Reports from the Task Force on Divestment
Response from the Board of Trustees

March 1, 2016

Context – The Call for Divestment

As most members of the Skidmore community are aware, for some time the College has been studying the possibility of divesting our holdings in fossil fuels from the College's investment portfolio – ourendowment. This process began in Spring 2013 when the Board of Trustees received a student petition calling for divestment; other voices made this request as well.

In the spirit of shared governance, and reflecting the College's broader commitment to operate both responsibly and transparently, the Board authorized the administration to create a task force to consider the various complexities and implications relating to the call for divestment.  Above all, the Board expresses  its sincere appreciation for the excellent work done by the members of the resulting Task Force on Divestment (TFD). The questions surrounding this topic are complex, multi-dimensional, and fraught with both compelling ethical concerns and considerable emotion. People of goodwill who care deeply about the environment – indeed, about the fate of our planet, which is threatened by climate change – stand on different sides of the divestment issue. The Board believes that the magnitude of the TFD's work, the quality of its deliberations, and the reflection embodied in its recommendations reflect very well not only on that group but on the College as a whole. As a result, the Board has been able to engage deeply – in a way that would not have been possible without the work of the TFD – with the fundamental issues implicated in the call for divestment.

As we also know, many higher education institutions and other organizations in both the not-for-profit and for-profit sectors also have grappled with this issue.  Our engagement has been collaborative and characterized by good faith on all sides, as opposed to the more oppositional and antagonistic processes seen at some institutions.  For this the Board is truly appreciative and renews its determination to maintain this approach going forward. The final result – as reported in this document – represents a series of compromises made throughout this process that attempt to balance competing legitimate values and interests in a way that is most consistent with supporting the educational mission of the College. Though the Board's position may not fully satisfy any given participant, this process represents a good instance of shared governance.

The Task Force on Divestment

In December 2013, under the auspices of the Institutional Policy and Planning Committee (IPPC), the College formed the Task Force on Divestment. That group comprised representatives of the student body, faculty, administration, staff, and the Board.  Professor James Kennelly, Management and Business chaired the Task Force, and Associate Dean and Associate Professor of Environmental Studies Karen Kellogg served as vice-chair. The members of the Task Force are listed on its webpage (see below).

On 2 December 2013, following consultation with the IPPC and the Board, President Glotzbach presented the TFD with the following two-part charge:

Phase I:

1. To explore the meaning of the divestment request: e., to interrogate analogies and disanalogies with the anti-apartheid movement, to place this anti-divestment movement in the context of the College's actions to enhance the sustainability of our operations (e.g., geothermal heating and cooling, etc.), and so on. The purpose of this initial inquiry is to understand what this call for divestment is intended to accomplish in advancing the goals of sustainability and responsible operations.

2. To research what other colleges and universities have done in regard to this issue, paying special attention to schools that are similar to Skidmore (e.g., Middlebury, Colby, Swarthmore, Pomona), and seeking to learn what we can from the work that these institutions have completed.

Phase II:

1. At such a time as the necessary information of the current structure of the College's endowment holdings can be made available, to begin analysis aimed at understanding the possible effects upon our endowment, annual budget, financial aid, etc. of divestment.

2. Upon completion of its work, to issue a report to the Board of Trustees and the Skidmore College community, understanding that any recommendations would not be binding upon the Trustees or the Administration.

The Task Force on Divestment established a webpage to make its work broadly available to the Skidmore community.  The TFD issued its "Phase I Report' on 13 February 2015; its Phase II "Final Report' was released on 20 April 2015.  Each TFD report was received by the IPPC and transmitted to the Board of Trustees. Both reports are available on the TFD website.

In May 2015, the Board requested that its Investment Committee (IC) consider the recommendations contained in the TFD's "Final Report' and advise the Board of its response, which it did over the following summer. The Board received the Investment Committee's comments in early fall 2015 and carefully considered both those comments and the full TFD "Final Report' in Executive Session at its October 2015 meeting. The Investment Committee reviewed an earlier draft of this Report at its meeting on 21 January 2016 and provided additional comments at that time. The Board approved this Report at its meeting in February 2016.

