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17 USC 102

Divestment, Working Groups, and the Invisible Investment Portfolio

May 12, 2018

 

 

On  April 25, the AU Office of Sustainability released an announcement—as well as a video featuring President Sylvia Burwell—proclaiming that AU had finally reached carbon neutrality and was the first, well, American university to do so. Fossil Free AU, the student-led divestment campaign, released a public statement, an accusation of hypocrisy both congratulating the university for achieving a zero carbon footprint and bringing up the irony of achieving carbon neutrality while simultaneously owning shares in fossil fuel companies.

 

In November of 2014, three hundred students organized in the cold and the rain and demonstrated outside one of the Board of Trustees’ annual meeting, in which divestment was one the table and up for a vote. The Board voted against the resolution. At the time, 4 percent of AU’s $550 million endowment was invested in fossil fuel companies, according to a Reuters report. The university’s investment portfolio isn’t public beyond a simple consolidated balance sheet released annually in a financial report by the Treasury Operations department. This means that after 2014, the number of fossil fuel securities held by the university aren’t accessible, not by the public nor the press.

 

For starters, we don’t know where our university sends its endowment dollars. We know what they do with them and how much is done for each “what” but there are no specific destinations listed anywhere on the annual reports (or at least the ones I looked through). Therefore, we have no idea which debt or equity securities AU buys nor can we access the individual companies, mutual funds, and industries those securities belong to. I reached out to Veronica Holland, Manager of AU’s Treasury Operations department, which works as a “liaison” between the university and the financial institutions with which it works, according to its webpage. She directed me to the financial reports—which only disclose aggregate categorical spending—to which I responded with an email formally requesting personal access to the portfolio in all its specificity, detail and glory. Her response was just a simple “that information is not public.” You can find the complete thread here.

 

There’s only one genuine concern to divestment as far as I can tell based on self-scrutiny and conversation with colleagues, and that’s the possibility of a higher tuition rate. AU has projected in the past that divestment from our millions of dollars worth of securities in the fossil fuel industry would induce higher prices of university operations, which is usually the rationale for tuition price increases. In 2014, the increase in management fees alone would have been doubled, from $1.1 million to $2.2 million, according to university auditors. The university’s process for calculating tuition prices, like its investment portfolio, isn’t accessible. Therefore, I can’t say or estimate the scale of this increase. However, whatever tuition increase can and will only be temporary. First, the market is overheating and is overdue for a correction. Second of all, renewable energy is projected by a majority of scientists to soon be a more profitable industry than fossil fuels. There’s a fiduciary point to be made here, and it has to do with divesting and reinvesting. Just bear with me.

 

The divestment movement across U.S. college student bodies is alive and growing. As many universities have divested, there are many that have not. In May of 2014, Stanford University announced that it would drop coal companies from its investment portfolio. San Francisco State University pledged in June of 2013 to divest from coal and tar companies. Harvard University’s student-run divestment organization, Divest Harvard, has been debating, protesting, educating, occupying, and campaigning on the topic of fossil fuel divestment since 2012. Sadly, Harvard’s administration has been consistently unwavering on the subject. Nevertheless, Divest Harvard’s resilience, resolve, and conviction has no doubt inspired a movement throughout a number of college campuses to take up divestment campaigns, including that of AU.

 

Additionally, divestment campaigns across America have also crossed through the university threshold on several occasions, usually in very wealthy, sustainable cities. In December of 2017, New York Governor Andrew Cuomo announced that the state of New York would be divesting its pension-fund investments in fossil fuels—which amounted to up to $200 billion—in a process he called “decarbonizing the portfolio.” Half an hour after Cuomo’s announcement, New York City Scott Stringer comptroller also announced a divestment from fossil fuels—his own pension fund amounted to $190 billion. New York City Mayor Bill de Blasio and New York State comptroller Thomas DiNapoli also announced similar measures shortly thereafter.

 

In addition to a number of public communities, various other organizations have set up initiatives for fossil fuel divestment. For example, The Guardian launched a “Keep it in the ground” campaign urging the Bill and Melinda Gates Foundation to divest its holdings in fossil fuel companies. Divest-Invest Philanthropy is a platform founded in 2010 that connects investors, corporations, and individuals, devoted to a financially prudent and morally imperative transition to sustainable energy sources—the exact type of transition that AU needs to make.

