October 25, 2012

Student Organization Urges Cornell to Divest Endowment From Fossil Fuels

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The University must divest — or remove investments from — the portion of its endowment in the fossil fuel industry by 2020, Kyoto NOW!, a student organization that advocates sustainability, is urging.

Although the University has set a goal of eliminating or offsetting all carbon emissions from the Ithaca campus by 2050, Kyoto NOW!’s petition asks that the University completely divest from fossil fuels by 2020. Additionally, the group is working on a Student Assembly resolution that calls on the University to reinvest 30 percent of the endowed funds previously invested in traditional energy to sustainable companies and renewable energy.

In its petition, the group said that its requests stemmed from a call “to uphold our commitment to creating a more sustainable world while fulfilling our fiduciary duty, and to responsibly direct our University in accordance with our mission and values.”

Anna-Lisa Castle ’14, co-president of Kyoto NOW!, said the University’s current investment strategy lends itself to an ideological conflict on Cornell’s campus.

“On the one hand, we’re working toward carbon neutrality on the physical campus, but we’re still profiting greatly from investing in companies that are not at all sustainable,” she said. “We believe that this is something that Cornell cares very deeply about and that we should do everything we can to make sure that our investment practices align with those ideals.”

Kyoto NOW! plans to pass its petition — along with a resolution — to the S.A. to urge the Board of Trustees to consider divesting its endowment from fossil fuels.

While Castle acknowledged that resources such as coal and oil can be financially rewarding investments, she cautioned against long-term investment in these industries.

“The fossil fuel industry is an industry that is based on non-renewable resources, which means that while these resources like oil [and] coal may become more valuable as they become more scarce, they will run out,” she said. “This is not a way to sustain Cornell.”

Prof. Mark Milstein, management and organizations, also said the topic of divestment highlights the University’s competing interests in business and environmental sustainability.

“Energy is cyclical, but recently, energy has performed extremely well as a sector . . . but [it] often consists of coal, oil and gas,” he said. “You’ve got an internal tension that exists there. They can be very good performing assets, but the underlying business that is responsible for that growth also contributes to an environmental and social problem.”

Milstein also said that divesting the endowment from certain companies is not a straightforward task because Cornell does not select individual companies in which to invest. Instead, the University contracts fund managers to build a profitable portfolio, he said.

“The investment office isn’t making decisions on every single investment,” he said. “They’re hiring out management of pieces of the endowment to other organizations.”

Still, in the past, students have successfully worked with the University to divest its endowment from certain companies. For instance, in response to the genocide in Darfur in 2006, Cornell halted investment in oil companies operating in Sudan, according to a University press release.

“The Student Assembly helped to . . . stop investing in companies that supported oppressive regimes,” Castle said. “It’s really important … that this is something that comes from students, is passed by students and we can work with the trustees to figure out how we can get Cornell on track to divest.”

But the challenge of divesting from energy companies is unique, according to Milstein. Instead of divesting from companies that do business in a geographic area, as with the Darfur campaign, divesting from the traditional energy sector would cut a profitable section of the economy out of Cornell’s portfolio, he said.

The problem is compounded by the fact that less diversified portfolios often perform poorly, as their risk is spread across a smaller number of areas, according to Milstein.

“Typically, when you pursue divestment strategies and screen out certain economic sectors, performance tends to degrade,” Milstein said. “If an investment office like Cornell were to, all of a sudden, go with that kind of a negative screen for social or environmental reasons, they’re going to have to look from a fiduciary responsibility standpoint and ask, ‘How are we going to make that up?’”

Before the Board of Trustees makes an official decision on the initiative, it must be approved by President David Skorton after clearing a vote in the Student Assembly, where the resolution accompanying the petition is currently seeking co-sponsors, according to members of the S.A.

“I fully believe the Student Assembly will take this resolution into great consideration and will determine exactly how the resolution will be worded, and whether it’s passed or not will be a matter of what they think is in the best interest of everyone at Cornell,” said Melissa Lukasiewicz ’14, the S.A.’s vice president of internal operations.

Student Trustee Alex Bores ’13 said that while he supports the general principles behind the petition, he wants to see more evaluations, including from the Board of Trustees’ investment committee, before solidifying his opinion on the matter.

“I would need to . . . see how much of our investments it actually affects, what the [practical] and real challenges are of changing it, and then I would evaluate it,” Bores said. “The intentions are good, but there are practical hurdles to this, just like anything else.”

Bores rejected the notion that companies could either be sustainable or profitable, but not both.

“I think [that] often those two things aren’t in conflict … Companies in general that play by the rules and do good things tend to do well,” he said.

Original Author: Byron Kittle