Below is the full text of an article originally published in The Sophian following the panel discussion hosted by President McCartney about Divestment.
On Monday, February 24th, concerned members of the Smith community filled the Carroll Room to discuss the relationship between the college’s endowment and the fossil fuel industry. President McCartney’s office sponsored the panel discussion in response to the growing movement on campus to divest from the fossil fuel industry. The conversation focused on the financial structure of endowments. The panelists and administrators who spoke failed to place our endowment in the context of Smith’s institutional power and failed to address the political statement we are making by investing in the fossil fuel industry.
After publicly recognizing the threat of climate change, Smith created the Sustainability and Climate Action Management Plan, which details how Smith will reach carbon neutrality by 2030, although it does not mention investments. In the past, Smith recognized the political statements made by our assets and divested from companies operating in Apartheid South Africa during the 1980s, and in Sudan in 2007. By refusing to recognize the implications of investment in the fossil fuel industry, Smith is making a statement that our institution supports the harmful practices of fossil fuel companies that result in community and environmental destruction, while simultaneously perpetuating climate change.
Divest Smith College, a network of concerned students, advocates that Smith cease investing our endowment funds in the fossil fuel industry, because Smith has the responsibility to reflect institutional values in its financial decisions. This divestment campaign is backed by strong support from the student body, a third of whom have signed a petition advocating for divestment from the fossil fuel industry.
President McCartney’s panel featured Peggy Eisen, chair of the Investment Committee on Smith’s Board of Trustees, Alice Handy, founder and CEO of Smith’s investment management firm Investure, and Bob Litterman, chairman of the risk committee of Kepos Capital. Smith is Investure’s first and largest client and because of this, enjoys a reduced fee structure, as well as Investure’s impressive returns history. Ms. Handy emphasized that the system Investure and many other management firms use is layered and complex. Funds from Smith College and 11 clients are pooled together before being given to different fund managers. These individual fund managers then invest in a wide variety of companies, but Ms. Handy stated she does not want to restrict their investment practices. Despite the fact that only 6.5% of our $1.71 billion endowment is invested in fossil fuel holdings, Ms. Handy argued that 70% of our endowment would have to be sold in order to ensure complete divestment as she doesn’t know exactly how individual fund managers are choosing to invest.
Bob Litterman rounded out the panel by addressing the issue of coal and oil sands investments within an endowment portfolio from a solely financial perspective. Mr. Litterman discussed a tactic he used a member of the investment committee of the Board of the World Wildlife Fund (WWF) that lowers risk and gives an institution a vested stake in ensuring that we all begin to pay the true price of burning fossil fuels. WWF’s endowment has instituted a “total return swap” on particular fossil fuel stocks held within their investment portfolio, which is essentially a bet that current holdings will be unprofitable in comparison to a broad market index such as the S&P 500. The total return swap serves two purposes common with divestment. It lowers the risk of existing fossil fuel holdings, and, as Mr. Litterman put it, “aligns the mission of the institution of the portfolio” by ensuring a greater stake in securing a price of carbon in the near future. This is not a strategy that divests an endowment from fossil fuels, and, as he stated, is “a very simple approach; it is certainly not a comprehensive approach,” which still sends a mixed political message. Ultimately, the panel failed to address one of the most important issues that the Smith community came to hear: why does Smith continue to have an investment policy that does not align with its institutional values?
After the presentations concluded, President McCartney opened the floor to questions. Students and professors responded with concerns about the statement Smith is making by continuing to invest in the fossil fuel industry. Michael Klare, a Five Colleges professor, stated that “these [fossil fuel industry investments] are toxic assets that you’re holding on to and should be gotten rid of, not only because they will become worthless in time but because, to protect the college itself from environmental destruction, it’s necessary to send the message that everybody should divest of these companies because these companies are a threat to the survival of the planet.” Immediately, the entire room burst into applause.
It is also important to acknowledge that there is no inaction here; continuing to invest in the fossil fuel industry sends message that conflicts with Smith’s political goal to seek solutions to climate change. Smith College has the power to draw attention to the destruction caused by the fossil fuel industry and change the way society views these companies. As a prestigious institution, Smith divesting would send a strong message that the fossil fuel industry is an unacceptable investment. When questioned, the panelists offered no plan for how Smith will pressure policymakers to institute incentives that will force fossil fuel companies to act more responsibly, although Mr. Litterman admitted that “we are wasting a scarce resource…the atmosphere’s ability to safely absorb carbon emissions…that is wrong. The way to correct that is to price emissions appropriately.” Unfortunately, those of us who follow international climate negotiations and domestic environmental politics recognize that the fossil fuel industry has powerful influence on policymakers, which impedes the creation of a price on carbon. Divestment effectively revokes the social licence of fossil fuel companies and pushes our government toward more responsible energy policies.
During the question and answer session, Ms. Eisen said that disinvestment from the fossil fuel industry is “definitely a possibility.” Ruth Constantine, our Vice President for Finance, excused Smith’s inaction because “in a way, we are waiting for the investment community to change.” Because of its advantageous position in Investure, Smith College has the unique ability to push for this change to happen now – and we cannot afford to wait. The fossil fuel industry poses an immediate and extreme threat to communities around the world. This danger only increases as Smith College’s administrators deny our tacit support of this industry and the potential that divestment has to protect our endowment while promoting a shift away from fossil fuel companies. Divest Smith College will continue to push for a socially responsible investment policy and hopes that you, as members of the Smith community, will join in this important dialogue.