Yale investment managers heed call to consider economic impact of climate change

David Swensen, Yale’s chief investment officer, today reported on the impact on Yale’s investment portfolio resulting from a letter on climate change he sent in 2014 to Yale’s active external investment managers.

Swensen’s letter had stated that greenhouse gas emissions posed a grave threat and instructed the managers to “assess the greenhouse gas footprint of prospective investments, the direct costs of the consequences of climate change on expected returns, and the costs of policies aimed at reducing greenhouse gas emissions on expected returns.”

In a meeting with Yale’s Advisory Committee on Investor Responsibility (ACIR), Swensen reported that new investments made by Yale’s managers had been in keeping with the letter’s directives.

“We believe the lack of new investment in greenhouse gas intensive energy companies confirms a common understanding between Yale and its external managers,” Swensen said.

As an example, Swensen noted that two managers exited their positions in thermal coal miners and oil sands producers, two industries that would suffer if the social cost of carbon emissions were imposed on producers (these positions had represented less than $10 million).

The letter to managers also prompted an energy-focused manager to conduct carbon audits of its portfolio companies and assess the exposure of each to more stringent emissions regulation.

While investments in fossil fuel producers have attracted public attention, Swensen said, his office and external managers also considered risks related to climate change in considering such investments as farmland acquisition in southern locations or low-lying coastal real estate.

“The Investments Office believes the risks of climate change, like any risks, should be incorporated in the evaluation of investment opportunities,” Swensen told the ACIR. “This is not an easy, straightforward task. However, initiating and continuing a dialogue with our managers about those risks result in more thoughtful consideration of investment opportunities, higher-quality and lower-risk portfolios for Yale, and better environmental outcomes.”

Yale’s investment policies regarding climate change reflect Yale’s commitment to sustainable campus practices, including its carbon charge program, under President Salovey and the full range of the University’s research and teaching on climate and sustainability.