Divestment Gap Emerges

Fossil fuel divestment advocates at wealthy colleges have had many cases to celebrate in recent years.

Yale University announced this month that its Board of Trustees approved a set of ethical investing guidelines for the university’s multibillion-dollar endowment. Rutgers University announced in March that it would divest from fossil fuels, following in the footsteps of institutions including American University, Brown University, Columbia University, Georgetown University, Middlebury College, the University of Southern California and the University of Cambridge.

After years of activism, divestment advocates can now point to a growing list of institutions outlining plans to sell oil and gas holdings. The shift in momentum could support what divestment advocates have argued for years: that divestment from oil, gas and coal companies is inevitable and that it’s only a matter of time before holdouts like Harvard University ditch their fossil fuel assets.

But in parts of the United States where oil is a significant part of the economy, divestment isn’t discussed. Divestment advocates in Texas have made little progress convincing the state's Permanent University Fund -- which owns mineral rights on more than two million acres of land -- to part ways with oil. Jim Johnsen, the former president of the University of Alaska system, said he can’t remember ever being asked by students or employees about divestment, despite the university’s strong ties to the oil industry. Two members of the University of Alaska system's Board of Trustees have experience working in the fossil fuel sector, and parts of the university system's revenue can be traced back to oil and gas.

Continuing disinterest at some universities presents a challenge for divestment advocates. Students and employees often spend years pushing university leaders to dump their fossil fuel assets. Divestment might be a powerful tool, but it has greater potential to influence corporate behavior if many institutions participate. Will divestment movements ever gain traction in states that rely heavily on fossil fuel industries?

Staying Invested in the Face of Pressure

While divestment advocates have had success at Ivy League institutions in recent years, Harvard University, which boasts the largest endowment in the country, has not abandoned its fossil fuel investments.

Harvard’s fossil fuel assets make up a relatively small piece of its $40.5 billion endowment. Fossil Fuel Divest Harvard, a student-led campaign pushing for divestment at the university, estimates that Harvard has invested $838 million in fossil fuel companies.

The students with Divest Harvard have been calling on the university to divest its fossil fuels assets since 2012, and university leaders have pushed back. Then-Harvard president Drew Gilpin Faust argued in 2013 that divestment posed serious financial risks for the university and that divestment calls were hypocritical.

“I also find a troubling inconsistency in the notion that, as an investor, we should boycott a whole class of companies at the same time that, as individuals and as a community, we are extensively relying on those companies’ products and services for so much of what we do every day,” Faust wrote at the time.

Three years later, Harvard students lost a lawsuit that aimed to force the university to unload its fossil fuel investments. Students failed “to show that they have been accorded a personal right in the management or administration of Harvard’s endowment that is individual to them or distinct from the student body or public at large,” according to a ruling from the Massachusetts Appeals Court.

Now, the students with Divest Harvard have filed a complaint with the Massachusetts attorney general. The complaint argues that the university is violating state law by failing to uphold three duties under the 2009 Uniform Prudent Management of Institutional Funds Act. The act requires nonprofit institutions to consider the charitable purpose of an investment, to invest with prudence and to invest with loyalty.

The university’s past rejection of divestment doesn’t faze Connor Chung, a Harvard sophomore involved with Divest Harvard. He’s watched other universities, like the University of Michigan, about-face on the issue.

“About a year ago, the University of Michigan preferred to arrest students rather than talk openly about divestment,” Chung said. “Now they have explicitly divested, with trustees praising students for bringing the issue to their attention.”

Several of Harvard’s peer institutions have committed to divesting their endowments from fossil fuel companies in recent years. Chung believes peer pressure could work in the students’ favor.

Harvard University did not respond to a request for comment.

Despite recent success for divestment advocates, many institutions are still skeptical about the financial benefits of ethical investing. Fewer than one in five institutions said they believe responsible investing can deliver performance that is better than average market returns, according to the latest endowments study from the National Association of College and University Business Officers.

