Shareholder role crucial in climate reform

Climate change is a crucial challenge facing our world and members of our campus community are absolutely right to be con­cerned and to demand action. The world that we inhabit is going to be less stable and less hospitable unless we make important policy and consumption changes soon.

At Vassar, we are responding to concerns about climate change and the environment in a number of ways. We have supported a wide variety of sustainability initiatives involving the institution and individuals, from green building projects to recycling efforts. In 2011, we adopted a greenhouse gas (GHG) reduc­tion plan and since then we have significantly reduced our emissions, exceeding our target­ed reductions. Using 2005 GHG emissions as a baseline, we’ve reduced our emissions by 33 percent, ahead of the three percent annual re­duction targeted in the plan. This past fall the college committed to two major renewable energy initiatives involving solar and hydro power. These initiatives will enable Vassar to meet more than twenty percent of its electrici­ty needs from clean energy sources, and make significant progress to reduce our carbon foot­print.

Our curriculum includes an Environmental Studies program and other courses geared to­ward climate change and innovative energies. In fact, more than 100 courses across depart­ments and programs center on sustainability and climate change. Additionally our faculty are involved in research efforts that address aspects of climate change. In 2014, Vassar received a Silver recognition from the Sus­tainability Tracking, Assessment and Rating System (STARS), the most respected sustain­ability reporting framework for colleges.

Vassar is in the process of adopting our next set of GHG targets, and I have asked the Sus­tainability Committee to make a recommen­dation for achieving carbon neutrality in the near future. Their work includes exploring the possibility of an internal carbon tax, which may help inform state and national public pol­icies, as well as contribute to the education of our student body (more details on the college’s initiatives can be found at sustainability.vassar. edu).

This semester, some students and other members of our community are asking the col­lege to divest its endowment funds from fossil fuel stocks. There has been recent consensus among both our Campus Investor Responsibil­ity and Trustee Investor Responsibility com­mittees that such divestment is not the appro­priate approach for the college.

During the 2014/15 academic year, students from the VC Fossil Fuel Divestment Campaign submitted a proposal to the Campus Investor Responsibility Committee (CIRC) to divest from fossil fuel companies. CIRC, which con­sists of administrators, faculty, students and alumnae/i, has been the college committee responsible for considering such proposals and making recommendations to the Board of Trustees under Vassar’s governance policies. A similar but not identical proposal was submit­ted to CIRC in 2013. At the time the committee did not endorse the proposal to divest, and for­warded their recommendation not to do so to the Trustee Investor Responsibility Commit­tee (TIRC). TIRC agreed with CIRC’s position on the proposal, as did the Board of Trustees, which has the final word on all endowment matters.

Members of CIRC reported this decision to the students who had submitted the propos­al. I announced the decision in a letter to the Vassar community in August 2013, which was also posted in the President’s display case in the College Center. The new proposal to divest was submitted to CIRC during the previous ac­ademic year. CIRC has now acted on that pro­posal, and once again voted not to divest. Still members of TIRC have agreed to meet with students from the VC Fossil Fuel Divestment Campaign during the February Board of Trust­ees meetings to discuss the issues.

To address the climate crisis, we need to reduce production and consumption of fuels that generate greenhouse gases. Divestment will not change incentives to reduce such con­sumption and production; our local, state and federal policy makers are in the best position to do this by strengthening the incentives that we all face. This includes all producers. Not only the fossil fuel industries, but also indus­tries that produce goods and services that use fossil fuels, and all consumers, including stu­dents, colleges and universities. Those in favor of divestment would not disagree that our sus­tainability efforts are valuable and that chang­ing incentives are needed, but would argue that these activities are not mutually exclusive with divestment.

Many believe that it is more effective to ac­tively engage with companies as shareholders, rather than divest. By divesting, institutions give up their ability to influence company pol­icy to other shareholders, who may not share similar values or concerns; the college believes that shareholder activism is preferable to di­vestment. Vassar, through CIRC and TIRC, votes on shareholder proxies every year. Over the last five years CIRC and TIRC have voted on an average of 21 proxies a year, 29 percent of which have related to environmental issues.

Informed political engagement, ever-clearer scientific evidence and strong leadership have meant that climate change is now clearly on the national and international agenda of significant issues to be addressed. Just this past December, 187 countries pledged to take climate action at the UN Paris Summit. In advance of the sum­mit, Vassar signed onto the American Campus­es Act on Climate Pledge along with 200 other colleges, committing itself to further action on climate change.

