The multi-billion dollar endowments of UCLA, Georgetown, Washington University and Cornell all have something in common — a commitment to divest from the fossil fuel industry.
Earlier this month, the University of Wisconsin’s faculty senate passed a non-binding resolution urging the UW Foundation to do the same with the $3.3 billion endowment it manages on behalf of the university. In addition to divestment, the resolution calls on UW and the UW Foundation to disclose its financial stake in fossil fuels and take carbon footprint into account in their purchases.
UW Law Professor Steph Tai — who volunteers their time representing a number of prominent climate scientists at the national level in amicus briefs before the Supreme Court and the DC circuit — said they got involved in the resolution to contribute to climate change mitigation efforts within the UW community as well.
“That window of time [to act] is really rapidly closing — all of the scientists that I represent, their research is showing this,” Tai said. “I thought, here’s an opportunity for UW to work on addressing this issue.”
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Tai said the resolution’s section on procurement separated it from similar resolutions at other schools, expanding its goals beyond divestment alone. The resolution calls on UW to work with their Office of Sustainability to assess ways to reduce the carbon footprint associated with purchasing of goods and services within two years.
“The university is a big buyer of stuff and we also have transportation fleets,” Tai said. “We urge in this [resolution] to the extent possible for the university to take a look at itself and make its procurement policies more carbon friendly. Part of why we’re taking that approach is to make this a dual-pronged approach.”
Tai said though the resolution is non-binding, they hope it will lead to the creation of a study committee that will yield influence to enact changes. Tai hopes they and other UW experts involved in the resolution will end up on the study committee.
What happens as a result of study committees depends dramatically on the people who end up on those committees, Tai said.
“This year we have a number of folks who have developed expertise in a number of parts of this [resolution] and we’re going to try to be on those study committees,” Tai said. “What we’re hoping is its not merely symbolic, but also it’ll lead to the development of both transparency measures, divestment measures and more carbon friendly procurement measures for the university.”
The idea behind divestment is simple — shifting demand away from shares of fossil fuel companies would cause the value of those shares to drop, putting extreme pressure on the companies, Emeritus Professor at the Nelson Institute for Environmental Studies Tom Eggert said.
Supporters of divestment point to the effect it has had on major coal and oil companies. According to The Guardian, when the world’s largest coal company Peabody announced its plans for bankruptcy, it cited among other woes an inability to raise sufficient capital due to divestment. In their 2018 annual report, oil giant Shell raised the potential for divestment to have a “material adverse effect” on their share price and ability to access capital.
“The way our capitalistic system works, when there’s no demand, companies go away,” Eggert said. “I mean their answer would probably not be to go away, their answer would probably be to reformulate what their purpose in business was and they would reconstitute themselves as energy companies as opposed to petroleum or fossil fuel companies, but some of them would probably go away.”
Supporters also argue that divestment dents the social capital fossil fuel companies yield, making it difficult for them to do business and easier for governments to regulate them. The Guardian’s 2015 campaign calling on the Bill and Melinda gates foundation and the Wellcome Trust — the world’s two largest charities — to divest from fossil fuels cited the ability of divestments to stigmatize the fossil fuel industry. They argued this, in turn, causes reputational damage which carries financial consequences.
Still, some have argued divestment may actually increase emissions by shifting the oil-producing market from regulated publicly traded companies towards highly unregulated state-owned oil giants such as Saudi Aramco and Petroleos de Venezuela.
In a 2019 interview with the Financial Times, Bill Gates said the divestment movement has “to date, probably has reduced about zero tonnes of emissions.” Gates had previously criticized the divestment movement for shifting focus away from other initiatives, mainly a carbon tax.
In any case, the list of endowments and pension funds opting for divestment has grown to include the pension funds for New York City and Ireland, the Rockefeller endowment and numerous religious institutions. According to a list maintained by Fossil Free, an advocacy group promoting fossil fuel divestment, institutions worth a combined $14.56 trillion have committed to divestment. By comparison, the U.S. GDP is $21.43 trillion.
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Paul Kelleher, an associate professor in the Department of Medical History and Bioethics at UW’s School of Medicine and Public Health, said despite the Foundation’s obligation to maximize its investment, ethics are always relevant.
“There’s the ethical issue of what sort of investments the UW should be willing to undertake in order to maximize a financial return,” Kelleher said. “To use a philosophers’ thought example, it would be absolutely unacceptable if the UW Foundation were maximizing return by investing in industries that use slave labor.”
The clear link between fossil fuel combustion and climate change as well as the disparately felt effects on health and livelihood due to climate change and particulate air pollution raise serious ethical issues, Kelleher said.
But, Eggert said he doubts the foundation will be persuaded by an ethical argument. The more powerful argument has to do with the economics of fossil fuel investment.
“Let’s look at what investments in fossil fuel companies have returned over the last one to three years and you can go further back in time if you want, these have been really bad investments,” Eggert said. “Trustees that are responsible for making good investments should be held accountable for making really bad investments by staying invested in fossil fuel companies.”
A $100 investment in oil companies in 2018 would only be worth $42 today, Eggert said, citing recent statistics from an oil and gas exploration and production ETF.
The UW foundation did not respond to an interview request for this article. In a response to a resolution before its passage, the UW Foundation said it had a responsibility to its donors to work to achieve the highest possible return on their funds without taking undue risk in order to grow the value of their investment in the university.
“Of course governments need to be involved and lead,” Kelleher said. “But one thing that’s quite clear is that we need non-governmental entities to take responsibility for the role that they can play in pushing us towards that energy transition. There are lots of tools in the toolbox and it’s almost certain that every single one of the tools will be needed to transition the economy from a fossil fuel based economy to a clean energy economy.”