But complete divestment is still relatively new in institutional investing, where asset managers often emphasize long time horizons and ignore short-term hiccups. Less than a decade ago, Unity College became the first college in the United States to divest its portfolio from companies that produce fossil fuels. In 2017, college officials released a report that showed that divestment had no negative effect on the college’s investment portfolio.

Richard Sherman, a member of the University of California Board of Regents, said in September that divestment was already paying off for the university system. The University of California system fully divested its $12.1 billion endowment from fossil fuels in May 2020.

Calls for divestment are beginning to go beyond individual universities. Divestment advocates at the 64-campus State University of New York system have turned their attention to the financial giant that holds their pensions: the Teachers Insurance and Annuity Association, or TIAA.

Brian Obach, a sociology professor at SUNY New Paltz, spearheaded the call for TIAA to divest from fossil fuels. On Saturday, the statewide SUNY University Faculty Senate passed a resolution demanding TIAA divest from fossil fuel companies. Faculty members at New Paltz, SUNY Stony Brook, SUNY Cortland and SUNY Geneseo, as well as faculty members at the SUNY faculty union, the City University of New York’s faculty and staff union, and Cornell University passed similar resolutions. The resolutions also call on TIAA to divest from companies that contribute to deforestation and land grabs.

TIAA has invested $10 billion in fossil fuel companies, according to the TIAA Divest campaign’s petition. The pension giant has also invested $641 million in agribusiness companies that cause deforestation, including palm oil, paper and pulp, rubber, timber, and beef and soy companies, the petition said.

“It came as a shock and a disappointment to me to find out that my pension funds were invested in such operations,” Obach said. “I spend my days teaching students about climate change and the need for us to change the course of our actions in that regard. To learn that my pension funds are essentially financing climate change was very disturbing.”

The TIAA Divest campaign has yet to put its petition in front of decision makers at SUNY or TIAA, but it plans to do so soon.

“We have gotten word indirectly that the chancellor is interested in this, and we hope to have a meeting with him relatively soon,” Obach said.

Asked about the TIAA Divest campaign, a TIAA spokesperson emphasized the asset manager's commitment to addressing climate change and environmental issues. The fund has not ruled out divestment.

“While we will consider strategic asset sales, any such disposal must be done in keeping with our fiduciary obligation to achieve the best possible investment outcome -- and selling a carbon-producing asset doesn’t necessarily remove emissions from the real world,” the spokesperson said in an email.

Little Pressure in Texas and Alaska

While activists in New York look beyond individual universities, some universities have yet to face any sustained calls for divestment.

The divestment movement has yet to take hold in Alaska, where residents receive a check each year from investment earnings derived from state oil and mineral royalties.

Johnsen, the former University of Alaska system president, said divestment was never raised at a board meeting or by students or faculty members during his five-year tenure. He never had a crowd of student protesters occupy his office or a petition from alumni land on his desk.

“The university has strong ties to the oil industry,” Johnsen said. “It's a major employer in the state. Engineers and geologists, and even biologists and environmental scientists, are employed by the oil industry. It's super important.”

Prior to becoming president of the University of Alaska system, Johnsen sat on the University of Alaska Foundation’s board.

“Having sat in every one of those meetings for a number of years, the issue of divestiture never arose,” Johnsen said. “I can imagine someone proposing it, but I would doubt very much that it would move forward.”

Alaska governor Mike Dunleavy appointed Scott Jepsen, a former vice president at the oil company ConocoPhillips Alaska, to the University of Alaska Board of Regents last month. Another regent, Lisa Parker, also has a background in resource development. She worked with the mining company Cominco Alaska while it planned and developed the Red Dog Mine in northwest Alaska, and she currently works with the Alaska Gasline Development Corp.

The University of Alaska system did not respond to requests for comment for this article.

