Coal Divestment at UNC - 4.24.15 Jeremy Godsell | Sapna Patel | Stella Radford | Nikhil Umesh ENST 698 Executive Summary

Problem: Examining the eﬃcacy of divesng from stocks and funds held in coal in UNC-Chapel Hill’s about $3 billion endowment, and creang frameworks for corporate social governance. Highlights Concerns Recommendaons

[insert screenshot of relevant slide]

● UNC Management Company Divest from Coal-holding funds and stocks Outcomes ● Tracking of investments being made in the endowment to ensure transparency ● Stakeholder input and formal stance from Trustees on corporate governance

What is Divestment?

● Refers to the sale or reduction of an asset via liquidation or exchange. ● Euphemistic for “socially responsible investing” ● Justifications: ○ Financial ○ Political ○ Ethical ● Strategies may include: ○ Disaggregation ○ Shareholder Advocacy

History of Divestment at UNC

● Apartheid South Africa (1987) disinvestment led by Anti-Apartheid Support Group1 ● Sudan Divestment Resolution (2008) resulted in all companies with ties to Sudan being added to Management Company’s “Prohibited List”2 ● Board of Trustees pass a non-binding resolution requiring Management Company to research investing in “environmentally-friendly clean energy strategies” (2014)

1987 2008 Present Precedent for Coal Divestment

● 20+ colleges & universities have divested in the U.S.3 ● Stanford represents the largest “purge” from coal with a $21.4 billion endowment ● Months later, Stanford invested in three oil and gas companies, to the dismay of many faculty

Management of the UNC Endowment

● The majority of the UNC endowment is managed by the UNC Management Company, Inc., established in 20034 ● It is a professionally staffed company ● Four primary teams that make up the UNC Management Company ● The Management Company is governed by a Board of Directors including UNC Chapel Hill leadership Allocation of the UNC Endowment

● The UNC Endowment is subdivided into eight categories similar to most mutual funds5 ● 6.5% of the endowment is invested in the Energy and Natural Resources sector ● This amounts to approximately 172 million dollars tied up in energy interests Coal’s Future in the Market

• Resource royalty taxes likely to increase in the future → less financially attractive to investors6 • More expensive coal = more competition from renewables • Policy changes: EPA proposal to limit tones of CO2/megawatt hour/ power • Competition from natural gas → severance tax decreased recently7

Result: emerging trend of decreasing return on coal Prospects for Natural Gas Investment

● Production and use of natural gas especially in the United States is quickly increasing ● Projections for coming years paint a positive picture overall for investment in natural gas commodities ● Natural gas causes 50% fewer emissions than coal, and is a bridging technology Investment into Renewables

• Market drivers: • Renewable portfolio standards implemented in 37 states (March 2013)10 • Federal incentives: Production Tax Credits11 • Global trends for investments in renewable energy12 • increasing steadily until 2011 • Torrefied wood - alternative viable energy source and also a promising area for reinvestment

Recommendations

1. Divestment

2. Transparency

3. Stakeholder input

Executive Summary

[insert screenshot of relevant slide]

Thank You!

Sapna Patel Nikhil Umesh Stella Radford Jeremy Godsell

References

1. "Anti-Apartheid Support Group of the University of North Carolina at Chapel Hill Records, 1980-1987." Collection Number: 40143. UNC Archives, n.d. Web. 20 Apr. 2015. 2. "The Case for UNC to Divest from Coal." Board of Trustees Presentation (n.d.): n. pag. Web. 20 Apr. 2015. 3. Wines, Michael. "Stanford to Purge $18 Billion Endowment of Coal Stock.The New York Times. The New York Times, 06 May 2014. Web. 20 Apr. 2015. 4. "About UNCMC." UNC Management Company Inc. N.p., n.d. Web. 20 Apr. 2015. 5. "Fiscal Year 2013 Annual Report." UNC Management Company (n.d.): n. pag. 2014. Web. 6. Testa. B. M. “Coal’s Uncertain Future.” Planning. Vol 80, Iss 8. Aug 2014. 7. Kuykendal. T. “W.Va. Eyes Natural Gas to Replace Declining Coal Revenues.” The State Journal, vol 28, iss 46. 20 Nov. 2012. Web. 20 Apr. 2015. 8. Glassman, James K. “Betting on the Natural Gas Boom.” Kiplinger’s Personal Finance. June, 2013. Web. 20 April 2015. 9. “How To Invest In Natural Gas.” CommodityHQ. Web. Accessed 20 April, 2015. 10. Rabe, Barry. “The Expanding Role of State Renewable Portfolio Standards.” Pew Center on Global Climate Change. June 2006. Web. 20 Apr. 2015. 11. Bird, L.; Parsons, B.; et al. “Policies and Market Factors Driving Wind Power Development in the United States.” National Renewable Energy Laboratory. July 2003. Web. 20 Apr. 2015. 12. “Global Trends in Renewable Energy Investment 2014: Key Findings.” FS-UNEP Collaborating Centre for Climate & Sustainability Energy Finance. Web. 20 Apr. 2015.