The Task Force on Divestment's "Final Report' includes a forceful summary of the significance of the issues relating to climate change that underlie calls for divestment:

It is now unequivocal that there is warming of the climate system, and it is scientific consensus that human influence has been the dominant cause of this warming. The impacts of climate change are unparalleled, and, if left unchecked, climate change will increase the likelihood of severe, pervasive, and irreversible impacts for people and ecosystems around the world. Carbon dioxide levels are  now hovering around 400 ppm, a concentration beyond the 350 ppm concentration now widely recognized as a target level to preserve our social systems. We understand with varying degrees of certainty that this warming has and will continue to cause snow and ice melt, sea level rise, ocean acidification, loss of permafrost, increased severity of storm events, significant changes in precipitation patterns, biodiversity loss, spread of certain insect-borne diseases, and the displacement of human populations and cultural loss. And the positive and negative feedback loops inherent in the climate system could very well accelerate these impacts.¹  It is also worth noting that there are major inequities intrinsic in contemporary climate change. Relatively few people have enjoyed the benefits of high levels of greenhouse gas emissions, and, of course, not everyone is experiencing the burdens of climate change equally. As one metric, estimates of climate change-induced displacement range from 150-300 million people by 2050, with low-income countries having the far largest burden of disaster-induced migration.

While major climatic shifts are indeed part of geological history, contemporary climate change is different. It is being triggered by rational beings who are able to predict, with varying degrees of certainty, the profound changes that will impact, directly, the lives of each and every one of us. The reach and depth of climate change sets it apart from any other social issue we have ever encountered or will likely ever encounter, and hence the willingness of many institutions to engage in the work around fossil fuel divestment.²

Given the significance of these issues, it is important that we report the Task Force on Divestment's primary recommendation in its own voice:

We would like to make clear that we are in agreement with the overarching goals of the divestment movement, in that we believe that climate change not only exists but is one of the greatest challenges of our time, and that this challenge must be met squarely. However, although we share the divestment movement's goals, we are less sanguine about divestment as a tactic. The value of fossil fuel divestment, and the extent to which such divestment will actually serve to reduce greenhouse gas emissions, is uncertain and it will remain largely symbolic until there is greater consensus and more investment alternatives. The TFD imagines Skidmore contributing to a discourse that leads to increasing the availability of actively managed fossil-free and proactively sustainable investment options.

Also uncertain are the effects of fossil fuel divestment on the value and returns of Skidmore's endowment. We acknowledge that the consensus of most financial experts, including Skidmore's investment advisors, is that full fossil fuel divestment would result in significant negative financial impacts by way of lower investment returns.³ The effect of these lower returns would be to lower the endowment "takeout' and constrain funding for such things as financial aid and employee compensation (two of the largest expense items in the annual operating budget). Although there is significant uncertainty as to whether such dire effects would actually materialize, we must accept that there is a real risk that they could.

We are thus confronted with an apparent tradeoff: If we divest according to the terms of the petition that was presented to the Board of Trustees (full divestment within 5 years of all direct and indirect fossil fuel holdings) we will 1) take a symbolic stand in favor of combatting climate change – but with no likely "direct' impact on fossil fuel companies or GHG emissions, and 2) at a risk to our endowment (and therefore our ongoing operations) that while uncertain, may be significant.

Given this uncertainty, therefore, we would like to make clear at the outset that we do NOT recommend to the Board of Trustees that we commit to full divestment from all direct and indirect investments in the securities of fossil fuel companies (The Carbon Underground 200) within a strict 5- year period – as proposed by the Petition presented to the Board in December 2012, and endorsed by a subsequent SGA [Student Government Association] resolution. [Emphasis added.]

We advise against divestment on those terms, not because we disagree with the goals of the divestment movement – but because of what we understand to be the uncertainty and financial risks associated with full divestment.