As political debate in the United States on climate change continues, there are advocates for fossil fuel divestment who believe that some of these companies may have been in part responsible for postponing effective pub­lic policy by funding “climate denier” research. Whether shareholder activism or divestment would be more effective as a response to these concerns is one more level of the debate.

In addition to not providing effective incen­tives for change, divestment could reduce the resources that colleges and universities with endowments have to spend on higher educa­tion by reducing expected returns and increas­ing investment risk and volatility. If returns on the endowment decline as a result of constrain­ing investment options–which most investment professionals say will be the case–Vassar would need to cut expenditures on something to make up for the lost revenue. These expenditure re­ductions could fall on projects to improve the sustainable use of energy or perhaps on finan­cial aid for lower-income students, hurting ef­forts to improve our access and affordability. These are real possibilities to bear in mind as we continue our discussions.

Those calling for divestment must recog­nize that reducing returns has significant im­plications for the institution, which must be balanced against any perceived benefits of divestment. If investment returns declined, where would we reduce expenditures and would those trade-offs be worth it? Those in favor of divestment need to make this case. Constraining investment options also reduces diversification possibilities, increasing the risk and volatility of our investment portfolio for any given expected return. This further com­plicates the college’s financial management re­sponsibilities.

Some supporters of divestment argue that the reduction in returns or increase in risk would be small, or even that continued in­vestments in fossil fuel companies will in fact lower returns, in part because of stranded as­sets (reserves of fossil fuels that will have no value because of the implications of their use for the environment). If this is the case, there is no need to argue for divestment, since rational investment committees and advisors would do this on their own. Of course, identifying “bub­bles” in financial markets is easy after the fact, but more difficult beforehand.

Some people supporting divestment from fossil fuel companies equate their efforts with the divestment movement against apartheid. Divestment from companies doing business in South Africa, along with economic sanctions from abroad, was designed to put pressure on the South African government to change its policies. These pressures were from citizens and governments of other countries, who ob­jected to the policies of the South African apartheid regime. There is a large literature about the end of apartheid in South Africa and conflicting conclusions about the role played by the divestment movement compared to a variety of other factors. In our democracy, we have direct and effective ways to exert pres­sure and influence policies within our borders, making the fossil fuel divestment movement fundamentally different from the South Africa divestment movement.

We should be asking, encouraging and sup­porting our students who have demonstrated passion around this issue to get engaged in the political process–locally, at the state level and nationally–to join those policy makers who support appropriate policies regarding climate change. Despite concerns about current gov­ernmental dysfunction, working through the political process is our best hope, and encour­aging our students to get involved would have the added benefit of contributing to better pub­lic policy and less impracticality in the future.

Following the earlier recommendation to the TIRC, which was rejected, our campus committee on investor responsibility (CIRC) has been examining further whether it would be useful to have a clearer policy relating to divestment, rather than making recommenda­tions and decisions on an ad hoc basis. Some colleges and universities have such policies, which spell out a stringent set of conditions that must be met for divestment to be consid­ered. Some policies call on boards to take into account a range of moral, legal and fiduciary considerations and responsibilities. The issue has received significant renewed attention in the wake of the movement for divestment from fossil fuel companies.

A number of Vassar trustees are among many people who believe that it is inappropri­ate to divest under any circumstances, and in particular to use endowments for political pur­poses. They believe institutions have an obliga­tion not to forego investment returns for such purposes, since endowments were given to support the educational mission of the institu­tions (with added public support in the form of preferential non-profit tax treatment). To then use these resources for purposes other than education, they contend, would violate both donor and public trust and might also violate restrictions imposed by donors.

Still our CIRC is looking into divestment policies at other institutions, such as at Ober­lin and Stanford, and is again considering whether to recommend to the Board and its committees some similar policy for Vassar. I hope to receive a report from CIRC sometime this year. Any proposal would then need to be considered again by TIRC, the Board’s invest­ment committee, and ultimately the full Board, which has the final responsibility for decisions about college investments.

If higher education wants to help turn the tide on climate change then it should work to change the incentives that we all face. For example, using polluting fossil fuels should be more expensive than it is, which would re­duce all of our consumption and encourage the production of alternative, cleaner energy. We can get tough on fossil fuels by supporting government policies that encourage us all to move to cleaner sources of energy. And with the upcoming presidential election, we should demand that all the candidates address climate change and we should make it clear that how we vote will depend on their positions.

In the meantime, we can have the most di­rect impact on climate change by reducing the college’s carbon footprint, and our own, through Vassar’s sustainability efforts. They are in keeping with a new initiative from the Environmental Defense Fund called “Defend Our Future” which encourages all of us–par­ticularly on college campuses–to take concrete actions now on climate change rather than waiting for others to act.

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