When the Rockefeller Foundation announced in December it would divest its $5 billion endowment from fossil fuels and bar any such future investments, it marked the culmination of the foundation’s decades-long effort to distance itself from the oil riches that got it started.

Endowed in 1913 by notorious oil tycoon John D. Rockefeller, with profits from the forced sale of his petroleum monopoly, the Rockefeller Foundation is one of the most deeply symbolic names on a growing list of institutions that have publicly chosen to divest from fossil fuels. While smaller foundations affiliated with the family name had made news years ago for committing to divest, the big Rockefeller had remained a target for climate activists racking up big commitments to abandon fossil fuel investments.

The announcement came close on the heels of the Rockefeller Foundation sharing its plan to invest $1 billion over three years to a green recovery from COVID-19, including unlocking private and public investment in renewable energy across undeveloped swathes of Africa and Asia. The philanthropy had long been moving away from its oil and gas holdings, but it accelerated efforts to pare fossil fuels from its assets over the past six years—and wanted to share publicly that its assets were aligned with its new endeavor at a time when they thought the announcement would carry the most weight.

“It would be highly hypocritical and inconsistent if we weren’t taking action and making public our stand on fossil fuel investments,” Eileen O’Connor, senior vice president of communications, told me.

I spoke with the foundation’s staff to hear the story of how the institution reached this point, both to understand how a philanthropy founded by the patriarch of a family synonymous with oil wealth made the decision to break from that legacy, and where it fits into the larger divestment push.

How it happened

John D. Rockefeller formed the Rockefeller Foundation in 1913, not long after the government forced the dissolution of Standard Oil, a monopoly that, at its height, controlled 90% of the U.S. petroleum industry. At the philanthropy’s inception, oil assets made up 100% of the endowment, according to Chun Lai, chief investment officer.

The foundation gradually diversified its holdings as time passed, but for decades, such investments still accounted for about half the institution’s portfolio. Only in the 1970s did the foundation end its direct holdings in oil companies. That was an early milestone, but real action was still decades away. Institutional investors are often tied up in fossil fuel holdings through large investment portfolios they don’t manage themselves.

About six years ago, the foundation began to speed up its departure, said Lai, who was on the investment team at that time. In part, it was increasingly clear that a clean energy transition was underway. So the foundation—which relies on external managers—began asking them to reduce its exposure to dirty energy sources like oil and coal and expand its investments in renewable energy.

“We started divesting from that point, but we didn’t make a significant announcement,” Lai told me. “It was an evolution, not a revolution.”

The next shift came about a year ago. Lai became chief investment officer in November 2019. There was a consensus at that time among the foundation’s board, leadership and investment team that the foundation should move forward with full divestiture from fossil fuels. To formulate a set of principles to guide this new approach, the foundation formed a working group of senior members from the investment and programs teams, as well as Harvard Business School Professor Josh Lerner. The policy will be finalized and released in the coming months.

In short, it was a long-term process. “It’s not a decision that we made lightly,” Lai said. “Divesting is the last resort. There’s different ways you can engage the companies on the issue.”

Today, fossil fuel holdings account for about 2% of the foundation’s portfolio, down by half from six years ago. Over the same period, the foundation’s annual returns have averaged a healthy 8.3%. The foundation expects to halve its investments in fossil fuels in the near future, but has not given a timeline for full divestment. “If you set a deadline, you’re not doing the most market-practical action because people will wait for that deadline to approach you,” Lai said.

It’s worth noting that, while perceived risks to assets have long been cited by philanthropic institutions putting off fossil fuel divestment, other substantially larger institutional investors have taken the plunge. New York State’s $226 billion pension fund, for instance, recently announced it would divest from its fossil fuel stocks, as well as shares from other companies that contribute to climate change. It set a deadline of 2040.

Editor’s Note: For an in-depth exploration of the process of divestment and what holds back many foundations from making the commitment, check out this two-part IP series on the topic.

Rockefeller family distancing itself from oil, fossil fuels

The Rockefeller Foundation is the largest philanthropy bearing the family’s name. But it is hardly the only one. And it is not the first to break up with fossil fuels.

In 2014, the $1 billion Rockefeller Brothers Fund, a foundation started by sons of John D. Rockefeller, but not affiliated with its larger philanthropic predecessor, announced it would divest. Two years later, the $130 million Rockefeller Family Fund—also created by heirs but not otherwise linked to the other entities—shared its own plans to divest.

“We’re proud to follow in those footsteps,” said Dr. Rajiv J. Shah, president of the Rockefeller Foundation, in its divestment announcement.

