The following is a letter submitted by Gregory Brown, Swarthmore’s Vice President for Finance and Administration.
Mountain Justice’s proposal on divestment, published in last Friday’s Daily Gazette, oversimplifies the complex issues pertaining to the management of the College’s endowment. The proposal ignores the potential negative consequences on the College’s operating budget that would result from a significant change in the structure and long-term relationship that the College has built with its external investment managers.
As noted in their proposal, and consistent with the Board of Managers’ desire to work with Mountain Justice and the rest of the campus community regarding climate change, students from Mountain Justice have met twice recently with the College’s Chief Investments Officer, Mark Amstutz, and with me to discuss their upcoming conversation with members of the Board.
As part of our conversations with the Mountain Justice students, we emphasized the need to focus not on divestment from the producers of fossil fuels but on the consumers of such fuels. Since the Board’s 2013 decision on divestment and its subsequent actions, the College has been steadily moving forward with initiatives to actively improve our carbon footprint in order to accelerate our commitment to reach carbon neutrality by 2035, and tangibly reduce the effects of climate change.
The Board’s commitment of an additional $12 million to make the new Biology, Engineering, and Psychology building a model of a sustainable science facility, and Interim President Hungerford’s call to the campus to move us forward with both large and small ideas that will lead to real change, point to our strong commitment to make an meaningful difference when it comes to helping stem climate change. The upcoming campus-wide sustainability charrette (Feb. 11-12) should further guide us in these efforts. As members of the campus community, each of us also has a personal obligation to do what we can to reduce our own carbon footprint, be it through the use of mass transit, turning off lights, composting, or recycling.
During our conversations with Mountain Justice, we also discussed the complexities of the College’s diverse portfolio and the wide array of investment managers that strive to attain strong performance that can support the College’s current and future budgetary needs. Such managers are hired due to their investment expertise and acumen and solid performance track records. These managers are not prohibited from investing in certain sectors of the economy.
The College’s Board of Managers is responsible for both the short- and long-term financial health of the College. As such, they do not believe the endowment should be used to make social statements, no matter how compelling the cause. Through the historic strong performance of our endowment, the College has been able to continue to expand its loan-free financial aid policies, improve its facilities, and support the work of its distinguished faculty.
We also discussed with Mountain Justice the role of consultants relative to the College’s endowment, and in particular, Cambridge Associates’ willingness to advise clients regarding fossil-fuel free investment portfolios. As was clearly stated in Cambridge Associates’ original white paper on the subject last June, which has been shared with members of Mountain Justice, divestment from fossil fuels comes with a cost in both the short and long term. At the conclusion of its white paper, Cambridge Associates framed the conversation in a way that highlights both the complexities and risks of divestment:
“Whether an institution chooses divestment is highly dependent on its mission and policies, its comfort in using the investment portfolio to express these values, and its ability to forge a view on the longer-term risks of fossil fuel assets. We believe institutions should engage multiple stakeholders to deliberate the topic, and use the process as an opportunity to either affirm or revise existing policies. It is possible to construct a fossil-free portfolio, but divestment from all fossil fuels has meaningful implications for a portfolio’s structure and risk profile. If deciding to act, investors should do so in a manner that best aligns with their distinct objectives and circumstances.”
There are few investment managers with proven track records with fossil-fuel free portfolios. It would be irresponsible, as stewards of the College’s finances, to invest with managers that have not yet been able to prove their ability to deliver acceptable performance over the long term. By way of clarification, Cambridge Associates is one of many resources that the Investment Office and Investment Committee use in the oversight of Swarthmore’s endowment – they are not our primary consultant nor do they have discretion to make investment decisions for the College.
We look forward to continued dialogue on climate change and will continue to take meaningful steps that will make Swarthmore a leader in this field while not risking the health of the College’s finances, allowing the College to provide resources for many generations to come.