Addressing the Climate Crisis Through Investment Strategies

God led Adam around all the trees of the Garden of Eden. And God said to Adam: "See My works, how good and praiseworthy they are?! And all that I have created I made for you. (But,) be mindful then that you do not spoil and destroy My world - for if you spoil it, there is no one after you to repair it." Midrash Kohelet Rabbah 7:13

"We are now faced with the fact that tomorrow is today. We are confronted with the fierce urgency of now. In this unfolding conundrum of life and history there is such a thing as being too late." Dr. Martin Luther King Jr., 1967

The scientific consensus about the link between fossil fuels and the destructive consequences of climate change is clear and compelling. According to the EPA and the Intergovernmental Panel on Climate Change (IPCC), climate change is driven by rising concentrations of carbon dioxide and other greenhouse gasses in the atmosphere, which have increased since the beginning of the industrial era and began a steeper climb in 1970[1]. Fossil fuel combustion and related industrial activity represents 78% of global greenhouse gas emissions and 73% of U.S. emissions[2]. This has caused an increasing string of the warmest years in recorded history, which has led to warming land resulting in more frequent and destructive fires, and warming seas resulting in more frequent and violent storms[3]. A 2021 World Bank report estimated that climate change could force 216 million people to move within their own countries by 2050[4]. In 2022, the U.S. Census Bureau reported that climate-related disasters like hurricanes and floods have already forced 3.4 million Americans to evacuate their homes, 16% of whom never returned.[5]

There is also growing consensus that climate must be addressed more urgently as these destructive forces continue to accelerate. International action has been focused since 2015 on efforts to limit temperature rise from the inception of the industrial era to 1.5 degrees Celsius (as the level of change predicted to cause major irreparable destruction), a small further change beyond the 1.1 degree increase that has already occurred[6]. While earlier proposals have generally focused on achieving net-zero additional emissions by 2050, the acceleration of warming has also led to policy acceleration as well, with government and NGO leaders including the US, currently calling for achieving net-zero sooner, in some cases by 2030 or 2035.[7]

The Reform Jewish movement has long recognized the need for a national energy policy that also protects against global warming. After decades of weighing in on national energy policy and conservation issues, the Union for Reform Judaism (URJ) in its 1991 resolution, The Environment, called for government to take action, including "the provision of significant resources for the study of mitigation of global warming and destructive environment change." A 2009 resolution, Climate Change and Energy, stated: "We now face the unprecedented challenge of climate change due to greenhouse gas emissions, and the need for serious and urgent action on this issue has never been clearer." In 2017, the Resolution on Addressing the Impacts of Climate Change reaffirmed and added: "What has changed since our prior statements? The urgency." In parallel, the Central Conference of American Rabbis (CCAR) 2015 Resolution on Climate Justice recognized global climate justice as a priority social justice initiative, pledging "to continue reminding ourselves, our communities and our leaders the teaching of our tradition that, if we corrupt this Earth, 'there will be no one to set it right thereafter.'" In 2022, CCAR's Resolution on the Climate Crisis recognized the urgency for change, calling for education, advocacy, and local practical actions. And in 2023, the URJ's Religious Action Center (RAC) launched Power for Purpose: The Reform Movement's Campaign for Climate Justice, focusing on political action that might be taken by movement organizations, including about 850 Reform Jewish congregations across the U.S. and Canada.

A December 2022 report found that the largest Jewish institutions (including the four major denominational movements, 20 largest Federations and national Federation, and 20 largest American Jewish foundations) held $34.7 billion in total investments, including about $3.3 billion in fossil fuel investments. Fossil fuels accounted for a total of nearly 10% and median of 5.54% of all investments. The report estimates that this is only one-third of total American Jewish communal invested assets, so the full exposure of Jewish communal investments in fossil fuels may be approximately $10 billion. (This does not include Jewish congregations' or individuals' investments).