The past year-plus has seen still more Rockefeller family efforts to discourage fossil fuel extraction. A group of three fifth-generation family members recently founded a new organization, BankFWD, that aims to mobilize individuals, businesses and foundations to pressure the major banks where they keep their accounts to stop financing fossil fuels. And two Rockefellers, including one involved with BankFWD, recently set up Equation Campaign, a 10-year fund that supports front-line movements working to stop new oil and gas extraction.

The impact of divestment

Today, it’s increasingly clear fossil fuels are—morality aside—a perilous investment. Even their place of primacy in the American economy is in question: Exxon Mobil, one of several companies formed out of Standard Oil, was recently dropped from the Dow Jones index.

But when the Rockefeller Brothers Fund withdrew, it was not clear whether the choice would reduce its short-term financial returns. Yet a study by the foundation of the five years following the decision found the endowment had an average annual return of 7.76%, beating their benchmark portfolio’s rate of 6.71%. (The fund was also still not fully divested: 0.05% of the endowment was still exposed to fossil fuels, down from 6.6% five years before.) As we’ve covered previously, there’s an ever-growing body of evidence that fossil-free portfolios perform as well or better than those that are exposed to oil and gas, and a wide range of options now exist for investors of all sizes.

But as Rockefeller’s journey suggests, it can be a complicated process, and leadership at many institutions still believe that the benefit would not be worth the risk. Larry Kramer, president of the William and Flora Hewlett Foundation, has previously told IP that the size of their endowment allows them to work with managers who achieve returns that fund more work than the foundation could otherwise—a tradeoff his program staff accepts.

For Rockefeller Brothers Fund, the impact went far beyond returns. The institution has worked on climate change since the 1990s. But of all their initiatives, board and staff believe that dropping their fossil fuel investments “was the most impactful and most important decision we made,” President and CEO Stephen Heintz told IP in 2019.

Writer and activist Bill McKibben, who founded 350.org—a grantee of RBF—and helped launch the divestment movement, agreed. “I think it was one of the most important moments in the whole divestment campaign, just because of the symbolism that is attached to the original fossil fuel fortune,” he told The Guardian in 2015.

Could this be a tipping point?

With the Rockefeller Foundation following in the footsteps of its smaller sister organization, has the movement reached a new tipping point? We’ve been asking this for years now, but it certainly feels like change is in the air. Automakers like GM are now—after once fighting regulations—pledging their future fleets will be carbon-free. Climate appears to be a serious mandate for virtually every cabinet position in the Biden-Harris administration. And massive winter storms are reminding us of the fragility of our infrastructure in a changing world.

If anything, philanthropy is behind the curve. Look at universities, which, unlike foundations, have to answer to a rowdy and impassioned constituency—their students. Oxford (with a $4.2 billion endowment), Cambridge ($4.9 billion), Cornell ($9.6 billion), and the University of California ($84 billion, including pensions) are among those that recently made moves toward divestment.

Around the world, nearly $14.6 trillion in assets have been divested from fossil fuels by 1,300-plus institutions, according to Fossil Free, 350.org’s divestment campaign. Philanthropies account for 15% of those organizations choosing to divest, with participants ranging from giants like the Bill and Melinda Gates Foundation and the Children’s Investment Fund Foundation, to small-but-influential funders like the Ben & Jerry’s Foundation and the Chorus Foundation.

Bill Gates, a divestment naysayer for years, was a target of climate activists. He has argued in the past that divestment has “zero” climate impact, because if you sell your stocks, someone else will simply buy them. The Gates Foundation is now listed in Fossil Free’s database of institutions committed to divesting, and in his new book on climate change, he writes that he ultimately chose to divest for moral reasons, as he didn’t want to make any profits off the stocks if they rose. It’s hard to believe public pressure—including regular Seattle protests—did not also play a role. Almost certainly, there are other foundations that have decided to divest out of some mix of financial and moral logic, but make little or no public announcement.

Activists have long argued that divestment is about removing the “social license” for such companies to operate, shifting norms about what we tolerate in society. In that sense, divestment is as much a symbolic move as an economic one. But the impacts of the movement are manifold. Shell has called divestment campaigns a material risk to its business. Many of the early student leaders in campus divestment campaigns are now prominent figures in today’s climate movement. One is even a state senator.

Philanthropy is typically judged on the 5% it spends in grants, not the assets that finance those gifts. The Rockefeller Foundation’s move is the latest reminder that philanthropy—no matter its origins—can make an impact when it aligns its investments with what it cares about.