Fossil Free Wellesley meets with Board of Trustees: Chief Investment Officer says divestment could cost the college $1.6 million

By EMILY WILLIAMS ’16

Staff Writer

Last Wednesday, 10 representatives from Fossil Free Wellesley (FFW) met with five members of the Board of Trustees, Vice President for Finance and Administration Ben Hammond, Chief Investment Officer Deborah Kuenstner and President Kim Bottomly to ask the board to divest from direct holdings in the largest 200 publicly traded fossil fuel companies within the next two years.

The proposal includes a five-year review period following the initial divestment to analyze the effects. After the first five years, FFW would ask the board to consider full divestment and remove all commingled shares that are tied to the fossil fuel industry.

The Board will continue to deliberate and expects to reach a decision in early spring 2014. FFW is hopeful that the meeting with the Board of Trustees will lead to a positive collaboration in the future.

“They all agree that climate change is a major problem that we will be facing in our lifetimes,” said Amelia McClure ’16, a core organizer of FFW and member of the research team.

Wellesley has invested approximately 0.5 percent of its endowment directly in fossil fuel companies. These are the shares that FFW hopes to target in the first two years of its divestment plan. Two percent of the endowment is invested in commingled shares including fossil fuel companies.

On Monday, Kuenstner spoke in front of College Government, stating that she is doubtful that divestment is the responsible approach for Wellesley.

“Based on my experience doing socially responsible investment…I do not think that divestment will be effective,” she said.

Because of the complexity of Wellesley’s investments, FFW cannot predict the precise effect full divestment will have on Wellesley’s finances, but members point to environmentally-friendly investment portfolios that have performed just as well in the S&P 500.

Additionally, other schools,  including Hampshire College, Unity College, Sterling College, College of the Atlantic and Green Mountain College, have withdrawn their investments in fossil fuel companies and claim no adverse effects on their returns.

“There have been schools with very small endowments that have divested,” McClure said. “It was very high risk for them to divest, and they haven’t had any bad consequences from that. That indicates that it is a feasible strategy for a school.”

However, according to Kuenstner, the minimal effect to these schools’ endowments is due to their being much less sizable and complex compared to Wellesley’s endowment.

“All the schools that have agreed to divest have very small endowments,” she said. “They certainly don’t get 40 percent of their revenues from the endowment [as Wellesley does].”

Many schools that have endowments of similar size and structure to Wellesley’s, including Brown University and Pomona College, have rejected divestment proposals.

Although Kuenstner agrees that climate change is an important consideration for the College, she fears that divestment will decrease the College’s returns from its endowment, meaning it will have to balance out its losses with further budget cuts.

Three private investment managers outside of the College handle the direct shares that Wellesley holds. Those managers in the last ten years have outperformed the market by about 1.75 percent a year. Because the manager chooses where to invest, Kuenstner says, Wellesley cannot dictate where investments are allocated without switching to a different—and most likely less profitable—manager.

“One of [the managers] has a portfolio that only owns about twenty stocks,” she said. “If you say to them of those twenty stocks we want these eighteen and not these two, that’s a big difference in what that portfolio looks like, and those managers will basically decline to take our business.”

According to Kuenstner, withdrawing from our current portfolios and reinvesting elsewhere would mean giving up a 1.75 percent return on six percent of Wellesley’s investments, which is roughly 1.6 million dollars.

“My role is to think of the endowment. And I think about all the alums who gave money to ensure there would be scholarship money and all the things that the endowments pay for,” Kuenstner said. “I can’t put my hand on my heart and say that this is what they want me to do, and that this is what they want the college to do.”

Kuenstner stated in front of College Government on Monday  that divestment would almost certainly have an effect on financial aid.

Members of FFW are skeptical about these predictions.

“We hope that the campus recognizes that there are many experts on this issue, not all of whom agree, and this prediction is not guaranteed,” McClure said.

FFW cites both theoretical studies and studies of schools with smaller endowments. Members of FFW say that divestment is not so much about returns as it is about making a statement.

“We can choose to profit off of this industry that’s really harming the world, or we can choose to divest and make a really strong statement that Wellesley doesn’t support these actions,” said Rosalie Sharp ’16, a core organizer of FFW and a member of the FFW research team.

If the board chooses to divest, FFW plans to research alternative investments which will earn the College a healthy return.

“I think a strong proposal for reinvestment could help the case for divestment,” McClure said.

However, Kuenstner is unsure that withdrawing the College’s investments in fossil fuel companies while continuing to earn the same profit is feasible.

“Honestly if I thought there was a way we could put this money somewhere and earn an equal return, I’d be more open to the idea of doing it. But I can’t really see a good way around it,” she said.

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