Building a Portfolio

Fossil Fuel Divestment: Universities Weigh Their Options

As the debate over climate change action heats up, university endowments are taking stands on fossil fuel divestment. Weighing their options, some universities are selling a portion of their investments to protest climate change, while others are concerned about losing important profit drivers from their portfolios.

The national climate debate intensified on June 1 when President Trump announced that he would pull the United States out of the 2015 Paris climate agreement, which sets goals for cutting carbon emissions. “I was elected to represent the citizens of Pittsburgh, not Paris,” Trump said in his announcement.

As university endowments continue to enter into and lead the conversation around climate change, individual foundations are taking disparate positions on which tactics are effective and appropriate. While some favor divestment, some are changing their portfolios to focus on sustainability conscious companies, while still others are retaining fossil fuel stocks in their portfolios.

Divesting Direct Funds

The University of Massachusetts Foundation was one of the first public university systems to take financial action on climate change, announcing in May 2016 that it would divest its endowment’s direct investments in fossil fuel companies. The foundation’s board had already agreed to sell direct holdings in coal companies after a successful petition by a student group.

The full fossil fuel divestment came about after sit-in protests at UMass Amherst, the system’s flagship campus. It affected only shares held directly by the endowment, not pooled or hedge fund investments. Foundation board chairman Victor Woolridge said the total amount invested in fossil fuels was around $5 million, about 0.6% of the university’s total $770 million endowment.

Evaluating Corporate Stances

In March 2017, the board of trustees at Barnard College took a more nuanced approach, announcing a plan to divest from companies that deny that climate change is caused by fossil fuel emissions. Barnard, which is affiliated with Columbia University in New York, said that the college will “distinguish between companies based on their behavior and willingness to transition to a cleaner economy.”

The school is in the process of deciding which companies to blacklist from its $286 million endowment. Complicating the effort is the typical structure of many private equity and hedge fund strategies, which pools money alongside other investors, limiting the ability to construct a customized portfolio. “We’ve got to make a decision in due course about the way forward,” said Robert Goldberg, Barnard’s chief operating officer. Roughly $18 million of Barnard’s invested assets are tied up in fossil fuel companies, mostly in pooled private equity investments. Goldberg said the school was studying how to unwind those investments without being forced to sell at a discount.

Considering Endowment Earnings

However, not everyone is on board with divestment. Despite student pressure, the University of Denver, a private institution with a $620 million endowment, ultimately decided not to divest from fossil fuel.

Douglas Scrivner, the chairman of the university’s board of trustees, said that divesting from fossil fuel companies “wouldn’t be an effective means of mitigating global warming.” Furthermore, Scrivner said, selling the university’s fossil fuel company shares was not consistent with its “long-term purpose to provide enduring benefit” to students and employees. About 75% of the endowment’s returns are used to finance scholarships.

“We believe it is right to work on climate change but we also believe it is right to do as much as we can with our endowment as a vehicle for education,” said the university’s chancellor, Rebecca Chopp. “To continue supporting our students, we’ve got to expand our endowment.”

Instead of divestment, the board decided to set aside $5 million for a “green fund” to pay for solar panels, composting, and other actions to mitigate climate change. In addition, the university board has called for regular reports on what steps the university is taking to mitigate climate change.

As debates about fossil fuel divestment continue to circulate around university and college campuses, other endowments will have to weigh their own current portfolios, needs, and goals before enacting any changes.

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