 

Furthermore, there’s also empirical evidence that this transition is already happening. For example, this report from the International Business Times suggests that renewable energy will become the cheapest source of energy in the next ten years. Data shows there’s a very noticeable correlation between divestment from fossil fuel companies and large-scale differences in investment returns between companies that divest versus those who don’t. In 2014, the Carbon Disclosure Project (CDP) published a report that basically compared the performances of companies that divested from fossil fuels to the performance of those that hadn’t. If found that those who were “preparing for climate change” and shifting their portfolios accordingly “[enjoyed] 18% higher returns on their investment than companies that [weren’t], and 67% higher than companies which [refused] to disclose their emissions.” The CDP also wrote on page 10 of its report that companies that integrated sustainability in their financial operations “are not only seeing benefits from investing in climate action but are also calling for clear, long-term policy in order to drive future investment and growth.” By a) disclosing the scale of their annual emissions and b) divesting some of their assets out of fossil fuels, companies made significantly more returns on investment than companies that didn’t do either.

 

There’s a specific case that I would like to shine a spotlight on. In 2015, a New York University working group made up of administrators, faculty, and students, and formed by the request of NYU Divest, the divestment group at NYU, made a recommendation to the university senate that “divestment would be ineffective and fiscally irresponsible.” NYU executive vice president for finance and information technology sent out a university-wide email that “divestment would neither be the most ‘impactful’ way to address global warming nor be ‘consistent with NYU's fiduciary duties’,” according to a report by Politico. Dolph also criticized the divestment movement as “primarily a political statement.” It’s worth noting that NYU has 4 percent—3.3 percent in oil and gas and 0.7 percent in coal— of its endowment ($139 million of $3.4 billion) invested in companies on the Carbon Underground 200 list. These numbers come from a disclosure by the university. The reason I brought up this case is because I want AU to do a similar thing: to assess the feasibility of divestment and release a detailed justification—including numbers and figures used in the process—that would be available to the public.

 

The ultimate solution, of course, is complete divestment from fossil fuel companies’ holdings. But for now, it should be disclosure now, divestment later. My proposition is a simple one, which channels the NYU case in 2015. AU needs to form a working group—just as the NYU administration did at the request of NYU Divest—that would conduct a proper study of the financial effects of divestment and provide a report to the public upon completion that would include real, specific, tangible data on the university's investments as well as thoughtful interpretation of that data that would constitute a formal, non-discretionary opinion and justification to both the student body and the Board of Trustees.

 

Ultimately, what we see in the university’s financial operations—what they do with our money—is largely unavailable to the public. AU likes to paint the illusion that they’re transparent by releasing annual reports that present consolidated data that hardly goes into detail. Regardless of what you believe the Board of Trustees should do with the endowment, it’s incongruous to disclose categorical spending while keeping the specifics unavailable to the public. Instead of treatings its student body like a public full of incompetent bystanders, AU should see us as investors who are actively funding its investment portfolio, as well as the tuition calculation process, which means that we should be kept in the loop about where our dollars are going. I’m willing to accept defeat momentarily if change tomorrow means disclosure today.

 

I haven’t always been for divestment. From the time of my first understanding of the idea up until just a couple of months ago, I held an attitude that was barely above indifferent, mostly because of my inner presuppositions that a) organizations take on different narratives between their public relations and their investment ventures, and that b) that is just simply something we have to accept. Today, my support for divestment comes from a thorough understanding of the positive environmental consequences of sustainability’s longevity, as well as the financial latitude of divestment as an investment venture in itself—selling shares of less profitable securities to buy more profitable ones, you can call it “divest-invest philanthropy” if you’d like—carried out as a genuine fiduciary campaign, not just an appeasement of an organization full of angry, socialist tree-huggers.

 

Divestment is inevitable, and nobody can deny that. At some point in the near future, fossil fuel companies will lose their profitability and subsequently run out of investor capital. Renewable energy companies will then birthe the new energy standard to reign in sustainable excellence, nigh and forever. In the meantime, however, we need to keep in mind that as a university, we should be ahead of the curve, in the interest of both the university’s financial condition and the health of the environment in which we live. Divestment may not happen this week, this month, or this year, but that doesn’t mean that we should give up hope, because at the end of the day, our values and our consideration of what the future holds define us more so than our investment portfolios.

 

 

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