Divestment at Unity

First To Divest

We’ve gotten a lot of deserved attention for our recent fossil fuel divestment announcement. By now there are nearly three hundred (and climbing) divestment campaigns – mostly student-led – at colleges all over the country. The aim, as you no doubt know by now, is to keep our endowment money from supporting the fossil fuel industry through stock purchases or other financial investment. As a college fully dedicated to sustainability science education that meets climate change head on, our Board of Trustees and administration have asserted that we cannot directly support an industry that has as its core business model, the destruction of the planet. You can read all about the decision to divest on Unity’s website. But let’s explore below what this actually means for the College.

Endowment Basics:  Stewardship of the endowment is a primary function of the College’s Board of Trustees; they make sure it’s invested wisely to support the central aim of the institution in perpetuity – namely, providing an education for our students. We don’t spend the endowment directly on operations at the College. Rather, we invest the money in stocks and funds, and use the profitable return on those investments to offset operating expenses. A big chunk of those expenses for us – more than $4 million – is direct financial aid for students. With our 2011 endowment gift of $10 million, we expect about half a million dollars of income from investment profits per year. So essentially, we’re investing our endowment to help pay for our students’ education.

College Finances: It may be helpful to think about Unity’s annual budget picture more broadly. Consider the revenue side (see figure below): tuition and fees, auxiliary enterprises (e.g., bookstore and dining sales), grants, gifts, and endowment investment income (green at the top) amount to about $18 million a year. As mentioned, we give more than $4 million of that in financial aid to students (black at the bottom), bringing our net revenue down to roughly $14 million annually. Over the last few years, we’ve spent just about that amount to run the school – the expense side: instruction, student services, institutional support/administration, facilities/physical plant, debt payments, and additional scholarships, etc.. $14 million in, $14 million out, a balanced budget.

Revenue and Endowment

Endowment practices impact revenue. The more money we can make off of our endowment investments, the bigger the endowment draw we can add into our annual operating budget on the revenue side – adding more to the top (green) to offset what we give back to students in institutional aid. As with many small private schools, Unity is a tuition-driven college, and the bulk of our annual operating budget comes from tuition and fees with only a small fraction coming from investment revenue. As you might imagine, colleges and universities with greater percentages of their revenue coming from endowment draw might find challenges to their traditional investment practices unsettling. After all, these Board and Foundation stewards have been doing their best to maximize return and reduce risk for their institutions – often relying on a presumed sure bet: fossil fuel investments.

Divestment at Unity: About five years ago, our Board of Trustees made a concerted effort with our investment manager to move away from what they called “big energy” investments, citing Unity’s focus on environmental and sustainability programming and an interest in pursuing clean energy investments. At the time, an estimated 10% of Unity’s endowment was invested in fossil fuels. By 2012, only 2.5% of the investment portfolio was supporting the fossil fuel industry. When we caught wind of last fall’s Do the Math Tour and related divestment campaign, we knew we had already done most of the math. A review of our current holdings against the Carbon Tracker Initiative’s list of 200 companies with the greatest fossil fuel reserves mapped out a clear path to minimize portfolio exposure to fossil fuels: avoid investments in those 200 companies, and shift exchange traded funds (ETFs) where possible to non-energy sectors. Debbie Cronin, Unity’s VP for Finance & Administration, explains:

Investments in emerging international countries cannot be moved specifically out of fossil fuels, as there are no sector-specific ETFs at this time. Thus, the endowment target is <1%, not 0, as the emerging international sector needs some fossil fuel tolerance.

The loudest recent objection to college and university divestment is a concern that moving funds from fossil fuels will negatively impact endowment returns. Unity’s experience drawing down investments in “big energy” over the last many years suggests otherwise; even through the market downturn, our returns tracked with market benchmarks. The recent Aperio Group study, “Do the Investment Math,” demonstrates that the impact on returns from screening out fossil fuels is minimal, and the risk – though higher than conventional investment – is much lower than commonly asserted by divestment skeptics.

We’re fortunate at Unity College to have a Board of Trustees committed to the sustainability mission of the college. And Cronin points out that having a flexible, proactive fund manager is key to a successful divestment effort.

For more on fossil fuel divestment and Unity’s leadership on the issue, join Sustainability Director, Jesse Pyles, and representatives from 350.org and the Responsible Endowments Coalition on February 26th for the upcoming AASHE Webinar, “Investment and Divestment: Making Sustainable Choices with Campus Endowments.”


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