Endowments stand on shaky ethical ground

Don’t ever let anyone trick you into thinking universities aren’t businesses.

They produce quality products for which there is a huge demand: skilled workers. They put money down on infrastructure and football teams in an effort to attract the best investments they can: the brightest and most driven learners. Then they invest in these students, spending on staff and faculty, course materials and, last but certainly not least, student loans. Later, when they send students out into the world, universities hope their students will be successful enough to provide a return on investment in the form of an alumni donation. Those donations are used to attract and retain more students … and the process continues. Investment 101. 

This donation fund, a university’s endowment, is extraordinarily important — large endowments enable schools to finance their day-to-day operations. The University of Wisconsin Foundation’s endowment has a market value just under $1.9 billion. And while there’s a lot to be proud of in that number, there are a few pies behind-the-scenes the UW Foundation does not want to be seen sticking its finger into.

The (literally) dirty secret about university endowments is many of them are tied up in the fossil fuel industry. There’s a good reason for this: There’s a lot of money in the fossil fuel industry. In fact, studies suggest divestment from these industries would come with a cost. As Raz Godelnik, an adjunct faculty member at the University of Delaware’s Department of Business Administration, put it in a column on Triple Pundit, “a values-driven investment approach (unlike the positive screening-based/profit-seeking approach) tends to underperform conventional investments. In other words, there’s a good chance endowments will pay a price in terms of lower return for divestment in fossil fuel stocks.” 

There is, however, a history of divestment from “sin stock” industries as a result of student activism. Activism has spurred divestment in tobacco and in companies doing business with human rights violators like Sudan. Given our university’s stable financial state, despite our decision not to invest in other lucrative but morally ambiguous trades, it hardly seems like divestment from fossil fuels would put us underwater.

As far as student activism on climate change goes, sites like 350.org are leading, trying to get students involved on campus and forming university-specific petitions on their Fossil Free website. At Harvard University, student pressure on the administration to divest from fossil fuel industries led to the creation of a “social-choice fund” that gives donators the option to opt-out of investments they consider socially irresponsible while still affording them the opportunity to provide financial aid for future students. 

Don’t let this spate of cold weather distract you. Climate change is a real phenomenon and it is happening at a record clip. 2012 was the hottest year ever recorded and 10 of the warmest years on record have occurred within the past 15 years. In Beijing last week, air pollution levels literally went off the charts, when Air Quality Index recordings reached a stunning level of 755, more than 50 percent higher than the score of 500 that supposedly capped the index. According to the World Health Organization, an AQI score exceeding 500 indicates air containing more than 20 times the amount of acceptable particulate matter. Residents in the city described the conditions as “postapocalyptic,” “terrifying” and “beyond belief,” and the U.S. Embassy in Beijing labeled it “Crazy Bad” on their @BeijingAir Twitter feed.

As students, we are constantly balancing our lives and making cost-benefit analyses, so we can understand why our universities are doing the same with the resources they control. But if we demand ethical standards from our financial and political institutions, why do we not ask the same of our schools? And if ever was there an issue that needed attention, it is climate change — a problem that desperately needed some aggressively forward thinking, like, yesterday. 

UW needs to create a fund based on the Harvard model if it wants to be truly progressive in its fight against climate change. Furthermore, philanthropists should condition their donations on the promise they will not be used in fossil fuel industries. We need a way to grow the university in an ethical, environmentally aware fashion. Let’s call it Investment 102.

Nathaniel Olson ([email protected]) is a senior majoring in political science, history and psychology.