The Reform movement has also long recognized the importance of investments in achieving policy priorities. In the 1997 resolution, Socially Responsible Investment, URJ adopted the concept of the "double bottom line" - that investment should look at both the rate of return and the alignment of the investment with our values. Many organizations within the Reform Movement, from the URJ and CCAR to individual congregations, invest assets in stocks and mutual funds that include fossil fuel companies (those engaged in the exploration, production, transportation, sale, or manufacturing of fossil fuels or fossil fuel byproducts) and companies that provide essential assistance to the fossil fuel industry (including financial institutions that provide necessary funding and utility companies that provide an outlet for fossil fuel products). There are alternative investments available, including fund options that provide "filters" or "screens" on investment holdings to exclude fossil fuel companies. The Reform Pension Board's Reform Jewish Values Stock fund offers pension plan participants as well as congregations the opportunity to invest in alignment with the Reform Movement's specific values; the fund's filters include exclusion of companies involved in production and mining of coal, related products, and other consumable fuels related to energy generation.

Some institutional investors, including religious organizations, universities, public sector funds, and private managers, are among approximately 1600 organizations with over $40 trillion in assets that have committed to some form of divestment of stockholdings of fossil fuel companies[10], based on the following arguments:

(i) fossil fuel investments are inconsistent with climate activism values[11],

(ii) fossil fuel investments will decline in value as the world moves to sustainable energy[12], and

(iii) there are many alternative investment options that eliminate fossil fuels and have done as well as or better than fossil fuel investments over many years[13].

Other investors, including a smaller number of religious organizations, have not divested but instead focused on shareholder advocacy - to advocate change by the various companies in which they are invested. They argue that:

(i) they have been able to effectuate changes by corporate management through the use or threat of their votes at shareholder meetings[14];

(ii) divestment does not impact the fossil fuel companies[15] since it merely shifts ownership of stock without also addressing the use of fossil fuels or the profitability of the company, and it does not affect stock prices, since there will be other investors who are happy to purchase the stock and are less likely to hold management to account;

(iii) unlike apartheid and tobacco, which have no moral justification and are more easily contained bodies of investment that could be disengaged quickly, our complex dependence on fossil fuels[16], and the need for a just and timely transition away from a fossil fuel economy, requires engagement rather than simple disengagement.

Notwithstanding the positions described above, practical limitations to a shareholder engagement strategy support divestment from fossil fuel companies. Although there has been some success - such as limiting the use or production of methane gas in operations[17] - advocacy has largely been ineffective in compelling large fossil fuel companies to change. The Brookings Institution cites large fossil fuel sector subsidies from governments around the world, and the extensive network of institutional investment from banks and insurance funders, as two key reasons for this[18]. One example of a change in approach: the Church of England spent a decade on engagement strategies with BP and Shell and then in 2023 determined that there has been no meaningful payoff in moving those companies via shareholder advocacy and shifted into a divestment path[19]. In addition, although shareholder activism can be pursued in partnership with other organizations, the limited resources of the Reform Jewish movement might better be spent pursuing other paths, such as advocating for more aggressive governmental solutions. Finally, maintaining significant investments in fossil fuel companies could be seen (including by decision makers or advocacy coalition partners) as hypocritical, conflicting with our policy advocacy regarding climate change.

A separate determination on the divest/advocate question might be appropriate for our stockholdings of non-fossil fuel companies that are critically adjacent to the core fossil fuel business. For example, financial institutions that fund and/or insure fossil fuel companies and their extractive operations might be encouraged by shareholder advocacy to use their market power to change the behavior of fossil fuel companies, thereby directly impacting fossil fuel companies' actions and potential profitability. Similarly, for utility companies and other major consumers of energy, shareholder advocacy might encourage them to move to sustainable power.[20], [21], [22] "A key piece of keeping fossil fuels in the ground and unburned is to stop the money that is keeping the industry afloat," Dayenu CEO Rabbi Jennie Rosenn, told eJewishPhilanthropy[23].

