The Hewlett Foundation and fossil fuels

Summary

The William and Flora Hewlett Foundation has updated its investment policy to exclude future investments in private partnerships primarily involved in oil and gas drilling, reflecting its commitment to mitigating climate change.

Abstract

The Menlo Park-based William and Flora Hewlett Foundation, with assets totaling $9 billion, has taken a step towards distancing itself from the financing of fossil fuels. The foundation, which is a prominent funder of climate change mitigation efforts, has revised its social investment policy to exclude future investments in oil and gas drilling partnerships. This move, while not full divestment, positions Hewlett as the largest and most influential foundation to publicly alter its investment strategy to align with its environmental goals. The decision marks a significant shift for Hewlett, which previously avoided both positive and negative investment screening, except for tobacco. The foundation's stance is underscored by its support for initiatives aimed at reducing the development and use of high-carbon fuels, despite its continued investment in index funds that include fossil fuel companies. The internal debate leading to this policy change reflects the foundation's recognition of the economic benefits of fossil fuels versus their environmental impact.

Opinions

The Hewlett Foundation's decision to refrain from future investments in oil and gas drilling partnerships is seen as a reflection of its extraordinary commitment to mitigating climate change.
The foundation's move is significant not only because of its size and influence but also because it contrasts with its historical reluctance to engage in investment screening beyond tobacco.
Hewlett's updated policy is viewed as a compromise rather than full divestment, as the foundation likely still holds investments in fossil fuel companies through index funds.
The foundation's leadership, including President Larry Kramer, is recognized for its outspoken stance on climate change, labeling it "the defining issue of our day."
There is an acknowledgment that while coal, oil, and gas provide economic benefits, their negative environmental impact necessitates a reduction in their development and use.
The internal debate at Hewlett suggests a complex evaluation of the role of fossil fuels in the economy and the ethical implications of investing in them.
The decision by Hewlett sets a precedent and may influence other large foundations, such as Bloomberg Philanthropies, to consider their own investment policies regarding fossil fuels.
The DivestInvest Philanthropy campaign's impact is noted, as it encourages foundations to not only divest from fossil fuels but also to reinvest in climate solutions.
The symbolic importance of the foundation's headquarters in a LEED-certified Gold building is highlighted as an embodiment of the foundation's values and commitment to environmental sustainability.

The Hewlett Foundation and fossil fuels

The William and Flora Hewlett Foundation, one of the US’s biggest and most influential foundations, has taken a small step to distance itself from financing fossil fuels.

refrain from future investments in private partnerships primarily involved in oil and gas drilling.

It will do so, the policy says, “to reflect the Foundation’s extraordinary commitment to mitigating climate change.”

This is significant, for a couple of reasons.

First, with $9 billion in assets, Hewlett is the US’s 5th biggest foundation, measured by asset size, according to the Foundation Center. While Hewlett’s step falls far short of divestment, Hewlett becomes the biggest and most influential foundation to publicly exclude some fossil-fuel investments from its investment portfolio. For context: The Rockefeller Brothers Fund, which got a lot of attention when it decided to divest fossil fuels last year, has about $900 million in assets, placing it 98th in the rankings. Most other foundations that have agreed to divest are much smaller.

Second, Hewlett is by its own account “is not attracted to either positive or negative screening,” explaining that “the reasons that a company might be positively or negatively screened are highly subjective and are subject to significant differences of opinion among reasonable observers.” Until this year, it made only one exception, for tobacco which, it said,”even if used as intended, has deleterious consequences for both individuals and society.” Of course, the same could be said about fossil fuels although, unlike tobacco, coal, oil and gas deliver economic benefits that, some argue, offset their negative impact.

One can only imagine the debate inside Hewlett that led to this decision. The foundation’s president, Larry Kramer, has been outspoken about the climate threat; he called “the defining issue of our day” in an essay for the Chronicle of Philanthropy. Here’s how Hewlett describes the work of nonprofits it funds in its climate program, with emphasis added:

Our grantees’ efforts to reduce the development and use of fossil fuels are global, particularly with regard to high-carbon fuels. Their initiatives focus on ensuring that energy policies reduce the extraction and development of high-carbon fuels such as coal and tar sands in order to slow global warming and protect human health and the environment. Reducing the use of coal is essential to tackling climate change. Tar sands, a semisolid form of petroleum extracted from sand and rock, is a particularly inefficient fuel, generating up to a third more of greenhouse gas per barrel of final product than conventional oil does in a life-cycle assessment.

Nevertheless, Hewlett almost surely owns companies that mine and burn coal, and extract oil from the tar sands through its investment in index funds, including the S&P500 and Euro Stoxx 50. Its most recent Form 990-PF says the foundations owns shares of Petrobras, a Brazilian oil and gas company, and Anglo American, one of the world’s largest mining company, which describes itself as a global leader in coal supply. It also owns bonds issued by Petrobras and by the Norwegian fossil fuel company Statoil, and appears to invest in oil and gas futures. Until the company is more open, it’s hard to know whether oil and gas partnerships accounting for 1% or 0.1% or 0.0001% of its holdings.

I emailed Ana Marshall, Hewlett’s vice president and chief investment officer, to try to learn more. She referred me to the communications staff, who referred me to the social investment policy. (This extended discussion on the Hewlett website is outdated, and doesn’t reflect the 2015 exclusion of oil and gas partnerships.) Whether Hewlett’s policy is settled, or whether the debate is ongoing–well, that’s anybody’s guess.

The question is, which big foundation will be next to take up the divestment question? I wonder about Bloomberg Philanthropies, which has supported the Sierra Club’s Beyond Coal campaign, as well as the climate work of the Natural Resources Defense Council and the Environmental Defense Fund (some of which supports “cleaner” natural gas.) I’ve emailed Bloomberg, but haven’t heard back yet.

Divestment, remember, is more than a symbolic issue for foundations, as I wrote in a earlier post. (See Why Won’t Foundations Divest Fossil Fuels?) The DivestInvest Philanthropy campaign asks foundations not just to sell off their coal, oil and gas holdings, but also to invest in climate solutions, such as clean energy and energy-efficiency projects.

That said, symbols matter. Staffers at Hewlett work in California’s first LEED-certified Gold building, “a building that reflects our values,” says Mary Jaffe, the daughter of William and Flora Hewlett and a lifelong environmentalist.

A green building. Green grant-making. Can greener investing be far behind?

Originally published at nonprofitchronicles.com on July 31, 2015.