There is a powerful argument that can be made suggesting that fiduciaries for endowments will soon have a legal responsibility to divest from fossil fuels. Whether they are for universities, colleges, foundations or other institutions, they are charged with “the duty of care.”
Here’s how that duty is described in the American Law Institute’s 1991 Restatement of Trusts, Third, Section 227:
“This standard requires the exercise of reasonable care, skill and caution, and is applied to investments not in isolation but in the context of the …portfolio and as a part of an overall investment strategy, which should incorporate risk and return objectives reasonably suitable to the [purposes of the endowment]”.
Fossil fuels are known to be the primary drivers of climate change. Given the dangers and risks associated with this carbon intensive form of energy, divestment will soon be a legal responsibility.
This is the view of Tom Steyer, a summa at Yale and graduate of Stanford Business School, and founder of Farallon, and a contributor to the Risky Business report alongside Michael Bloomberg and Henry Paulson.
“At some point down the road towards the red light of 2 Degrees Centigrade, however, it is entirely plausible, even predictable, that continuing to hold equities in fossil fuel companies will be ruled negligence,” Steyer said.
Those endowments that do not divest risk being subject to lawsuits from stockholders.
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