The question of balancing investment strategies with fiduciary responsibilities is an important one. Although the URJ's "double bottom line" deems it appropriate to invest in a manner consistent with Jewish values even if the result is a lower rate of investment return, nothing here should suggest that fossil fuel divestment will necessarily lead to lower investment returns. Some studies have concluded that filtering out fossil fuel companies from portfolios would in fact generate higher returns, at least over certain time periods[24]. Other studies find that filtering out any single industrial sector has minimal impact over the long term[25], as would filters that generally highlight environmental, social, and corporate governance (ESG) measures There are numerous funds and instruments that currently filter out fossil fuels, including at least one based on Jewish values. Also, as climate-related financial risk becomes a material risk for corporations, company directors could become liable for their failures to manage that risk, in the same way that they can be held liable for failure to manage other material risks to the company[26]. Different types of investors and holdings (e.g., pensions or other retirement accounts, endowments, mutual funds) may have different aspects that require consideration, including the existence of fiduciary duty, availability of alternate investment options, and full disclosure and transparency.

When large or small institutions in faith-based organizations, higher education, or public sector funds have moved towards shareholder activism and/or divestment, they have typically established a 3-5 year timeline to balance the needs of study, planning, consideration of options, prudent timelines for decision making, and annual reporting and engagement that is open to changing conditions. In most cases, institutions engaging in this area are developing Climate Action Plans (CAPs) that cover not only investments but operation and facilities, transportation, as well as other programming, research, and educational needs[27]. Notable among these efforts is Dayenu, in their report With All Our Might, which recommends a six-part planning process including grounding; researching investments; education of leaders and members; engagement; making a plan; and making investment decisions. Ongoing engagement and reporting with Reform institutions and congregations is an important part of an ongoing successful strategy.

We are guided by Jewish text and tradition. In the opening words of the Torah, we learn that God placed humans in the Garden of Eden, l'ovdah (to serve/till) u'l'shomrah (and to guard/tend) it (Genesis 2:15.) And in Deuteronomy 30:19, "See, I have set before you this day life and death, blessing and curse - and [you should] choose life, in order that you and your children may live." We are obligated to act to protect our planet, to guard and to tend, choosing and ensuring life for future generations.

This is a collective responsibility. In Leviticus Rabba 4:6, a parable is described: A man in a boat began to drill a hole under his seat. His fellow passengers protested. "What concern is it of yours?" he responded. "I am making a hole under my seat, not yours." They replied: "That is so, but when the water comes in it will sink the whole boat and we will all drown." With the international connectivity of climate change and destruction, we truly are in a "climate boat" boat together. Kol yisrael arevim zeh bazeh, all Israel is responsible for one another[28]; when it comes to climate, that responsibility naturally extends to all people. "Judaism is a communal religion…to take solitary action is ineffective; to not take action at all is defeatist, Instead, we need to focus on moving the entire community, and society, on a collective path."[29]

This resolution is based on a year of work, including consultation with leaders in 4 areas:

1) major Reform Institutions including the Union for Reform Judaism, Hebrew Union College - Jewish Institute of Religion, Reform Pension Board, the Central Conference of American Rabbis, American Conference of Cantors, Men of Reform Judaism, and Women of Reform Judaism;

2) other faith-based institutions including Laudato Si (Catholic,) Everence (Mennonite), The Pension Boards - United Church of Christ, Union Theological Seminary, the Interfaith Center on Corporate Responsibility, Dayenu, and JLens, offering a range of perspectives and potential actions including divestment and shareholder engagement;

3) public sector financial leaders including New York City and New York State Comptrollers;

4) other investment resource centers and organizations engaging in responsibility filters and investment screens and options, such as As You Sow and Ceres.

Insight was also provided by Stephen Davis, Senior Fellow, Harvard Law Programs on Corporate Governance and Institutional Investors, and David Baskin, Chairman and President of Baskin Wealth Management in Toronto.