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June 20, 2018

Salem State University Breaks with Pack and Divests, Or Does It?

This week saw Swarthmore College and Cambridge University both reject fossil fuel divestment, but Salem State—a small liberal arts school in Massachusetts— gained press and activist praise this week for breaking the trend and declaring itself divested this spring.  If you dig a little deeper, however, you will see that Salem State, like Syracuse University, the University of Massachusetts, and Washington D.C.’s pension fund, failed to note that they only divested a portion of their funds.  Simply put, Salem State is very likely still invested in fossil fuels.

When first announcing the university’s divestment Salem State University President, John Keenan, wrote in an email to the campus:

“The University’s investment advisors have recently sold the university’s prior holding[s] in Carbon 200 (fossil fuel) companies and added investments in solar and renewable energies.”

According to Keenan, this is all in line with a Board of Trustees 2017 vote on a new investment policy:

“Among other measures, the vote directed the university to revise its investment policy to not allow investments in the coal industry; consider further divestment from direct holdings in the balance of the Carbon 200 (fossil fuel) companies to the extent that advisors believe financially prudent, with the goal of achieving full divestment.”

The fact that the university has only divested its direct holdings seems to be lost on some activists and the campus’ divest group, which quickly changed its name from “Divest Salem State” to “Divest(ed) Salem State.”  This is oversight is surprising, especially in light of the fact that the university’s new investment policy explicitly states that only some stocks are directly managed by the University’s Investment Manager and governed by its investment policy:

“Equities generally refer to the common or preferred stock in publicly-traded companies, but they may also be in the form of managed funds, which include such investment vehicles as mutual funds, exchange traded funds (ETFs) and other types of funds that function in a managed way but are not directly managed by the University’s Investment Manager.”

In the past, student groups like Divest BU and Columbia Divest for Climate Justice have been quick to call out university administrators over this type of limited and/or “fake divestment,” noting that despite the press releases and fanfare, their universities were still very much invested in fossil fuels.

The same may happen at Salem State once students start to ask some questions like, “what portion of the university’s equity investments are in direct holdings?” “What is the approximate dollar value of direct holdings that were pulled from fossil fuel companies?”, and “What is the approximate dollar value that remains invested in fossil fuel companies via other investment vehicles?”  At a minimum these questions should be answered before “Divest(ed) Salem State” brazenly declares that their school is on “the right side of history.”

The truth of the matter is that divestment claims are often left vague on purpose.  When universities “divest” but fail to specify how much or how little money was actually involved, they not only appease activists without making any real changes but also leave the door open for outrageous claims about the amount of funds that have been pulled from fossil fuel companies.

If there is any doubt on this point, consider the fact that included in the $5 trillion that activists claim have been divested are: the entire portfolios of universities and pensions that have pledged to divest but have taken no steps in that direction, the entire endowment values of universities that “divested” their direct investments in fossil fuels but never actually had any to begin with,  and universities which divest very little but retain a large amount of fossil fuel stocks in their comingled portfolios.  In fact, a recent study from the University of Massachusetts’ Political Economy Research Institute (PERI) concluded that the value of assets divested is probably closer to $36.1 billion, or about 0.6% of what activists are claiming.

Bottom Line:  Be wary of vague divestment announcements as they’re typically a public relations play to quell student activists, and not a substantive change in investment policy.