At the same time, the TFD made six additional recommendations outlining steps for the College to undertake without committing to total divestment:

1. Skidmore College should make an explicit commitment that it will not purchase or hold any equity or debt issued by companies on the Carbon Underground 200 List in its direct holdings.

2. Reallocate approximately 4% of the endowment to fossil-free or sustainable and clean tech investment funds on a test basis, increasing this allocation over time if performance merits it; additional, provide potential donors with the opportunity to direct their contributions to such fossil- free and sustainable investment

3. Collaborate with other comparable institutions of higher education to influence and/or accelerate the creation of high performance, professionally managed, fossil-free and/or sustainable portfolios that will generate acceptable "alphas' and more generally expand the universe of fossil-free and/or sustainable investment options that are available to Skidmore and other institutions.

4. Explicitly encourage our 40-50 investment managers to reduce or eliminate their holdings of fossil fuel investments to the greatest extent possible, consistent with financial realities and prudence, and clearly articulate to our investment managers our interest in moving towards a fossil- free portfo

5. Acknowledge the linkage between Skidmore's investment portfolio and its institutional values, and amend Skidmore's existing Investment Policy so that it incorporates these values.

6. If these recommendations are endorsed, they should be incorporated into the annual Strategic Action Agenda and a review of our progress in achieving them should be conducted on an annual basis by an appropriate group determined by the President.

The significance of the challenges presented by climate change across the planet and the responsible work of the TFD together merit a comprehensive and considered reply.

 

The Board's Response

The Task Force on Divestment's "Phase I Report' provides a thoughtful and informative summary of its preliminary findings regarding key aspects of the divestment question.  It is extremely helpful in framing the key issues for anyone who reads it seeking to understand more about the complexities of the topic. The Phase II "Final Report' represents a measured response that balances attention to the reasons behind calls for divestment with considerations relating to the efficacy of such actions to achieve any meaningful affect on climate change and potential consequences of divestment for the College's capacity to fulfill its educational mission. Accordingly, the Board accepts the TFD's overall recommendation not to pursue a strategy of "full divestment from all direct and indirect investments in the securities of fossil fuel companies' at this time.  This recommendation also aligns with the position of the Investment Committee.

That having been said, the Board also acknowledges the unique scale and profound global consequences of climate change. As stated in the quotation from the TFD's "Final Report' on p. 2 above, because of the scope and depth of the threat represented by climate change – a threat potentially affecting the habitability of our entire planet – this issue arguably occupies a distinctive conceptual space relative to other potential social value issues.  For this reason, the Board reaffirms its appreciation and strong support for the Skidmore's community's deep commitment to addressing the threat of climate change, as evidenced by past actions and the objectives established in the Campus Sustainability Plan.  Indeed, the extended Skidmore community should take justifiable pride in the College's impressive track record in achieving ambitious goals related to sustainability – from the planning and construction of new buildings to minimize energy usage to actively stewarding the North Woods and increasing campus green spaces. Overall, we have reduced our greenhouse gas emissions by 48% since 2000, and, as part of our comprehensive Sustainability Plan, we have set a goal of a 75% reduction by 2025.  We have incorporated geo-thermal heating and cooling into all new major building projects, and we have retrofitted several older buildings with this energy-efficient technology.  In late spring 2016, Skidmore will initiate a new $2.7 million geo-thermal heating and cooling project associated with the Center for Integrated Sciences (CIS) to further reduce our use of fossil fuels.  When the CIS is completed, 55% of our on-campus interior space will be heated and cooled geo-thermally.

Skidmore also recently completed one of the largest photovoltaic solar arrays in the state of New York to meet 12% of our electrical needs, and the College was one of the first in the nation to develop a small- hydro remote net metering project providing approximately 18% of campus electrical power requirements, significantly reducing greenhouse gas emissions.  Today, more than 32% of our electric power comes from renewable sources. These and other developments represent a genuine commitment to responsible citizenship throughout our operations. We further support major efforts to engage all aspects of the College's operations to achieve the above-indicated greenhouse gas objective, including new construction, energy consumption, water usage, recycling, and educational and co-curricular efforts.

