Harvard University has instructed its $41 billion endowment to develop a strategy to achieve net-zero greenhouse gas emissions from its investment portfolio by 2050. The decision was made by the Harvard Corporation, the university’s highest governing body, in response to a resolution adopted by the faculty of arts and sciences in February that called for fossil fuel divestment.
“Harvard’s endowment should be a leader in shaping pathways to a sustainable future,” Harvard University President Lawrence Bacow wrote in a letter to members of the faculty of arts and sciences. “With this in mind, the corporation has directed the Harvard Management Company (HMC) to set itself on a path to decarbonize the overall endowment portfolio.”
Bacow said the directive will require developing sophisticated new methods for measuring emissions associated with the investment portfolio and then systematically reducing them across the entire portfolio.
“We believe that this approach, which considers the investment portfolio as a whole, rather than simply targeting the suppliers and producers of fossil fuels, is the right one for the university to pursue,” he said. “Advocates for divestment from fossil fuel companies may not be satisfied with this approach, but we believe that divestment paints with too broad a brush.”
Bacow said the university decided not to divest fully from fossil fuels because it “cannot risk alienating and demonizing possible partners,” some of which he said have committed to transitioning to carbon neutrality and to funding research on alternative fuels and strategies to decarbonize the economy.
In support of the new pledge, HMC said it will use standards set by the United Nations’ Intergovernmental Panel on Climate Change, embed the commitment into its approach to managing sustainability considerations consistent with its fiduciary duty, and work with current and prospective asset managers to emphasize greenhouse gas emission reduction outcomes in the real economy. It also said it will collaborate with peer institutions that have made, or are looking to make, a similar commitment.
“Both HMC and Harvard are keenly aware that HMC cannot achieve these commitments in isolation,” HMC said in a statement.
HMC is currently implementing a five-year reorganization transition, which includes moving away from internal management of the portfolio and toward using external managers. The company said that as a limited partner in funds managed by external managers, Harvard, by definition and design, has little role in the day-to-day operations of the fund and its investments.
“Having the vast majority of the endowment managed externally comes with two separate, but related, challenges in executing a net-zero commitment,” HMC said. It said it has to work closely with individual asset managers to achieve the necessary portfolio transparency, and that it needs to consider a range of data and methods to create the most accurate depiction of the endowment’s carbon footprint.
“Gathering such comprehensive information for the first time will be challenging, and HMC will need to continuously refine and improve this collection and analysis as it works toward a net-zero portfolio,” HMC said.
HMC also said it will work with faculty and external experts to determine the most appropriate methodology for calculating portfolio emissions, and that, over time, it will need to gain greater transparency from many investment managers who currently do not provide it. Once it develops and adopts a methodology and gains the necessary transparency, HMC said it will determine the aggregate emissions of the endowment. To do this, the asset manager said working with external managers, other third parties, and the corporations themselves will be “critical parts” of the initiative.
HMC said it will work with investment managers to actively engage with their portfolio companies on environmental, social, and governance (ESG) issues to understand and influence a company’s exposure to, and planned mitigation of, climate-related risks. It will also encourage climate-related financial disclosures from portfolio companies consistent with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Additionally, it said it will help portfolio companies develop a plan to reduce their greenhouse gas emissions, including measurable, science-based targets, consistent with achieving the goals of the Paris Agreement.
“By seeking to achieve net-zero greenhouse gas emissions overall by 2050, we recognize that we are heading down a path that will be more complex to undertake and execute,” Bacow said. “But we believe that it will ultimately have a wider and deeper impact in the shared effort to confront the challenge of climate change.”