By Matt Wirz
When the University of Michigan's chief financial officer asked
the school's Board of Regents in December to authorize a new $50
million oil-and-gas investment, they gave an answer he had never
heard before: No.
The board delivered the news at a meeting packed with student
activists. They had spent months pushing the university to stop
funding fossil-fuel companies. A few weeks later, the school said
it was freezing all direct investments in such companies.
U.S. university and college endowments control more than $600
billion of investments, and the movement to divest those funds from
fossil fuels is gaining momentum -- even though the pandemic has
kept students off many campuses and issues of racial injustice have
dominated the national discourse since George Floyd was killed in
police custody in May.
Activists say years of alarm about the costs of climate change
have unified a broad base of support, including among the alumni
that typically fund endowments. Big universities rarely capitulate
to such campaigns and fossil fuels seem to be joining a very short
list of investments deemed off-limits by the ivory tower, such as
apartheid-era South Africa and tobacco products.
In May, Cornell University swore off new direct investments in
oil and gas, and George Washington University decided in late June
to divest from the industry entirely following a similar action by
Georgetown University in February. Alumni of Harvard University are
voting this month on whether to appoint pro-divestment candidates
to the board of overseers, which votes on the membership of the
corporation that supervises its endowment, the largest in the
country at about $40 billion.
"I'm going to be honest, I didn't think we'd get this far," said
Jayson Toweh, an Environmental Protection Agency program analyst
and Harvard alumnus who is one of the candidates. "The process just
to get nominated as a candidate was very arduous and made
complicated, in my opinion, to keep us off the ballot."
Even Yale University's rock-star endowment head David Swensen is
feeling the pressure. An opponent of divestment, Mr. Swensen agreed
to meet with the school's faculty senate and students in February
for a public debate on the issue, his first such meeting in 35
years at the university. The endowment's natural-resource
investments declined to a 10-year low of about 5% in 2019 from 7%
the prior year.
Mr. Swensen and Harvard President Lawrence Bacow both published
open letters this year favoring proactive engagement with the
energy industry to reduce carbon emissions.
The push for large-scale divestment by colleges marks the latest
blow to big oil companies, which are already reeling from a price
crash and a broad effort to move toward low-carbon technologies.
Shifts by endowments often sway the behavior of public pensions,
which control about $4 trillion in assets, according to data from
the National Association of State Retirement Administrators.
The Independent Petroleum Association of America, a trade group,
has launched a media campaign against divestment, arguing that it
would cost U.S. pensions as much as $431 million in losses
annually.
Some in academia are pursuing divestment as a way to influence
national policy on climate change, much like the antiapartheid
movement on campus helped spur U.S. sanctions against South Africa
in the 1980s.
"Our university can be a model for others," said Mark Bernstein,
a trial lawyer who serves on the University of Michigan's board of
regents. "We have to do everything we possibly can to disrupt the
flow of carbon into the atmosphere, and that includes disrupting
the flow of capital to the fossil-fuel industry."
Others see it as a necessary step to reduce the risk of
investment losses. Shares of Exxon Mobil Corp. have lost nearly
half of their value since the start of 2018.
"I don't think it's a political issue; it's an issue of what's
best for the university," said Ron Weiser, a former chairman of the
Michigan Republican Party who is also a regent at the University of
Michigan. "Some institutions have come to the conclusion that the
long-term risk of investing in fossil fuels is substantial."
The approach still has detractors, even among
sustainable-investing advocates. Divestment is counterproductive,
they say, because institutions that adopt it abdicate their ability
to influence large energy companies such as Exxon Mobil.
"Divestment is a fancy word for selling your shares," said Anne
Simpson, a director for sustainable investments at California
Public Employees' Retirement System, or Calpers, which managed $383
billion in May. "We are using our position as owners of these
companies to drive change. Walking away from a situation is not
going to change it."
Environmental advocacy groups such as 350.org helped launch the
university divestment movement around 2012, aiming to slow global
warming by stopping oil-and-gas companies from extracting their
known fossil-fuel reserves. Most large U.S. schools resisted the
idea, fearing that it would damp their financial returns and
embolden activists to push for divestment from a much broader swath
of investments.
"Conceiving of the endowment not as an economic resource, but as
a tool to inject the University into the political process or as a
lever to exert economic pressure for social purposes, can entail
serious risks," Harvard's then-president Drew Gilpin Faust said in
2013.
Brown University, The New School, Whitman College and some
others such as Syracuse University adopted the measure. Most
others, including Cornell, Harvard, Stanford University, University
of Michigan and University of Pennsylvania rejected proposals from
their students and faculty to divest.
"There seems to be an arrogance by the people investing the
university's money," said Anne Sobol, a former lawyer who graduated
from Harvard in 1967 and now volunteers for Harvard Forward, the
organization behind Mr. Toweh's candidacy. "The implication is that
people like us just don't understand what's best."
College of the Atlantic, a small ecology-focused school in
Maine, was one of the few educational institutions to fully divest
in 2013. The college has a relatively small endowment of $67
million. But from 2013 to 2019 it averaged an 11.8% return,
compared with 10.5% by the MSCI stock index, which included
fossil-fuel companies, said Henry Schmelzer, one of the school's
trustees.
"We didn't plan it this way," Mr. Schmelzer said. "It happened
because of the wall of trouble the energy industry has been
having."
The rise of shale production and alternative-energy sources have
gutted fossil-fuel prices over the past five years, at the same
time that concern about climate change has grown, even within the
Republican party and on Wall Street.
Those changes have reinvigorated the divestment movements in
many large schools.
University of Michigan President Mark Schlissel rejected a
divestment initiative in 2015, saying the university used fossil
fuels to operate and that oil-and-gas companies weren't as
ethically problematic as businesses tied to apartheid. The school's
endowment grew by about 20% to $12 billion in 2019, but investment
returns underperformed the S&P 500 stock index, which averaged
annual returns of 10.6% over the same period.
Investment in natural resources, primarily fossil fuels,
accounted for about 9% of the university's total investments in
2019, according to its annual report. The average is 7.7% for U.S.
endowments, according to data from Yale University. The University
of Michigan averaged annual returns of 6.5% in the five years ended
in June 2019, beating the 5.9% return of its custom benchmark
index, according to a report by the school's chief financial
officer.
A new drive for divestment gained steam on the University of
Michigan campus in 2019. Student activists occupied an
administration building in March, leading to several arrests, and
began protesting regularly at the monthly meetings of the board of
regents. When they learned that Chief Investment Officer Erik
Lundberg wanted to make a $50 million investment in a fund focused
on oil and gas they canvassed the regents to reject the idea, which
they did at a Dec. 5 meeting.
"It felt amazing," said Noah Weaverdyck, one of the students
arrested in March who helps lead the divestment movement.
The euphoria proved short-lived. The university in February said
it was placing a moratorium on future direct fossil-fuel
investments but hasn't budged on divesting the $1.3 billion of
natural-resource investments it still holds.
"The freeze was only won after years of work and constant
pressure." Mr. Weaverdyck said. "Direct, collective disruptive
action has been the only thing to actually achieve results."
Write to Matt Wirz at matthieu.wirz@wsj.com
(END) Dow Jones Newswires
July 14, 2020 05:44 ET (09:44 GMT)
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