July 16, 2020

UVM Caves to Political Pressure, Agrees to Minimal Divestment

Early this week, New York state Comptroller, Thomas P. DiNapoli, wrote about his “fiduciary responsibility” when it comes to managing New Yorkers’ pension funds, highlighting divestment’s rushed and negligent approach. In fact, DiNapoli spelled out why divestment is just not functional: “investment decisions must not be based on slogans or political agendas”. Contrast that with the recent announcement by the University of Vermont (UVM) which admitted to giving into political pressure in its decision to divest from fossil fuels.

This week, UVM announced that the university’s Board of Trustees had voted to “immediately end new direct investment in fossil fuels” and to fully divest from public investments in the industry by 2023. However, the decision-making process behind this announcement raises raise a couple of red flags.

First, UVM management admitted that it decided to divest after student and faculty advocacy efforts pushed them hard enough. The school had previously rejected divestment twice, first in 2013 and then in 2016. At the time the school firmly resisted divestment, arguing that UVM wouldn’t fall prey to political agendas and preferred engagement over divestment:

“[T]he purpose of the endowment and, therefore, its fiduciary responsibility does not include attempting to use the endowment as a tool in setting policy or exercising political influence. In its view, the most effective tool to influence corporate behavior is to use proxy voting. If the University were to divest it would lose its voice and the chance to influence further change.”

Fast forward to 2020, UVM’s ideals on sovereignty and how to fulfil its fiduciary responsibility have reversed.

Second, UVM also admitted that it “studied the divestment actions of other schools and university’s investment policy” to base its decision. However, it’s worth noting that recently, universities like Harvard, Stanford and MIT have all rejected the notion of divestment. These schools have acknowledged they symbolic nature of divestment and the fact that it fails to achieve meaningful solutions regarding climate change.

Third, and most worrisome, UVM will not actually divest from the fossil fuel industry before 2023 given its long-term commitments, and if it does, the decision will negatively impact the endowment’s future. As noted in 2013, if UVM divests:

“Return on investment suffers, numerous educational opportunities are threatened for students, who receive financial aid support and scholarships, in addition to negative impacts on faculty support”.

For context, according to UVM’s FY2019 financial report, the university’s endowment is valued at $550.2 million, of which fossil fuels represent 6.7 percent, or roughly $36 million of the investment portfolio. But given that the endowment is invested in a long-term investment pool, halting these investments hastily could add up considerable management and administrative fees.

In fact, UVM Trustee Chair Ron Lumbra acknowledges this failed promise: “It could take until 2030 for all preexisting private investments involvement fossil fuels to sunset”. Thus, activists tend to champion divestment announcements when they happen, as if the stocks have already been sold.

In reality, this takes years, and even decades to actually carry out. What is more, the university, which has pledged to divest due to moral reasons, will continue investing in the industry indirectly through the commingled funds, which are potentially distributed in the other type of assets that represent the other 80 percent of the endowment.

Ultimately, this announcement doesn’t translate to any actionable decision in the short term, particularly as the endowment’s assets are invested in long-term vehicles. As DiNapoli, guardsman of one of the best-funded retirement systems in the United States, would argue, UVM’s top concern should be to responsibly manage its endowment.  However, choosing divestment over maintaining responsible finances proves that UVM is more concerned with headlines and empty gestures rather than real solutions.