January 30, 2019

Middlebury Commits to Fake Divestment, McKibben Celebrates

As temperatures drop below freezing across the country this week, Vermont’s Middlebury College released its Energy2028 plan, “a 10-year commitment that will put the institution on a path toward a complete shift to renewable energy to power and heat its central campus.”

The commitment lays out a number of ways the college plans to transition its reliance to 100 percent renewable energy sources for electric and thermal power at its campus by 2028, increasing its reliance on solar and hydropower resources in the state, and transitioning from natural gas to “renewable natural gas” from things like food waste. Despite a few critiques of the broader plan – for instance, all natural gas is methane no matter how you slice it, and solar may not be the most useful energy resource as Vermont faces freezing cold and grey skies — the college laid out a committed to attempting solutions.

But what has Middlebury professor Bill McKibben celebrating? The school’s pledge to fake divestment.

Slipped in to the 2028 plan is what is known as fake divestment – or what Bloomberg News calls an “empty gesture.”  According to the announcement, the college’s investment manager, Investure, will 1) not directly invest in new fossil fuel assets and 2) begin a phased, 15 year elimination of current fossil fuel investments. The goal of this phased effort, they describe, is “to ensure the phaseout does not significantly impact the performance of the endowment.”

What does this entail?

For starters, let’s get one thing straight. This decision impacts only the college’s limited direct investments, as the college itself states:

“For the purposes of Energy2028, Middlebury has defined direct investments as 1) those investments held by specialist managers who maintain an investment focus on fossil fuel companies, and 2) specialist fossil fuel index funds. Combined, these direct investments equal about 4 percent of the endowment’s value.”

“The commitment does not apply to endowment positions in general equity funds that may, from time to time, contain small holdings of fossil fuel investments in their portfolios. Similarly, it does not apply to broad-based market index funds, which typically do include some fossil fuel investments. These investments account for only about 1 percent of the endowment.”

So of the college’s roughly $1 billion endowment, we are talking about 40 million bucks.

And it’s a good thing.

Middlebury has long rejected divestment due to its ineffectiveness and high costs. According to Middlebury President Ron Liebowitz, “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.”

The state of Vermont has also rejected divestment for its high costs, along with blue states and colleges across the country.  Previous academic reports calculate that for schools with an endowment the size of Middlebury, the cost of divestment $298 million over the next twenty years.

This cost is all the more concerning given attention on Middlebury giving less financial aid than many of its peers, and the President’s goal to enhance this giving in hears ahead. According to campus reporting:

“Financial aid is also closely tied in with the endowment, as 20 percent of endowment usage of funds is funneled toward scholarships. Currently, 44 percent of students receive financial aid, and the average aid package is $47,000. Twenty-five percent of the total financial aid budget — nearly $13 million — is funded from the endowment and expendable funds.

“Still, Middlebury lags behind its peers in providing financial aid. In 2016, Amherst, Williams and Pomona each offered grants to 50 to 60 percent of students, with an average grant of $50,000 to $55,000.  But Provost said Laurie Patton, Middlebury’s president, is looking to push the college’s financial aid program into the same competitive range as its peers. As a new cycle of fundraising is beginning, Patton may tailor the campaign to fit the theme of need.”

With the average tuition over $52,000 annually, it would seem anything that raises these costs or further limits the school’s ability to cover scholarships is the wrong move.

Its no wonder that McKibben would rush to celebrate this fake divestment as a win. But divestment won’t keep you warm at night, and it won’t help students or faculty. So congrats to McKibben on an empty gesture headline, but time will tell how students pay the price.