Rockefeller heirs to Big Oil find dumping fossil fuels improved bottom line

Source: By Steven Mufson, Washington Post • Posted: Monday, May 11, 2020

Since severing investments in fossil fuels, Rockefeller Brothers Fund has outpaced its financial benchmarks.

Indre, Justin and Valerie Rockefeller at a benefit in New York. (Jared Siskin/Patrick McMullan/Getty Images)
Indre, Justin and Valerie Rockefeller at a benefit in New York. (Jared Siskin/Patrick McMullan/Getty Images)

Five years ago, members of the Rockefeller family walked away from the fossil fuels that made them rich, alarmed that burning oil and gas was causing climate change. Now it also seems like a smart financial move. The $1.1 billion Rockefeller Brothers Fund — largely free of oil and gas — has outpaced financial benchmarks, defying predictions of money managers.

Stephen B. Heintz, president of the fund, said the financial performance should bolster those trying to stop investment in industries linked to climate change. “This has become not a symbolic gesture, as might have been viewed at the time we announced,” Heintz said. “It’s become a movement.”

No other name reverberates in the oil industry quite like Rockefeller. John D. Rockefeller Sr. built the Standard Oil empire 150 years ago and became one of the richest Americans in history. An antitrust case in 1911 resulted in the breakup of the trust into the companies that became Exxon, Mobil, Amoco and Chevron, among others.

The Rockefeller Brothers Fund, founded in 1940 by five sons of John D. Rockefeller Jr., became interested in global warming in 1986 but sharpened its focus on sustainable development and climate change starting in 2005. The fund spends about $15 million each year on grants to support climate change solutions globally.

Several years ago the leaders of the Rockefeller Brothers Fund decided they wanted to match their programs’ priorities with their investment strategy.

“We were extremely uncomfortable with the moral ambivalence of funding programs around the climate catastrophe while still being invested in the fossil fuels that were bringing us closer to that catastrophe,” Heintz said.

Since changing its strategy, the Rockefeller Brothers Fund has cut its endowment’s exposure to fossil fuel companies from about 7 percent in 2014 to less than 1 percent of its holdings today. It had ramped up investments consistent with the fund’s mission — including renewable energy in Africa, workforce housing in the United States, services for the poor in India and Latin America, and pollution control in Europe — to $178.2 million by March.

At the same time, 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.

Valerie Rockefeller, a great-great-granddaughter of John D. Rockefeller Sr. and chair of the Rockefeller Brothers Fund board of trustees, believes he would approve. He gave lavishly to education, medical research, public health and charity. And his son John D. Jr., a conservationist, bought and protected tens of thousands of acres he later gave to the National Park Service. But, Valerie Rockefeller said, “climate change doesn’t respect those boundaries.” She said her great-great-grandfather would be investing in renewable energy today.

In 2014, the Rockefeller Brothers Fund’s decision to divest from fossil fuels grabbed attention because of the fund’s historic name and the family’s connection to the oil business. In the five years since, however, many other philanthropic organizations have followed suit, and the volume of investments subject to similar restrictions has mushroomed.

Pavel Molchanov, an analyst at the investment firm Raymond James, said that the change “is underappreciated.” He said that 26 percent of all U.S. professionally managed assets worth $12 trillion are covered by some kind of investing limitations, or screens, triple the amount in 2012. Within that $12 trillion, the largest slice, $3 trillion, is centered on climate, he said.

The Rockefeller Brothers Fund hired an outside firm, Agility, to manage its endowment as a separate account. Its instructions were to divest from fossil fuel stocks without hurting the fund’s returns or contributing to volatility.

The Rockefeller Brothers Fund is also using a portion of the endowment for “impact investing,” directing money to projects consistent with the mission of the organization without compromising on returns. Valerie Rockefeller said that about 15 percent of the endowment is devoted to projects such as clean energy technology and sustainable water use.

To some extent, Agility benefited from changes in oil markets. In February 2014, when Agility took over management of the endowment, the price of crude oil was above $100 a barrel. Prices plunged and ended that year at half that level. Several coal companies, including the giant Peabody, have gone bankrupt; those that have reemerged have come out much smaller. In the coronavirus pandemic, the price of crude tumbled further.

But the fund directors believe there’s more than good luck involved. Christopher L. Bittman, a partner at Agility, said that three-quarters of the endowment’s outperformance against its benchmark came from smart choices, while only a quarter resulted from fossil fuel divestments. “It’s been very good timing on the part of the Rockefeller Brothers Fund, but that is only part of the story,” Bittman said.

Increasing attention to climate change has spread the idea that many of the assets or reserves on the books of big oil and coal companies might never be tapped but rather would be left in the ground and “stranded.”

CNBC television investment guru Jim Cramer this year declared big oil companies to be bad investments. “I’m done with fossil fuels,” he said Jan. 31. Later, Cramer compared fossil fuel companies to tobacco stocks that many investors, including pension funds, are unwilling to buy. Big oil companies, Cramer said, “may just be on the wrong side of history.”

Also in January, BlackRock, the world’s largest investment management firm, overseeing about $7 trillion, announced it would exit some investments related to coal production and make sustainability a central part of its portfolio. “I believe we are on the edge of a fundamental reshaping of finance,” BlackRock chief executive Larry Fink wrote.

Many endowments, including those of most leading universities, remain unwilling to divest from fossil fuel stocks, saying that it would be the beginning of a slippery slope. Some activists have demanded the selling off of Puerto Rico bonds or gun manufacturer stocks. Others want to cut off academic exchanges with Israel.

“The endowment is a resource, not an instrument to impel social or political change,” Harvard President Drew Faust declared in 2013.

That is one reason the Rockefeller Brothers Fund is highlighting its returns over the past five years. “I think universities and other nonprofits respond not only to moral but economic arguments,” Bittman said.

The upheaval in markets since the coronavirus pandemic has taken hold only makes the case for divestment stronger, Bittman said. Crude oil demand has collapsed, and storage tanks are being flooded. Prices have dropped sharply. “The energy market has changed fundamentally over the last month or so,” he said. “Markets are really struggling with how to price the future.”

Heintz said that in 2014, many people called the divestment “a symbolic gesture.” He said, “Yes, but don’t underestimate the value of symbols to motivate people, inspire change and tell a story that can be very compelling.”