The Board will continue to monitor both our campus-wide efforts to increase the environmental sustainability of our operations and the structure of our investment portfolio. We now will comment on each of the additional recommendations of the Task Force on Divestment.

Recommendation 1: Skidmore College should make an explicit commitment that it will not purchase or hold any equity or debt issued by companies on the Carbon Underground 200 List in its direct holdings.

Although the Board understands the argument for this recommendation and knows that some institutions have gained a measure of positive notice in the public realm from announcing such a decision, it believes that such a commitment would be misleading. Essentially all of Skidmore's investments (with the possible exception of some cash holdings, T-bills, CDs, etc.) are externally managed, and the Board believes it would be imprudent to restrict the Investment Committee's possible future actions in this way.

Recommendation 2: Reallocate approximately 4% of the endowment to fossil-free or sustainable and clean tech investment funds on a test basis, increasing this allocation over time if performance merits it; additionally, provide potential donors with the opportunity to direct their contributions to such fossil- free and sustainable investment choices.

As part of the College's commitment to clean energy and in response to this recommendation, the Board has directed the Investment Committee to identify such an investment vehicle or vehicles that also meet  the College's risk/return requirements that apply to the entire endowment portfolio.  Although the Board is not prepared to mandate the diversion of a fixed amount of the endowment to such a fund, it expects the Investment Committee to size such funds in accordance with the College's Investment Policy.  We note that there have been a number of such funds developed to-date, but so far their performance has fallen short of our risk/return profile. Nonetheless, we are hopeful that a fossil-free vehicle(s) comprising publicly traded equities that meets our investment requirements will be available in the near term.

Assuming we can identify such a fund(s), the College will inform potential donors of the opportunity to direct their giving to the indicated fund/s.  In due course, the President will report to the community on the establishment of this fund or funds, including the size of the initial investment.

In addition, we want the Skidmore community to know that one member of the Investment Committee also serves as a member of the Advisory Committee of a major investment fund. For several years, this  member has been proactive, strongly encouraging the fund to develop an investment vehicle of the kind envisioned here.

Recommendation 3: Collaborate with other comparable institutions of higher education to influence and/or  accelerate  the  creation  of  high  performance,  professionally  managed,  fossil-free  and/or sustainable portfolios that will generate acceptable "alphas' and more generally expand the universe of fossil-free and/or sustainable investment options that are available to Skidmore and other institutions.

The President has already consulted with other New York Six Presidents to determine if there is any interest among this group to pursue such a joint strategy.  The Board has agreed to support similar outreach to other academic institutions, as feasible, to advance this objective.  The President will continue his   efforts to work with other member colleges of the NY6 to advance this objective – especially when the Investment Committee has identified such an investment vehicle to include in Skidmore's portfolio.

Recommendation 4: Explicitly encourage our 40-50 investment managers to reduce or eliminate their holdings of fossil fuel investments to the greatest extent possible, consistent with financial realities and prudence, and clearly articulate to our investment managers our interest in moving towards a fossil[- fuel]-free portfolio.

While acknowledging the College's limited "leverage' over its investment managers because of the relatively small size of our holdings and the strongly stated reluctance of the Investment Committee to take such action at this time, the Board will ask the IC to be mindful of this recommendation going forward and determine if such an approach to our investment managers (or perhaps a sub-set of those managers) might become feasible at a later time.  As the economic realities relating to governmental regulation, international agreements, and changing patterns of national and global energy production and use continue to develop, it is likely that the business models associated with various industries will also be affected.  We expect the Investment Committee, as part of its ongoing work, to monitor these changes as well to determine whether, and if so how, they should influence future investment strategies.

Recommendation 5: Acknowledge the linkage between Skidmore's investment portfolio and its institutional values, and amend Skidmore's existing Investment Policy so that it incorporates these values.

As noted above, the Board acknowledges the special urgency of climate change and its potentially devastating effect on our planet – which, again, is why the Board wholeheartedly supports Skidmore's efforts to make our operations as sustainable as possible.  Nevertheless, the Board does not believe it can accept the general principle that there is or should be a fundamental "linkage between Skidmore's investment portfolio and its institutional values.'

