, speaking for herself and like-minded climate activists.
She responded to a recent report released by the ACIR that recommended that Duke refrain from divesting from fossil fuel companies, asserting that the action “could do more harm than good with respect to the goal of reducing GHG emissions.”
“I find a lot of the logic … to not hold up under closer examination,” Saks said. “I don’t know if a reduction in fossil fuel emissions or Scope 3 emissions is really the goal at this point for Duke.
SEC climate disclosure policy change
The SEC voted 3-2 Wednesday to approve a watered down version of a controversial policy that required companies to report greenhouse gas emissions to investors, as well as other climate-related business risks like those incurred by floods, rising temperatures and natural disasters.
However, opposition from Republican lawmakers and industry representatives led the commission to remove language that would enforce these new stipulations for emissions across a company’s value chain, meaning those produced by suppliers and consumers. Many small businesses are exempt from the requirements altogether, and companies are no longer required to disclose the climate expertise of members on their board of directors.
The SEC is already facing backlash from the policy change, as a coalition of 10 states announced their intention to file a legal challenge to the new regulations, claiming that the SEC exceeded their statutory authority and is possibly infringing on First Amendment free speech protections.
The day before the final decision was announced, seminar attendees discussed the possible implications of the policy change on incorporating climate considerations into investment decisions.
Fugere expressed that the new policy held promise in terms of streamlining carbon emission reporting standards across industries, making it easier for investment managers to assess risk.
“If everybody is reporting differently … that’s a problem,” she said. “We want to make sure shareholders aren’t being misled because shareholders are not climate experts.”
Fugere also noted that incorporating climate risk into investment decisions is becoming increasingly important in a globalized world that is quickly moving toward decarbonization.
Cox commented on possible limitations faced by the SEC in pursuing a stronger stance on climate issues, noting that a hostile political atmosphere makes more ambitious action difficult. He expressed that more comprehensive climate action would not be possible unless the SEC had powerful congressional backing.
“We need to have many, many people in the Senate and the House who are identified with caring about our markets and our investors,” Cox said. “This is going to be a campaign — this is going to take a couple of years.”
Exxon’s shareholder lawsuit
Exxon sued two company shareholders on Jan. 22 in response to a proposal they submitted in December asking the oil corporation to set Scope 3 targets for their carbon emissions, which would also regulate emissions from the company’s suppliers.
The shareholders — U.S. activist investment firm Arjuna Capital and Amsterdam-based shareholder activist group Follow This — dropped the resolution in February after being pressured by the company. However, Exxon continued to pursue the suit, asking the court to exclude the shareholders from the company’s 2024 proxy statement.
The case marks the first time Exxon has attempted to exclude a shareholder proposal through the courts instead of submitting a “no action request” to the SEC, which is standard practice for similar companies.
Exxon is the only of the five Western “super-majors” majors that does not employ Scope 3 targets, differing from BP, Shell, Chevron, and TotalEnergies.
Fugere spoke to the importance of employing Scope 3 targets, noting that 75% of a company’s emissions fall within that category.
“If it doesn’t report, shareholders may have no idea how much risk is associated with that company and in those emissions,” she said.
Saks commented on the optics of the Exxon lawsuit, calling the move “more evidence that shareholder advocacy on the scale of fossil fuel companies cannot work.”
“Their business model has always been based off of a profit … of oil and natural gas exploration, and it’s not going to change anytime soon,” Saks said.
Fugere believes the lawsuit signals Exxon’s “desperation,” saying that the company is becoming “increasingly irrelevant” as the global energy economy shifts toward renewable alternatives.
“More and more money is going to green technologies … it’s becoming increasingly cheap to use sun or wind or geothermal.” Fugere said. “That is where the world is going.”
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Zoe Kolenovsky is a Trinity junior and news editor of The Chronicle's 120th volume.