Wednesday, April 3, 2019

Benefits and Drawbacks of Divesting Fossil Fuel Company

Benefits and Drawbacks of Divesting fogy Fuel CompanyThe surroundingsal issues is the of import trend that is concerned by most of the organization worldwide. Those concerns spread through the work onivist group and argon affecting financial orbit as well. By pressurizing universities gift inventory to divest the dodo fire companies, the activists urge for the origins to invest responsibly by moving their money verboten of the non-environmental friendly companies. They aim to indirectly create the sore market norms and mixed bag the way people dig those companies which bequeath stigmatized them if they do not adapt to the much(prenominal) innovative and to a greater extent(prenominal) sustainable slipway of doing business. However, the fiducial duty of the financial professionals is a king-size issue to be discussed if the blood manager go away consider divesting fogey open fire companies on whether at that place is a conflict on expend responsibly and maxim izing profit or not.By the interpretation of the fiducial duty, Boat unspoiled (2008) explained that A fiduciary duty whitethorn be defined as the duty of a person in a position of go for to act solely in the interest of the beneficiary, without gaining any material bring in except with the knowledge and consent of this person. We whitethorn need to reinterpret its definition in accordance to the on sledding situation in order to canvass if we can add the environmental and sustainable elements to this duty without compromising the sole existing definition of the fiduciary duty itself. I have through with(p) research on the topics close to this, and here are the advantages, disadvantages, and near password on the fiduciary duty on divesting from fogey fuel firms.Divesting from fogy fuel companies is likely to yield three main advantages. Firstly, it may pull ahead the sort toward more innovative and sustainable form of fuel. There was a proverb stated that The stone age did not end when we ran out of stones this is to say that when we discover a better form of fogy fuel substitution, it depart be no longer the main form of fuel for our world. For example, the development of alternative energy source. By divesting from those companies, we can stimulate them to step to the fore their research and development in order to move on to more sustainable fuel. After their successful adaptation, those stocks may become attractive for invest responsibly again and we may reinvest in their stocks.Secondly, according to Smith Schools apart(p) Assets (2013), we can indirectly influence the market by changing their norms, which is the at last stage the activists hope to archive, affecting their powerfulness to finance themselves in twain debt and equity. By doing this, all fossil fuel company in the sector will be affected by the wave created by norm changing. This will result in the same way as the inaugural advantage, but on a lot bigger scale, because t he market itself is the main force that can directly affect the stock price.Thirdly, the research by Hoepner and Schopohl (2016) shows that there are no difference in terms of danger and lapse between the portfolio that excluding many sectors of stocks and the traditional portfolio that does not has any constrains. However, the exclusion portfolio in this research only excludes the securities after they are accused of violating the autograph of ethics. This findings is a very solid reason for divesting fossil fuel companies, as many people recall that these firms can generate higher return for their portfolio. By getting in diametrical return, people will be prompt to seek for abnormal return opportunities by moving their money to more innovative firms with higher growth potential.These advantages can wellbeing the university and the students by polarity to the whole nation that our university would like to take the leading role in tackling with global warming and other env ironmental issues. This can also potentially use for a marketing purpose of the university, as it may be the university up for being seriously concerned about environment and may attract more scholars and schoolmans in this particular area to joining the university. The university may also benefit from the new investment perspective of its endowment blood, as it can gives higher profit if invest properly. This will enhance the ability to fund any new project which will definitely benefit both university and students, the university can stomach better facility for erudition and the students will be get a more competitive edge from learning in such environment.There are also three disadvantages for divesting from fossil fuel companies. Firstly, the universitys endowment fund cannot heavily affect the shares price of those firms imputable to the low proportion of the property belongings in this sector. The obscure Assets by Smith School (2013) shows that the average university endowment fund in the regular army hold the fossil fuel companies stocks for about 2% of their fund, and about 4% in the UKs. This proportion cannot significantly affect the stock price tied(p) though the funds liquidate all of their portion. Moreover, there may be some players that are willing to immediately buy these stocks after the fund sold their shares, as the price will be attractive for that consequence of time. Therefore, the university cannot hope to directly impact the market trend solely on this activity.Secondly, such activity may incur additional transaction live generated by this activity to the fund itself, which may decrease its profit for some period, especially for the University of Reading, which 12.7% of the endowment fund is invested in fossil fuel link companies. If the trustee of the fund could not find any attractive investment opportunity, this movement will do more harm than good, at to the lowest degree in short term, to the fund and the university .Thirdly, to see the significant effect of this divestment, we will have to be