In Texas, some public universities' ties to oil and gas are direct. The University of Texas system and the Texas A&M University system are funded in part by the Permanent University Fund, which owns 2.1 million acres of land in west Texas.

The company that manages the fund, the University of Texas Investment Management Company, leases that land to oil and gas companies, and revenue from those arrangements flows into the fund. UTIMCO also leases the land for grazing, wind farms and other revenue-generating activities, according to the University of Texas system website. Each year, the fund receives between $500 million and $1.1 billion from these activities, a spokesperson for the University of Texas system said.

The Permanent University Fund is valued at nearly $24.4 billion, and about $14 billion comes from oil, gas and mineral interests.

Texas students have issued scattered calls for divestment over the years. Fossil Free and other climate change advocacy websites host a few small petitions calling on the University of Texas system to divest from fossil fuels. Several dozen Texas A&M system employees sent a letter to the chancellor in 2019 urging him to reduce global warming pollution from the operations on Permanent University Fund land.

In response to divestment calls, the Permanent University Fund's management company points to a clause in its investment policy statements, which says that UTIMCO is prohibited from using any funds to “achieve temporal benefits for any purpose including use of its economic power to advance social or political purposes.”

This type of defense is common, though only a few institutions have codified it into policy, said Georges Dyer, executive director of the Intentional Endowments Network, an advocacy group that encourages colleges and universities to adopt equitable and sustainable investing practices.

"The common counterargument to this is that all investments use economic power to advance social or political purposes," Dyer said. "In this case it's advancing the power and influence of the fossil fuel industry, which has a tremendous sway over politics and policy in the U.S. and globally, and causes both social benefit -- in terms of powering our economy, homes, transport, etc. -- and in the last few decades it's become clear it is driving unimaginable social harm."

Has the Outlook Shifted?

For years, oil accounted for most of the state of Alaska’s annual revenue. Today, revenue from the Alaska Permanent Fund, a statewide investment fund portfolio that funds state programs and was set up to draw principal from oil and mineral royalties, has replaced oil as the biggest moneymaker for the state.

“The Fund was established with future generations in mind, knowing an era of declining revenues from resource wealth was inevitable,” a 2020 performance report by the Permanent Fund said. “This has become our current reality as plummeting oil prices and reduced production in recent years have resulted in fewer revenues for state government.”

A history with and reliance on fossil fuels doesn’t preclude an institution from divesting from the industry, Dyer said.

“If a university is based in a certain state that might be fossil fuel intensive, that doesn't mean their portfolio is necessarily any different than universities in another state,” Dyer said. “Investors are looking nationally and globally at their investments.”

The Alaska Permanent Fund Corporation, which in part funds the university system, doesn’t include fossil fuel companies in its list of top 50 stocks.

But even for university systems like Alaska, eventual divestment is likely, Dyer said.

“We may have some small fossil fuel use in the economy and there may be investors in that, but I think it will be de minimis for most investors,” he said. “I was talking to a private equity firm that had a traditional energy, oil and gas vehicle fund. They said, ‘We used to have all the Ivies invested in it. Now we have none of them.’”

A reliance on oil, gas and coal revenue shouldn’t preclude institutions from divesting, Chung, the student leader with Divest Harvard, said.

“One parallel to consider might be the nonprofit world, where a number of institutions founded on fossil fuel wealth have been among the leaders in divestment,” he said.

For example, the Rockefeller Brothers Fund, an $860 million philanthropic organization built on wealth from Standard Oil, announced in 2014 that it would divest from fossil fuel companies. Norway’s $1.1 trillion sovereign fund also divested from companies dedicated solely to oil and gas exploration two years ago.

Dyer says divestment is inevitable.

"The long-term trend is a necessary transition away from fossil fuels. Alternatives and new technologies are there, so the market forces are behind that," Dyer said. "Certainly internationally, the political will is there. And I think now with a new administration in the U.S., we're seeing more political will here, too."