By Eric St. Pierre
Trottier Family Foundation
The Case for Divestment
Let Me Introduce You to This Topic...
At the Trottier Family Foundation, we recognize that impact investing is an important tool to de-risk projects with social and environmental impact and create systemic change. The realization that investment policy and core values must align established the begging of the Foundation’s sustainable investment journey, which began in 2015 by divestment (negative screening) of the endowment from fossil fuels which the Foundation has now fully divested. The next stage was positive screening and reviewing ESG policies of investment managers, encouraging improvements and more focused mandates. In 2018 we created the Foundation’s Impact Investment Policy and dedicated 5% of the Foundation’s endowment towards investment projects with catalytic impacts aligned with our social, environmental, or climate change missions. We’re currently working with investment managers to measure the GHG footprint of our portfolios and designing a strategy to reduce that footprint over time.
Divestment allows Trottier Family Foundation to align its assets with its mission to create meaningful impact and support the mitigation of climate change and the transition to a low carbon economy. As the Foundation is investing in creating a better future, it was not responsible to keep investing in fossil fuel companies, from both a programmatic point of view as well as the fiduciary responsibility of climate risks tied to our endowment.
Reduction of exposure to overall portfolio risk: this includes risk of exposure to lower performing industry, and the potential value loss for companies with stranded assets in a carbon-constrained scenario. As such, divestment arguably reduces systematic risk and enhances risk adjusted financial returns.
Opportunity to invest in a wide range of low-carbon investment opportunities, allocating capital to growing segments of the market.
Divestment does not hurt returns: Divesting the Foundation’s assets from fossil fuels has been a long journey with asset managers (as of 2020 there are now more options); choosing the appropriate screens, thoroughly examining the assumptions behind them, and actively pursuing portfolios focused on higher performing ESG companies. The argument that divestment lowers financial returns is absolutely false and does not consider the effect of current changes (such as the shifts in the energy sector) on the market in the future.
One of the main arguments against divestment is the loss of engagement opportunities with those companies that are taking climate risk into consideration and exploring a change in mission. However, our philanthropy activities also allow us to take robust actions that are in-line with the urgency of the climate challenge.
Divestment is only one tool. Choosing to not invest in industries such as coal sends a strong message and can have impact but it’s only the starting point. More important is the decision to then allocate capital towards investing in climate solutions such as renewable energy infrastructure, clean technology, energy efficiency, and the like.
Eric's Reading List
An update to the original guidebook published in 2017, which TFF has used extensively during the initial phases of creating our impact investing framework. The guidebook contains cases studies from foundations and funds across Canada, covering every step of responsible and impact investing, all the way through impact measurement and incorporation of the Sustainable Development Goals.
World Economic Forum Investors Industries
This report was a major corner stone in understanding how to build an impact portfolio and how to evaluate impact funds. Since institutional impact investing is still in its early stages, the focus of the due diligence leans towards how decisions are made and evaluated rather than the fund’s historic performance.
How to Guide
The Trottier Family Foundation has become a signatory of the DivestInvest movement, pledging to divest from fossil fuels and invest in climate solutions. The guide presents a helpful framework to divesting, and how to select suitable fund managers, as well as implementing decisions to integrate climate solutions into the Foundation’s portfolio.
Harvard Business School
Measuring impact is one of the most challenging feats as a there is no single taxonomy or mechanism to be applied to make those measurements. The study discusses the specific methodologies used by practitioners across all phases of impact measurement, from estimation to evaluation. For Foundation the study is especially useful when it comes to working with the theory of change and ensuring mission alignment through impact investing.
Open Impact provides practical impact investment solutions. The Trottier Fondation has invested in some of these solutions and continues to explore new investment opportunities to help mitigate climate change.
About the Author
Eric St-Pierre has been Executive Director of Trottier Family Foundation since 2016. The Trottier Foundation is one of the largest private philanthropic foundations in Canada and a leading foundation in mitigating climate change. Under his leadership, the Foundation has increased its grants to over a hundred registered charities, transitioned the foundation’s assets towards sustainable investing and collaborated more closely with various stakeholders.
Much of his work is focused on strategic and effective philanthropy and creating opportunities for innovation and collaboration. He sits on the Board of the Canadian Environment Grantmakers Network; Low Carbon Funders Group; Chair of the Clean Economy Fund and is President and on the Board of the Greater Montreal Climate Fund.
Before joining the Trottier Foundation, Eric practiced law for five years in the areas of Indigenous and environmental law as a litigator and accredited mediator.