While misleading tweets from activist groups claim “Oregon State University divests!,” a closer look at the actual announcement reveals no change to the university’s endowment policy, but rather a decision to approve a separate divestment measure that could impact its state funding.
In reality, the Oregon University Public Fund – the entity that provides state funding to six public colleges in Oregon – has announced its intention to divest. Members of the board at Oregon State University approved the measure for the public fund, for reasons explained below, but made no changes to the college’s own divestment policy. In fact, OSU’s own endowment is run through a separate foundation with its own board which previously rejected divestment in 2014 and there’s no indication that anything announced this morning changes any of that.
Since this nuance can’t be explained in a tweet, and since many media outlets failed to understand the full breath of what occurred, below we break down the facts on this announcement and what it means for universities in Oregon.
1) The Public University Fund ≠ Oregon State Endowment. The Public University Fund provides funding to six state public universities, including Eastern Oregon University, Oregon Institute of Technology, Portland State University and Oregon State University, and is managed by the Oregon Treasurer’s office. On Friday, the fund announced it would begin divesting from “current fossil fuel related securities and restricting future investment of assets into fossil fuel related securities, specifically, the Carbon Underground’s 200.”
Since Oregon State University is the “Designated University” for the Public Fund, it had to approve any investment decision by the Oregon University Public Fund. OSU Trustees voted to approve the amendment to the Public University Fund Investment Policy – a decision that only approved public state funding to divest, and that had no bearing on its own endowment.
2) This approval only impacts the Public Fund, not the endowments of the individual colleges. This policy change will impact (and negatively impact, for that matter) the public funding these universities receive, but has no influence over Oregon State University’s individual endowment, which is run by a separate foundation, the Oregon State University Foundation.
Separate from public funding, Oregon State University partners with the OSU Foundation which works with the university to manage its own private endowment and support funding of school programs. The University lays out the difference in jurisdiction of the two entities, explaining “Oregon State’s policies are set by the university’s Board of Trustees and guided day-to-day by the leadership of university. Policies of the OSU Foundation are determined by a separate, independent Board of Trustees and carried out by Foundation administrators.” [emphasis added]
In addition to the OSU Foundation, the other five colleges that receive funding from the Public Fund have their own endowments and investment policies that are also unaffected by the Public Fund’s decision. For example, the Western Oregon University Foundation has a separate Board that engages an investment management consultant to manage the day-to-day investment decisions on the investment portfolio. The WOU Foundation also has a separate investment policy statement that is distinct from the Public Fund.
3) The OSU Foundation rejected divestment in 2014. The OSU Foundation previously rejected activist calls to divest in 2014, explaining in an letter from the Board that divestment breaks with the endowment’s fiduciary responsibility and has no tangible impact on climate change. According to the rejection:
“We believe that categorically removing this sector would violate prudent investing rules that characterize best practices in asset allocation. OSU Divest made clear that divestment is a moral issue to them, not a financial one. But as fiduciary for the private gifts we receive, we have a legal obligation to show that divestment would not negatively impact our capacity to support the university financially.”
These costs are not easy to ignore. According to a report by Professor Hendrik Bessembinder, a medium sized fund like OSU’s $670 million endowment could risk losing up to $298 million in transactional and management fees over 20 years if it chose to divest from fossil fuels. With such a heavy price tag, it’s no wonder OSU has refused to divest from fossil fuels.
Continuing onto divestment amounting to nothing more than an empty gesture, the letter states, “On this question, we are not convinced that the divestment strategy will produce tangible benefits. Indeed, OSU Divest acknowledged that it would be more symbolic than substantive.”
4) The public fund did decide to divest, threatening revenues for Oregon’s public universities. About 1.7 percent, or of $9.3 million, of the $516 million fund is presently invested in fossil fuel-related securities. With new U.S. Energy Information Administration forecasts predicting U.S. oil and natural gas production to rise significantly in 2017 and overall energy consumption worldwide to continue to grow by 56 percent by 2040, divesting from fossil fuels is a losing bet for Oregon’s public universities.
In fact, as MarketWatch recently reports, economists at First Trust Portfolios expect the energy sector to provide a boost to the overall economy in 2017, stating “Profits have been held artificially low since mid-2014 due to the energy industry absorbing lower oil prices. Now that oil prices have rebounded, the energy sector should be a tailwind for economy-wide profits, not a headwind.
CNBC also reports that the energy sector continues to be “among the favorite groups with major Wall Street firms,” adding that energy is expected to account for around 40 percent of S&P 500 revenue growth in 2017, according to JPMorgan.
Bottom line: The announcement made by OSU administrators simply amends the $516 million Public University Fund Investment Policy which affects state funding to universities. This decision has no bearing on the larger $670 million primary endowment managed by OSU Foundation, which adamantly rejected divestment in 2014, but does mean real financial impacts for state funding of Oregon’s public universities.