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Wednesday, April 1, 2020

Divestment: Where are we now?

After an, at times, contentious five-year campaign, the Western Foundation and Students for Renewable Energy are starting to come together to discuss shifting Western’s investments away from non-renewable energy.

Interactions between the foundation and Students for Renewable Energy are markedly different now compared to the protest-based approach which defined the first few years of the divestment campaign, senior and Students for Renewable Energy Co-president Galen Herz said. Since last year, the group has adopted a new approach to working with the foundation: Simple conversation.

The foundation oversees the investment of Western’s endowment, a $75 million fund made up of donations, which foundation Chief Operating Officer Mark Brovak said provides thousands of scholarships for students. Right now a small part of that endowment is invested in major oil and coal companies, Herz said.

The initial divestment movement took on an all-or-nothing, demands-based stance on sustainable investing, Herz said. The shift came in Jan. 2016 when, while protesting at a foundation dinner, the students were approached by foundation employees, sparking a new dialogue.

“We always had a really adversarial relationship [with the foundation] up until that shift last winter when we began relationship-building,” Herz said. “We didn’t necessarily agree on everything, but there was that strong desire for dialogue, to understand where the other side is coming from.”

The relationship-building has resulted in opportunities for Students for Renewable Energy to participate in discussion regarding the future of the foundation’s investment structure. On May 9, the weekly Students for Renewable Energy meeting was attended by President Sabah Randhawa, Western Foundation CEO Stephanie Bowers and Brovak, who each fielded questions from students.

On Friday, May 19, Students for Renewable Energy members had the chance to present to Western Foundation Board of Directors and employees representing Commonfund, the nonprofit which manages Western’s investments.

Brovak touched on the developments in understanding one another in an interview. “Through dialogue we realized there’s a lot of things that we have in common in regards to what we think about climate change and how we can affect it,” Brovak said. “The difference lies in what do we do about it. How do you take that desire and passion and turn it into action?”

A resolution encouraging the foundation to move its investments away from non-renewable energy into sustainable options was passed unanimously by the Associated Students Board of Directors on May 11.

Drafted by Vice President for Student Life Wayne Rocque, with help from the Students for Renewable Energy, the resolution continues the call for divestment. It “strongly encourages” the foundation to explore options for phasing out investments in fossil fuel companies.

Meeting with the president

At the May 9 Students for Renewable Energy meeting, a major focus was transparency. Multiple students requested to have access to data on exactly which fossil fuel companies the foundation invests in. Brovak said this is difficult information to ascertain, since the foundation uses commingled funds, managed by Commonfund. He said clients of Commonfund do not manage at the individual stock level, and have no direct ownership of stock due to commingling.

Brovak said commingling means combining funds with other institutions that have similar investment structures to Western, each holding a small percentage of a diversified portfolio with investments across many sectors. Brovak said this helps investments stay risk averse, and is the most feasible option for endowments of Western’ size to achieve desired returns.

Bowers said if students are looking into data for curiosity’s sake, without any means of doing anything to change it, she doesn’t know what good it would do.

Western junior and Students for Renewable Energy member Kellen Lynch said he wanted the data so students can help lead the effort toward sustainable investing.

“We want the data, we want to be learning, and right now we’re kind of staring into a black hole,” Lynch said. “What I want to encourage is for us to have all the data available, if possible, and for us to do the work, because obviously we’re willing. That’s the beautiful thing about this relationship we’re building is that we can work together.”

Brovak said he understood, and although sorting through convoluted data would be labor intensive, he agreed it was reasonable for the foundation to provide data on investments once a year. This would have to be approved by the foundation’s board of directors. At the meeting’s conclusion, Brovak said he would take the request to his next investors meeting in early August for approval.

Sustainable options

Also covered in the meeting were initiatives the foundation has been working on. Brovak said the foundation helped try to create a low-carbon fund, which excluded companies found to have the largest carbon footprint. This fund failed to create enough interest from other institutions to become a reality, he said.

Brovak also said he hopes he, along with Bowers, can help to begin shifting the focus from the low-carbon fund to the incorporation of Environmental Social Governance factors, or ESG, into a commingled fund. An ESG fund, he believes, is something that might be able to get more traction over time, and is more practical than trying to weed out specific companies. According to Investopedia, an investing information website, commingling reduces liquidity of assets, making it nearly impossible to divest from specific problematic companies without compromising the endowment.

Paul Meeks, a finance professor at Western, has been an equity analyst/portfolio manager since 1987, and has been an ESG investor for over three years. He said institutions used to avoid “sin stocks” like tobacco, alcohol and guns when investing. Now, many incorporate ESG ratings into making ethical investment decisions, Meeks said.

“Now you have these other factors, like environmental: measuring carbon footprint, social: how does management treat employees, and corporate governance: are the managers paid fairly or ludicrous amounts,” Meeks said. “It’s become a big industry, everybody is reporting the data, and a lot of institutional investors are using it. It’s only going to get bigger.”

According to Commonfund’s website, data shows companies with higher ESG ratings outperform their competition in regard to returns, and hold up better to large dips in the market.

Western senior Shelby Kremenich said Students for Renewable Energy understands these changes are not going to happen overnight.

“We’re not asking that they immediately divest anything, it’s obviously a timeline. In five years, 50 percent. Ten years, 100 percent. That type of thing,” Kremenich said. “We’re happy they’re more open to divesting, but we hope it reaches a milestone at the end of the year where they commit to some sort of divestment.”

Impact investing was another strategy mentioned in the last Students for Renewable Energy meeting. Sophomore and Students for Renewable Energy Vice President Maddy Jones said this means looking for investment opportunities in projects or companies that have outcomes which favor renewable energy.

One example of this type of investment is the recent wind farm Western committed to partially funding through Puget Sound Energy, which was approved this winter and is to be finished in 2019, according to Jones.

Moving Forward

President Randhawa said universities are especially risk averse with investments due to a decrease in state funding, and expressed the need for change to come from a critical mass of universities making commitments to invest sustainably.

Students for Renewable Energy members presented to the foundation’s board of directors on May 19 about the history of the campaign and sustainable investment options, Herz said. The meeting was also attended by four representatives of Commonfund.

One of the things Commonfund members wanted to see from Students for Renewable Energy was an ESG road map, which would outline some of the criteria students wanted to see met by companies, Herz said. He said the general feel of the meeting was overwhelmingly positive, and looks forward to working with board members in the future.

Students for Renewable Energy also provided input on the investments chapter of Western’s Sustainability Action Plan, which is still in draft stages but is expected to be published later this year, Jones said.

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