The MacArthur Foundation withdraws from fossil fuels
John D. and Catherine T. MacArthur Foundation, Chicago, have announced their intention to divest from fossil fuels.
The foundation’s $ 8.2 billion commitment to a “divestment path” will begin next month when the foundation changes the US indices it uses in its portable alpha program, said John Palfrey, chairman of the foundation, in an interview.
The program, in which the foundation uses derivatives to gain only long-term equity exposure, will switch to ESG indices that exclude companies with fossil fuel reserves from general stock market indices. Mr Palfrey said the change to his exposure to US stocks will occur over the next month, and the goal is to change non-US stock indexes over the next year.
He did not provide further information on the size of the portable alpha program, but said it was running “in the billions”.
“For several years now, we have explored the easiest way, consistent with our fiduciary duty to align our endowment” with the mission and charitable programs of the foundation, said Mr. Palfrey.
The foundation’s board of directors has established an ad hoc committee over the past 18 months and hired Cambridge Associates to conduct a study on how best to approach divestment.
Mr Palfrey noted that the foundation in 2019 had already stopped investing in private energy funds that invest in oil and gas exploration and allows existing funds in which it is invested to withdraw.
Further information on the new index was not available, but Palfrey commented on the irony of paying higher fees for an index that has fewer holdings than a large index fund.
He noted that the debate within the investment committee was whether it was in line with the foundation’s fiduciary obligations to pay more for exposure in fewer securities.
“This is fully in line with our fiduciary obligations,” said Mr. Palfrey.
Also in an announcement on the foundation’s website on Wednesday, among the foundation’s $ 500 million target allocation for impact investing is a commitment to Encourage Solar Finance, a private equity fund managed by Encourage. Capital that invests in specialized financial institutions in India that develop solar financing solutions.
As of December 31, the foundation had made $ 359 million in commitments. Of these, 47% were private equity commitments, 39% loans and 14% guarantees.