Assessing the ACSR

May 13, 2015 by Brian Burke

As the academic year winds down, I, writing on behalf of the Williams Endowment Initiative, encourage students and faculty to turn from scholarly to civic pursuits. The trustees are weighing an issue of monumental concern: whether or not to divest the endowment of fossil fuels. At its heart, this is a question of how the college community defines itself as an ethical leader. It’s a question of whether we want to be owners of the world’s most climate-damaging industries and lead only within the safe and comfortable boundaries of our campus, or whether we are bold enough to take a stand of national and global import.

When we formally proposed divestment, we spoke as concerned alumni who believed our College could do more. Now we are joined by large majorities of students and faculty who believe that the College has the moral obligation to stop financing the fossil fuel industry as well as the intellectual savvy to establish a strategy for divestment and reinvestment that preserves and enhances our academic resources. The talented people who built our endowment to $1 million per student can also guide us toward climate-responsible investment.

As the trustees grapple with these questions, they will consider a recent report by the Advisory Committee on Shareholder Responsibility (ACSR). We encourage the College community to read and respond to this report, and we offer the following considerations.

First, the report’s strengths: We applaud the ACSR for unanimously acknowledging “the urgent need to move away from a fossil-fuel-based economy” and recognizing that “world political economies have not succeeded in building into financial decision-making even a fraction of the costs of climate change.” As they note, we continue to operate with little apparent concern for the fact that our actions impose “the catastrophic burdens of climate change” on future generations or that these burdens will have a disproportionate effect on poor and marginalized people everywhere.

We are also impressed that the committee came to the consensus that the College must be a climate leader that thinks beyond the bottom line. To not value the positive externalities of real environmental leadership, as the ACSR writes, “is to reproduce the purely self-considering behavior that is at the heart of the climate change problem.” As we have argued throughout this campaign, the College is in a unique position to use our institution’s privileges and strengths to reshape the national conversation on climate and energy.

There are also key weaknesses in this report. The critique of divestment is fundamentally misdirected, responding not to our actual proposal (which calls for a gradual transition out of fossil fuels in collaboration with our fund managers) but rather an imagined worst-case scenario (full divestment in one year, hardly better than fire sale liquidation). The opponents of divestment on the ACSR therefore significantly misrepresent the costs of divestment. It’s important to note that the ACSR’s “case against divestment” in no way assumes that we need fossil fuel investments in order to reach our endowment goals. In fact, comparisons of fossil-free versions of the S&P 500, MSCI and Russell 3000 indices show that they have outperformed their fossil-filled counterparts while being exposed to equal or lower risk.

Rather, the case against divestment is based on the assumption that divestment will require that we completely abandon our current investment strategy and relationships with top-notch fund managers and instead invest in a relatively conservative and unmanaged mix of stocks and bonds. Nobody is recommending this change in strategy, and the assumption that high-quality fund managers will not work with us seems to be more a matter of faith than analysis. For one thing, the investment office tells us they have not discussed the issue with fund managers. Furthermore, it isn’t clear where our fossil fuel investments are concentrated. Other universities have found that only a fraction of their commingled funds included investments in the 200 largest fossil fuel companies, meaning that the divestment solution required only a minor modification, not a total makeover. And finally, the recalcitrant-fund-manager argument ignores rapidly growing demand for fossil-free funds.

With more than 220 institutions committed to divestment, including billion-dollar clients like the Guardian Media Group, the Rockefeller Brothers Fund and Syracuse University, there are major incentives to develop new, high-yielding, fossil-free commingled funds. Given this surge in demand, we are near a tipping point, a moment when the College’s action is most likely to constitute effective leadership. Resolving now to divest via a responsible strategy – as we propose – will allow the College to take advantage of these developments in the investment market. Committing to divesting from the full list of 200 companies will help maintain a unified political voice and send a clear market signal to fund managers.

To conclude, we want to remind the College community that this truly is a question of ethical leadership. How shall we act when faced with the largest environmental and social justice challenge of our time? It is critical that misplaced financial fears not impede right action. In the words of our own James MacGregor Burns, “Divorced from ethics, leadership is reduced to management.” Energy efficiency is important. Green investments are essential. But given that we are faced with an industrial sector with a destructive business model, enormous political influence and practices that obstruct scientific analysis and clean energy transitions, we must do more. Let’s unite with other moral and intellectual leaders to repudiate such blatant disregard for the climate and to demonstrate support for meaningful climate policies. The College community demands divestment, our investment office has the brains to manage it and we hope that our trustees are bold and visionary enough to commit to it.

Brian Burke ’02 lives in Boone, N.C.

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