Phillipian Commentary: Letter to the Editor

To the Editor:

There are good reasons not to invest in energy companies. The companies sell commodities with volatile prices. They are capitally intensive. And over the past decade, management teams have proven frighteningly adept at destroying shareholder value.

But these are practical reasons. The moral case against fossil fuels, which Mr. William W. Holland ’69 attempted to make a few weeks ago in this paper, is less compelling. With respect, Mr. Holland misunderstands the environmental importance of natural gas production, the importance of being a conscientious shareholder, and the purpose of our endowment.

In 2005, coal power accounted for about one half of American utility power generation. By 2015, coal and natural gas reached parity in this regard and the trend has only continued. In fact, since 2005, the U.S. has actually reduced energy-related carbon emissions by nearly 15 percent, thanks to fracking and natural gas, which has displaced coal in power usage. True, there are environmental risks associated with fracking, like the methane emissions from gas flaring. The solution to flaring, however, is market-based—build more pipelines.

Moreover, in 2019, the U.S. became a net exporter of oil. This energy independence clarifies our geopolitical strategy. It dilutes diplomatic leverage from illiberal regimes like Saudi Arabia and Russia. And it reduces the probability that we will send our sons and daughters to die in pointless, winless wars in the Middle East.
Furthermore, conscientious shareholders are critical for global decarbonation. This summer, British Petroleum, under new C.E.O. Bernard Looney, pivoted aggressively to green energy. It announced strict emissions targets and plans to spend most of its capital on renewables projects by 2040. This pivot would not have been possible without the support of conscientious shareholders—many of them schools like Andover—who voted in support of this new strategy, and in favor of Looney’s appointment.

It logically follows that selling your shares is selling your vote. If we were to sell our energy shares as a virtue signal—as Mr. Holland calls for—the price dip would be arbitraged away in minutes by a quantitative trading firm, and shareholders would consist of more and more robots and Republicans. But, God forbid, we are considered “‘uncool’ to have fossil fuel investments.”

Finally, Andover’s endowment is not a conduit to express political views, let alone controversial ones. Its actual purpose is to maintain capital for the school’s operations. Let us reserve divestment for companies truly beyond the moral pale, where the only vote we can responsibly cast is for total liquidation. Like private prisons. Otherwise, our investment decisions should terminate in a single question: is this a good investment?

Sometimes in life, problems come dressed as solutions—an intuitive chess move, just one drink, selling your energy shares. Mr. Holland’s heart is in the right place. He is correct that the planet is warming. He is correct that we need to do something about it. But he is wrong about everything else.

Alexander R. McHale ’09