It is Skidmore's mission to provide our students access to best possible educational opportunities. The endowment represents the College's single most important financial resource in fulfilling this mission.  It affects everything from our annual budget – including the amount of financial aid we have available year- to-year – to the College's bond rating.  This resource has been provided to the College by generous donors over many decades. Accordingly, stewarding the College's endowment is one of the Board's essential fiduciary responsibilities, and so it retains final authority over decisions regarding both the management of these investments and the disbursement of the resulting revenues. The Board believes it would not be a responsible decision to restrict the management of the endowment in the way that would be required, were it to accept this principle.

The Board also notes a troubling inconsistency in the notion that, in managing our endowment, we should boycott a whole class of equities at the same time that, as individuals and as a community, we rely extensively on those companies' products and services for so much of what we do every day.  In other words, our pervasive dependence on these companies to provide the energy to heat and light our buildings, to fuel our transportation, and to run our computers and appliances is difficult to reconcile with a refusal to countenance any relationship with them through our investments.  Moreover, these same corporations are currently responsible for the largest non-governmental investment in clean energy research and development.

To these concerns, we add the additional more pragmatic caveat that defining our "institutional values' in ways that directly entail investment decisions would place the College in an untenable position for future decision-making.  Although each of us might have ideas about just which "institutional values' come into play here – including how they are to be articulated and what actions they entail – this is highly contested ground.  At present, a growing number of voices in society at large are calling for divestment in relation to a variety of industries – not just fossil fuels but also tobacco, firearms, etc. – they regard as morally problematic.  Others have called for divestment relating to certain nations (e.g., Israel) in ways reminiscent of the actions directed against South Africa several decades ago in regards to its then policy of racial apartheid. Were the Board to accept a blanket statement of "linkage' between our values and investment strategy, it would generate expectations for the College to address a broad range of such present and future social issues in its ongoing investment decision-making.  In other words, the Board would be consenting to investigate and adjudicate an indefinitely large range of such claims in the future.  It is far from evident how either the Board or the Administration could reasonably do so. In sum, it is simply not clear how any Investment Committee or Board of Trustees, present or future, could function under the weight of such a general mandate.

Recommendation 6: If these recommendations are endorsed, they should be incorporated into the annual Strategic Action Agenda and a review of our progress in achieving them should be conducted on an annual basis by an appropriate group determined by the President.

The Board accepts the aim of this recommendation, though it does not see the need to establish a new governance body, committee, or other such entity to monitor the implementation of these agreements. The President will commit to reporting annually to the Skidmore community regarding the status of the above- noted actions, along with our overall progress toward achieving the objectives contained in the Campus Sustainability Plan. He also will include in the 2016-17 "Strategic Action Agenda' a provision that he will work with the Board in implementing the above commitments.

 

In Conclusion

The Board reiterates its deep appreciation for the work of the Task Force on Divestment.  The work of the TFD, as manifested in its two thoughtful reports enabled the Board to consider the underlying issues relating the call for divestment and to arrive at the conclusions discussed above.  The Board hereby commits to taking the indicated actions with regard to the management of our endowment and reporting to the Skidmore community.

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1. "IPCC, 2013: Summary for Policymakers.' In: Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Stocker, T.F., D. Qin, G. K. Plattner, M. Tignor, S.K. Allen, J. Boschung, A. Nauels, Y. Xia, V. Bex and P.M. Midgley (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.

2. TFD "Final Report,' pp. 2-3.

3. "In summary, Colonial forecasts that full divestment would reduce the financial return on the endowment (over the next ten years) from 8.3% annually to 6.4% annually, resulting in an endowment value (in ten years) that is $120 million lower than it would have been without divesting from fossil fuels.  This would have the effect of reducing our endowment spending (from what it would have been) by $318,000 in Year 1, increasing annually to over $6 million in Year 10.'  TFD "Report on Phase 1 of Divestment Review,' pp. 15-16.