MIDDLEBURY — Many members of the Middlebury College community, was well as environmentalists at large, are dismayed over the institution’s decision not to divest its nearly $1 billion endowment from the fossil fuel industry.
After a year of impassioned on-campus dialogue during which faculty, staff, students and administrators debated whether the college should take this step as a principled stand against global warming, College President Ronald Liebowitz and the board of trustees this past week announced that the college would not change its investment plan for the time being.
“It would have been very nice if Middlebury had done the right thing right off the bat, but it took them several years when the question was apartheid,” said Bill McKibben, Shuman Distinguished Scholar at the college and founder of the global environmental action group 350.org, in a Thursday email to the Independent. “So, this opens up a good chance of ongoing education with students, faculty, (and) alumni. I admire Ron Liebowitz enormously, and I look forward to the time when his trustees enable him to make a statement more consistent with the core values of the college.”
In an Aug. 28 email to the college community, Liebowitz outlined three central questions that had driven the trustees’ deliberations in recent months:
•Whether or not divestment would have any “practical effect” on fossil fuels companies’ models and behavior, on public policy, or greenhouse gas emissions.
•How divestment would affect the college’s financial bottom line and ability to execute its core educational programs and mission.
•Whether agreeing to divest from fossil fuels would open the door to requests to divest from other industries that some found objectionable.
“At this time, too many of these questions either raise serious concerns or remain unanswered for the board to support divestment,” Liebowitz said. “Given its fiduciary responsibilities, the board cannot look past the lack of proven alternative investment models, the difficulty and material cost of withdrawing from a complex portfolio of investments, and the uncertainties and risks that divestment would create.”
A central facet of the divestment discussion was Investure, a firm that the college hired in 2005 to manage its portfolio. Investure handles the endowments of several other academic institutions and merges all of the funds to maximize returns.
“Investure invests money in large funds run by independent managers, whom Investure selects based on the strategies and performances of those managers over time,” Liebowitz said. “Investure works with more than 150 managers at any one time to invest its $10 billion portfolio. These independent managers don’t work solely for Investure. Their own funds are made up of the commingled assets.”
Included in those commingled funds are investments in fossil fuels companies. Middlebury College disclosed last December that the college’s endowment had about $32 million — 3.6 percent of its then-$900 million total — directly invested in fossil fuel companies at the time, and 0.6 percent directly invested in weapons companies. Bill Burger, vice president for communications, said the endowment total in July was $970 million, and the percentage of that amount invested in fossil fuels would be “comparable” to last December’s 3.6 percent figure.
“It varies by month, but we do not track it monthly,” Burger explained. “There is no reason to think it would be significantly different.”
WITHDRAW FROM INVESTITURE?
According to the college, divesting Middlebury from fossil fuels would require that Investure “reinvest more than half its portfolio” and gain permission to do so from the 12 other institutions Investure also represents.
“As this is unlikely, we almost certainly would have to withdraw from the Investure consortium, at considerable cost now and in the future,” Liebowitz said.
In the meantime, Liebowitz said the college would “focus on the positive differences Middlebury can make through its actions” by taking the following three steps:
1.The Investment Committee of the Board of Trustees and its student members will “work to develop a set of stronger ESG (Environment, Social, and Governance) principles that we can apply to our investment portfolio.”
2.The college will create ESG guidelines to help monitor investments and operations on campus in Vermont and issue periodic reports on its performance.
3.Significantly increase “the amount of the endowment directed toward ESG investments, including those focused on clean energy, green building projects, and other efforts to reduce greenhouse gas emissions and benefit the environment. We will announce more specifics about this in the fall.”
The apparent tensions between the college’s status as an environmental leader, and the fact that its investments were tied up in lucrative, commingled funds that include fossil fuels companies, has been the subject of a string of panels, protests and board meetings on the college campus.
Though smaller pockets of the college community, including student groups, have deliberated about the endowment for some time, a campus-wide dialogue on divestment began in earnest last October, when a group of students launched an on-campus campaign in support of divestment that included talks, protests and elaborate hoaxes (including a false press release that netted statewide media attention).
Separately but concurrently, McKibben and 350.org, which was founded in 2007 with a group of Middlebury students, launched a nationwide tour encouraging college campuses to divest from fossil fuels, a tactic that was used with success during the apartheid struggle in South Africa in the 1980s and ’90s.
To date, 350.org’s divestment campaigns are active on 477 American college campuses. Six colleges have officially divested, as have 17 U.S. cities, including Seattle, San Francisco, and Cambridge, Mass.
The organization’s co-founders, all Middlebury alumni, released a statement expressing disappointment in their alma mater’s decision.
“We take issue with (Liebowitz’s) basic idea — that divestment is mostly a symbolic argument, associated with too many unanswered questions and high risk,” they wrote. “It’s in fact a practical tool to reduce the political power of the wealthiest industry on the planet. But even if you accept his terms, we believe Middlebury can do more. Though the available data shows endowments would have made far more money in the last decade had they divested from fossil fuels, great colleges are about more than money.”
But college officials cited their fiduciary responsibility to keep the endowment healthy and the institution able to pursue its educational mission, though the situation could change.
“At this point in time — and it may be different five years from now — we cannot be confident in making a decision to divest,” Burger said.
No doubt, Middlebury College’s investments with Investiture have brought home great returns. A fact sheet prepared by the college states that Middlebury’s endowment was doing as well as or better than the median return of the eight Ivy League college and university endowments, and that Middlebury’s investment return in the past five years was second only to that of Columbia University.
Middlebury’s endowment has seen a 10-year annualized return of 9.9 percent for the decade ending June 30. That compares to 7.3 percent return on a fund invested in the Standard and Poors (S&P) 500 stock index.
Investors must weigh the cost of putting their money into “managed” or “active” funds like Investiture or “passive” funds. A managed fund includes fees but the fund managers constantly move money into varying venues to get the best return, while a passive fund simply invests the money into a basket of companies (such as the Standard and Poor’s 500) and reduces risk by spreading the investment across many businesses.
The college’s financial experts have run hypothetical numbers on “passive” versus “active” investments, which were included on the fact sheet. It said that by choosing the actively managed approach through Investiture the college will make perhaps a half-billion dollars more than if it took the passive investment route.
“It is important to understand the significance of that 2.6 percentage-point difference between our actual return and that of the S&P 500,” the fact sheet reads. “Over 10 years, $1 billion invested in the Middlebury endowment at an annualized return of 9.9 percent would have grown to $2.57 billion. Cut that return to 7.3 percent and it would have grown to $2.02 billion — a difference of $550 million.”
To be clear, the $550 million figure is purely hypothetical.
“The point we’re trying to make is that compound interest over 10 years is very meaningful to an institution like Middlebury,” Burger said.
McKibben, though, said that college’s analysis was off, and the numbers up for debate.
“The calculation is simply wrong, as independent analyses have demonstrated over and over,” McKibben said. “In fact, the best analysis, from the AP, shows that a college with a billion dollar endowment, i.e. Middlebury, would have made $119 million more from its endowment in the last decade had it divested then.”
Burger said that regardless of their stance, many people had written the communications office to express satisfaction with the “seriousness with which the college approached the topic.”