‹ All Blog Posts

May 15, 2020

Rockefeller Brothers Fund Wrong on their Divestment Strategy

Early this week, the Washington Post published a story on the Rockefeller Brothers Fund (RBF) talking about the financial results derived from “divesting” from fossil fuels. According to the story, since the RBF announced it would move away from fossil fuels back in 2014, financial performance of its endowment bolstered.

Too bad the reality is a lot different.

Divestment Facts did its homework (the devil is in the details, right?) and found out that despite RBF’s best efforts, the group still invests with the industry that made them rich in the first place.

In fact, this is not the first time RBF has exaggerated about its alleged divestment efforts. As we have called out before, six months after the Fund announced its divesting strategy back in 2014, The Guardian reported that RBF continued investing in oil and gas and its “exposure to fossil fuels has dropped less than 1% since that September announcement”. Additionally, we have also covered how this announcement was a choreographed PR stunt to capitalize the family’s name without really making substantial changes.

In short, here are five things you need to know about their (faulty) divestment strategy:

  1. They announced divestment in 2014 but have continued investing – and added new investments — in a variety of major oil and gas companies.

RBF pledged to adopt a two-step process to divest from fossil fuels in 2014. As of December 2019, the fund’s exposure to coal and oil sands had been reduced to less than 0.1 percent from 1.7 percent in 2014, and its total fossil fuel exposure decreased from 6.6 percent in 2014 to 0.9 percent in 2019.

However, a quick look at the Fund’s latest 990 form shows a very different and contradictory story. RBF’s 2018 990 reveals that despite its efforts to minimize all fossil fuel investments initially back in 2014, the Fund re-invested in fossil fuel companies through 2018 (the latest 990 available).

Some of the names included in the 2018 990 include BP, Cabot, Noble Energy, Halliburton, Inter Pipeline LTD and S-Oil Corp, very well-established energy companies. Of note, Halliburton is not listed in 2015 or 2016, but added in 2017 and 2018; Cabot Oil and Gas is also not listed in 2015 but added in 2016.

These examples alone highlight the fact that the fund was actively making new investments in the energy sector, despite its proclamations to the contrary. And although Stepehn Heintz, Fund President, has admitted that “you can’t just throw a switch overnight and divest. It’s complicated for all kinds of reasons” and that it would take RBF “three years to get down to zero,” the fact that the Fund has re-acquired oil and gas investments suggests that the fund’s investments are aligned with what is financially sound rather than by “political symbols.”

  1. The Fund continues actively investing in other industries heavily dependent on fossil fuels.

It is interesting to find that RBF has maintained its participation in some industries that, according to the Fund’s climate mitigation values, would curtail any effort to reduce GHG emissions. In other words, RBF won’t, in theory, invest in some of the leading energy producing companies worldwide such as Shell or Chevron – companies actively investing in new technology and solutions for the energy economy — but its climate action policy will maintain participation in Royal Caribbean, the second largest luxury cruise emitter worldwide that is charged with emitting about 4 times more SOX than all European cars.

Additional investments include Hyundai, the airline Cathay Pacific, or even more with your participation in China Resources Power Holdings, who develops coal-fired power plants in China and one of the world’s largest emitters.

Clearly RBF’s public statements stand in direct contradiction to its actual investment strategy.

  1. The Fund’s financial performance is not exactly star-studded.  

RBF suggests that their alleged steady financial performance has improved greatly since they reduced their fossil fuel investments in 2014. Yet, Agility, the fund manager hired to manage RBF’s endowment, argues otherwise. According to Christopher L. Bittman, a partner at Agility:

“Three-quarters of the endowment’s outperformance against its benchmark came from smart choices, while only a quarter resulted from fossil fuel divestments”.

Second, the article claims that “the fund’s assets grew at an annual average rate of 7.76 percent over the five-year period that ended Dec. 31, 2019. The fund’s benchmark investment portfolio, made up of 70 percent stocks and 30 percent bonds, would have returned only 6.71 percent annually over the same time frame.”

This performance isn’t exactly overwhelming, especially when compared with S&P 500 performance with an average return of 10.17 percent between 2014 and 2019. While endowments may always have a mix of investments, it’s a well-known fact that the best investment policy is about keeping a diversified portfolio. As certified financial planner Peter Mallouk recently stated in CNBC, if you have some extra money to invest “you should put your money in just one thing: the S&P 500.” The article continues, highlighting the view of one person we’d all like to have the investment luck of: Warren Buffet.

Chairman and CEO of Berkshire Hathaway Warren Buffett agrees with Mallouk’s recommendation. “It has been a tough time to beat the S&P,” he told CNBC earlier this year, adding: “I think it’s the best investment — because most people don’t know how to pick stocks. And, most of the time I don’t know how to pick stocks.”

Picking winners and losers, and putting politics into investment strategy, is a sure-fire way to lose out for beneficiaries. That’s exactly why divestment has always been a losing economic strategy for the long term.

  1. Selling oil and gas investments now would only lose out on upside and transformation.

Everyone knows that the oil markets have been hit hard by an international price war and COVID-19 impacting demand dynamics. Most that follow the sector also know that companies are investing in technology, doubling down on sustainability commitments, and driving innovation – despite the difficult market.

Wood Mackenzie’s Valentina Kretzschmar has recently commented that under the current market conditions, “renewable projects suddenly look as attractive as upstream projects” for Big Oil companies. In the same line, NS Energy has reported that the six majors oil companies – BP, Shell, Chevron, Total, Eni and Exxon- have pumped billions into clean energy projects in the last couple of years. Hence, it is more likely that O&G companies will continue diversifying their portfolios to become whole energy companies.

Divesting now simply gives up on this upside – financial and environmental – for an empty gesture.

  1. Not Many have followed suit the Rockefeller’s example

Groups like 350.org claim that since the Rockefellers pledged to shift their investments away from fossil fuels “many other philanthropic organizations have followed suit.” Yet, this seems to be an overstatement. For instance, the Washington Post acknowledges that most leading universities “remain unwilling to divest from fossil fuel stocks,” including several Ivy League universities. Additionally, leading schools like Harvard have instead focused on finding proactive solutions to long-term zero emissions investment commitments while strongly holding their position against divestment as an efficient climate action tool.

Bill Gates, one of the most respected voices in philanthropy, has voiced, several times, his refusal to divest from fossil fuels as a smart strategy. In an interview for the FT, amidst the entire student divestment movement was relaunched late in 2019, Gates commented:

“Divestment, to date, probably has reduced about zero tonnes of emissions. It’s not like you’ve capital-starved [the] people making steel and gasoline.”

Also, back in 2015, Gates commented in an interview for The Atlantic that divestment was “false solution” to the climate change problem, suggesting that a pro-R&D investment profile would be a more sound  approach.

Bottom line:

Simply put, RBF is making a big deal about nothing. It still invests in the energy sector, and countless high-consumption users of these critical resources, and they still under-performed the market. Not exactly headline-making news.