patience. The impact on the sector would not be observable within one or two years, the university is likely to prevail from the divestment, again if the fund managers could not find attractive investment alternatives.Moreover, there are no distinct lists of the targeted company that is not environmental answerable to divest, which means that this will increase the marginal cost for the fund to do the research on those fossil fuel companies to divest. I also conceive that divestment is not a solution for climate change, as stated in the article Why Fossil Fuel Divestment is a Misguiding Tactic by The Guardian (2015) as this is can be only served as a mean for increasing peoples awareness about the issue and it can be considered only a symbolic act while the real threats to the climate such as deforestation, short-lived greenhouse gas, halocarbon are nevertheless exist.These disadvantages will affect the university in terms of the opportunity cost, which comes in the form of less(prenominal) financial supports, as the fund may not yield as what it used to provide. This may result in turn away scholarship for students and lower capacity to fund the researches. I also believe that by divesting its holding in fossil fuel companies, the university also give up its right as the owner of the companies which means that the university cannot influence the companies to move into a more sustainable way that may until nowtually increase the benefits to the shareholders.For the issues about the fiduciary duty of the trustee, as I stated before, the trustee should aim to provide their beneficiary with highest benefit. Therefore, it should hope to maximize the profit of this endowment fund. I alone agree with Drew Fausts Fossil Fuel Divestment Statement to the members of the Harvard Community (2013) on the topic that the universitys endowment fund has a single purpose, to support the acade mic mission, and it should not be used for any other purposes. To put the fund in any political position is to put the university in a riskinessy position, as the money in the fund are from philanthropists with different view in politics. However, they share the same perspective in living academic advancement, taking side in this political activity may result in fund withdrawal from the disagreed benefactors. I insist that fossil fuel divestment will breach the fiduciary duty of the endowment funds trustee, the fund must remain politically neutral to secure the risk position of the university and to serve the funds only single purpose. If the fund is going to divest, it should be a strategic adjustment of the portfolio in order to maximizing profit for the university, not for expressing the view on the particular topic in the society.On the other hand, I agree with the activists view about mentation long-term, not through the channel of divesting. Divestment is, in my opinion, me aningless as we still use the fossil fuel in our everyday life, such as our car petrol, our electricity which is produced by fossil fuel or even our home heating system powered by gas. We can act with long-term attitude by implementing a more productive slipway such as influencing the current fossil fuel firms as a shareholder to move them to the good direction, fueling the breakthrough research about alternative energy and fuel, musical accompaniment for innovative architecture and engineering. All of these ways can be originated from a good academic institution, their research, and proper funding is crucial for the growth of the academics. Hence, the trustee should put their best effort in the fund to keep advancing the academic goals. The campaigns should not about the fossil fuel alone, it should aim to tackle all of the problem stated above to be truly archive the solution to the environmental problems.I believe the conflict in fiduciary duty can be resolved by the fund man ager try to take part in the fossil fuel company that the fund invested in through voting rights and keep monitor their use of fund through the companys report. The endowment fund should also keep looking for the new investment strategy which carry alternative energies and other responsible firm in a boldness that those companies could give higher yield than the current fossil fuel firm, thus that would create a win-win situation for the fund, the university, and the students. The other good way is forming the new committee to keep reviewing if the fund invest sustainably and responsible, This committee may harp of students from the university and specialized fund manager. This method is already implemented by some leading American university such as Harvard.Finally, I recommend the University of Readings endowment fund not to divest for the stated reasons. I would suggest the fund to keep monitor the company, keep being aware of the situation in the market and use the recommen dations stated above. While the environment issues are the substantial concerns for everyone, one should not cogitate only on the companies, but should focus also the people. People are the one responsible for the climate change and should be educated about the problem properly, in order to change their mind set to make it become more responsible for their self-centered actions that caused climate change. I insist that the interest of the beneficiary is still frame an undisputed duty of the trustee and the fund managers must put their sufficient effort to see it happen.References Andreas G. F. Hoepner, L. S. (2016). On the Price of Morals in Markets An a posteriori Study of the Swedish AP-funds and the Norwegian Government Pension Fund. http// Ansar, B. C. (2013). Stranded assets. Oxford Smith School of Enterprise and the Environment, University of Oxford.Faust, D. (2013, October 3). Fossil Fuel Divestment Statement. Retrieved from Harvard Univers ity http// intelligence service/2013/fossil-fuel-divestment-statementHulme, M. (2015, April 17). Why fossil fuel divestment is a misguided tactic. Retrieved from The Guardian

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