Exclusive: A $5 billion foundation literally founded on oil money is saying goodbye to fossil fuels
New York (CNN Business)The Rockefeller Foundation, a 107-year-old philanthropy built by oil tycoon John D. Rockefeller, is breaking up with fossil fuels in an effort to save the planet.
Beyond pledging to dump its fossil fuel holdings, the $5 billion endowment is also promising not to make any new investments in the beleaguered sector. The moves make the Rockefeller Foundation the largest US foundation to embrace the rapidly growing divestment movement.
"Burning fossil fuels is not necessary to sustain our economy and economic growth over the long run — and it's detrimental to our climate future," Rajiv Shah, the president of the Rockefeller Foundation, told CNN Business in an exclusive interview.
This divestment is especially symbolic because the Rockefeller Foundation was founded by oil money. The endowment was largely built from the proceeds of Standard Oil, a company that at its peak controlled more than 90% of petroleum products in the United States. ExxonMobil (XOM) traces its roots to Standard Oil.
More than a century later, the Rockefeller Foundation has decided it's time to cut ties with fossil fuels because such investments conflict with its mission to lift up humanity. The step puts an exclamation point on the enormous pressure facing the fossil fuels industry as socially conscious investing goes mainstream and the climate crisis intensifies.
By divesting from fossil fuels — and instead plowing money into clean energy such as solar power — the foundation is striving to speed up the energy transition.
"It helps to collectively put our thumb on the scale towards a more sustainable future. That's our hope. That's our aspiration," said Shah, who previously led the United States Agency for International Development (USAID) during the Obama administration.
The news comes weeks after New York State's $226 billion pension fund pledged to dump fossil fuel stocks in the next five years and unload investments in companies that contribute to global warming by 2040.
The Rockefeller Foundation is the largest philanthropic organization to exit fossil fuels, but it's not the first in the famed family to do so.
In 2014 the Rockefeller Brothers Fund, a sister organization to the Rockefeller Foundation that was founded in 1940, announced it would no longer invest in coal and tar sands and would begin a transition away from other fossil fuels. At the time, the fund controlled about $860 million.
Two years later the Rockefeller Family Fund, a charity started by members of the family in 1967, pledged to divest from fossil fuels, including its stake in Exxon.
Over the past six years, the Rockefeller Foundation's fossil fuels footprint has been cut in half to just 2% of total assets, reflecting the industry's deep decline. That relatively small exposure makes the divorce less messy today.
"It's absolutely easier now than five, 10, 20 years ago, without question," Shah said, adding that the foundation's exposure to fossil fuels will get to zero "fairly rapidly." He added, "We're doing it now and we would love for our peer institutions to join us."
The divestment movement is gaining serious momentum, in tandem with the rise of ESG (environmental, social and governance) investing.
More than 1,300 institutions controlling $14.5 trillion have divested in some way from fossil fuels, according to a tally by environmental group 350.org.
Other estimates are even larger. Funds controlling a total of about $18 trillion had a fossil fuel divestment policy as of August 2020, according to Raymond James — a staggering increase from just $2 billion in 2014 and $3 trillion in 2015.
This year is on track to be a record year for divestment announcements, led by major institutional investors. BlackRock (BLK), the world's largest asset manager with $8 trillion, pledged in January to ditch thermal coal producers and other investments it considers a sustainability risk.
There is a long history of divestment movements, including previous efforts to steer money away from the defense, alcohol and tobacco industries. Fossil fuels has come under fire in recent years because of rising attention on climate change.
"We know that the climate crisis is absolutely urgent," said Shah.
While fossil fuel divestments initially focused on coal and the dirtiest forms of oil drilling, it has expanded to oil-and-gas companies broadly creating a new headache for an industry in disarray.
The energy sector of the S&P 500 (largely oil-and-gas companies) has underperformed the broader market in nine of the past 11 years, according to Raymond James.
"Lots of funds do not want to invest in these companies simply because they've been terrible investments for the last decade," said Pavel Molchanov, an energy analyst at Raymond James.
The risk is that the divestment movement amplifies pressure on the oil-and-gas industry by raising the cost of capital via higher borrowing costs and depressed equity valuations.
As it backs away from fossil fuels, the Rockefeller Foundation is committing $1 billion to support a global green recovery from the pandemic, the largest investment in the foundation's history.
The biggest project in that commitment strives to bring solar energy to rural families in India cut off from the electric grid.
"You simply cannot raise your living conditions or walk up the ladder of economic opportunity if you don't have access to electricity," said Shah. "This Covid-19 crisis has both made worse [and] pulled the covers off the extraordinary inequity in our society and around the world."
The move away from fossil fuels also threatens to wipe out countless good-paying jobs. The downfall of the coal industry has already decimated communities in Appalachia. Shah doesn't take that lightly.
"To make these transitions effectively, we cannot leave behind community after community after community and write off their futures," Shah said. "We have to reinvest in their sense of dignity and their hopefulness for the future."
"We can build an innovation economy," Shah said, "even in places like the industrial Midwest, the Appalachian states and other places where the oil, natural gas and coal industries have been dominant sources of both employment and culture."
President Donald Trump won election in 2016 in part because he promised to rescue coal workers who felt left behind. Trump slashed environmental regulations, installed a coal lobbyist to lead the EPA and even falsely suggested that wind mills cause cancer.
However, Trump's efforts to cut red tape have failed to save the beleaguered coal industry, or workers in coal communities, because the shift is being driven by market forces.
Shah said history won't look kindly on Trump's climate track record: "Dismissing reality doesn't make it go away."