The College’s announcement on Oct. 18 that the Board of Trustees had adopted a climate-conscious investment strategy was a victory for many, particularly for the student-activists who worked towards the goal of fossil fuel divestment for nearly a decade. However, many feel that the decision regarding the endowment remains shrouded in mystery. The use of technical financial terms has left many students wondering whether Vassar’s new investment strategy guarantees a complete divestment from fossil fuels.
“I was personally really encouraged to see Vassar formally, but somewhat vaguely, commit to divestment,” explained Izzy Rico ’22, representative on the Climate Action and Sustainability Committee and Students for Equitable Environmental Decisions (SEED) leader. She continued, “I have a few lingering questions…there is very little transparency on what our billion dollar endowment is funding and almost no contact with the trustees who make the high level decisions about how to invest the endowment.”
According to the American Council on Education, at the basic level, endowments function as a source of financial stability for an educational institution. They typically are gifts from donors. The original amount of the gift, referred to as “principal,” must be used solely for investment, although the College can choose which companies to invest in. The returns on the investment can then be spent at the College’s discretion. In some cases, donors will specify that their gift can only be used for certain purposes—for example, financial aid or a specific department.
Vice President for Finance and Administration Bryan Swarthout explained, “Like all financial markets, the endowment had a strong investment return last fiscal year.” He continued, “The net return on investment for last fiscal year was 30%. Over the last decade the average annual return has been 8.9%.” In other words, the stock market saw excellent returns across the board in the past fiscal year as the economy rebounded from the COVID-19 lockdowns, and the College’s endowment was no exception. According to the College’s summer 2021 financial report, the total endowment funds as of June 30, 2021 are listed as $1.38 billion.
According to Swarthout, the Investments Committee of the Board of Trustees, which Swarthout himself staffs, oversees the management of Vassar’s endowment. “The Investments Committee hires and reviews the endowment manager [and] sets the asset allocation targets” explained Swarthout. Additionally, the Committee hired the private investment company Hall Capital to manage Vassar’s endowment. According to their website, the company also manages the endowments of Bates College and Clark University. “The endowment manager selects the investment managers and investments in the portfolio within the bounds of the asset allocation and Investment Policy Statement established by the Investment Committee,” Swarthout added. Within Hall Capital, 60 different managers work to invest Vassar’s endowment.
While Vassar announced that they hold no direct investments in fossil fuels, some students, like Rico, expressed concern that the College’s indirect investments, which can include mutual funds, hedge funds and private equity, may still contain some investments in fossil fuel companies. Swarthout further explained that direct investments constitute those held by accounts in Vassar’s name while indirect investments are those held by investment managers. Approximately 88 percent of Vassar’s endowment investments are indirect. While funds are made up of many diversified investments which makes it difficult to pinpoint each asset the College is invested in, the Board of Trustees Investment Committee has placed Environmental, Social and Governance (ESG) considerations on all potential investment managers.
The U.S. Securities and Exchange Commission (SEC) provides guidelines for sustainable investment, saying a company falls in that category if they meet criteria for one or more of the three ESG categories (environmental, social and governance). While the federal government began emphasizing sustainable investment after President Joe Biden took office, environmentally friendly investment practices have been around for years. In fact, the term ESG first appeared in a 2005 United Nations report. According to Forbes, between then and now, firms have increasingly begun recognizing the financial value of investing in companies with good governance.
“This policy incorporates an evaluation of environmental considerations, sustainability of business models, corporate governance structures and practices, and social issues into the investment review process. The investment firm that manages the endowment with our oversight, continues to put this ESG lens on all potential investment managers,” explained Swarthout.
Yet the SEC does not definitively outline ESG criteria. Accordingly, investment firms that follow ESG also play a part in setting their own standards. Private firms that focus on ESG research create their own rating systems based on data. For example, the S&P Global Index has an ESG Risk Atlas that scores different industries based on their environmental and social risks. Sustainalytics, which is a branch of the Morningstar research firm, has created its own ESG ratings for different industries and corporations. While some individual investors and companies use the S&P’s Risk Atlas of Sustainalytics, other investment firms use their own ESG standards. Hall Capital’s website states, “[We] [e]valuate sustainability, environmental, social, and governance factors as possible value enhancement and/or risk mitigation.” According to Nasdaq, the SEC is currently looking to define ESG criteria more concretely.
According to ETF Trends, Finding viable ESG criteria for energy companies is complicated because fossil fuel companies themselves have begun investing partially in sustainable energy technology. This investing might enable fossil fuel companies to meet some ESG standards. For example, on their website Sustainalytics lists Freehold Royalties, a Canadian dividend-paying oil and gas company, as having a low ESG risk rating. By the same rating system, Hess Corp is listed as having a medium ESG risk and ExxonMobil a high ESG risk with the highest risk rating being severe. When asked if the College’s portfolio could potentially include investments in fossil fuel companies, given that some such companies might meet their investment managers’ ESG criteria, Swarthout commented, “For an investment manager to make an investment it must pass the investment manager’s due diligence process, which would review many factors including ESG.”
According to the MBEF Endowment, Another way the College can receive endowed gifts is through receiving an asset directly, such as appreciated stocks. When asked if the College would definitely decline a non-liquid asset affiliated with fossil fuels, such as a stake in a fossil-fuel focused company, Swarthout explained the College would need to evaluate the specifics at the time.
Yet overall, students still see that the years of activism have paid off. “I want to thank all the student activists over the years who have put their time and effort into making divestment a reality at Vassar,” explained Rico. “We would not have a path to carbon neutrality in 2030, much less divestment, without the groundwork that students have laid through aggressive action.”