Issue Areas

Dear Colleagues,

In April 2014, a group of students organized as Fossil Free SCU (FF SCU) asked the University to examine its $850 million endowment investments to identify holdings in companies engaged in activities related to fossil-fuel extraction. The group asked that the University cease investment in “fossil-fuel extraction companies” and divest any directly or indirectly owned shares of fossil-fuel-related public companies within five years in an effort to exert influence on companies deemed to be contributing to damaging climate-change trends. A copy of FF SCU’s letter is attached.

This request provided the catalyst for a yearlong series of meetings between FF SCU students, the Investment Office, the Socially Responsible Investment (SRI) Subcommittee of the Trustee Investment Committee, and SCU investment managers.  The discussions have involved respectful agreement and disagreement, as part of an important and appropriate dialogue for us to have, involving, as it does, our campus-wide mission and values. 

Recognizing that this issue is of interest to the entire SCU community, I am writing to share with you the outcome of these discussions and our response to FF SCU.

Over the course of our interactions with FF SCU, we have found them to be thoughtful advocates, serious in their desire to leverage the power of Santa Clara’s endowment portfolio to influence the worldwide effort to keep the rise in global surface temperatures below 2 degrees Celsius.

While this letter will address the Investment Committee’s decision regarding divestment at this time, the University -- led by President Engh -- plans a campus-wide conference in November 2015 on issues arising from the Pope’s upcoming encyclical, expected this summer, on climate change and the common good. The conference will include speakers on facets of the moral, economic, and ethical issues surrounding climate change.  The conveners of the series will include the three Centers of Distinction --- the Ignatian Center for Jesuit Education, the Markkula Center for Applied Ethics and the Miller Center for Social Entrepreneurship – as well as Santa Clara faculty, our Center for Sustainability, and student groups.  More information on this conference will be released by the organizing committee headed by David DeCosse of the Markkula Center.

Throughout the past year’s discussions, we have sought areas of common ground with FF SCU on the important topics of the environment, climate change and responsible financial stewardship.   Investment Office staff reviewed all of the materials submitted by FF SCU and performed extensive due diligence on the issue, including: gathering over 700 pages of research and commentary from both sides of the debate; a 2014 assessment of SCU’s socially responsible investing language; hosting two 60-minute meetings between students and the SRI Subcommittee; and other sessions with FF SCU students, faculty and senior administrators. 

I am very grateful to John Kerrigan and Tony Nguyen, the University’s Chief Investment Officer and Investment Director, respectively, for their deliberate, considerate, generous and thoughtful leadership in these meetings and discussions.   

We also involved the students in meetings with managing-director-level professionals at The Carlyle Group and BlackRock, two significant portfolio managers subcontracted to SCU, to shed light on how such investors factor in and monitor environmental, social and governance criteria for current and prospective investments. The Carlyle Group meeting included a former senior official of the Environmental Protection Agency and Environmental Defense Fund.   The BlackRock session reviewed a global renewables fund (e.g., wind, solar, hydro), an investment that the Investment Office is considering.

While we understand and respect the sincere concerns of FF SCU, we believe that it is the University’s responsibility to strike the right balance between adhering to our socially responsible investing guidelines and achieving optimal, risk-adjusted returns, while also maintaining a keen focus on emerging issues around sustainability. 

As a University, SCU has made tremendous strides in environmental sustainability by making sustainability and climate issues a high priority, including the planned symposium as well as:

• Committing the University to achieving climate neutrality (or zero net carbon emissions) by 2020;
• Making sustainability a prominent and integral part of campus academic and social life; and
• Investing in LEED-certified buildings and in alternative-energy generation equipment such as solar and wind.

After careful consideration, the Investment Committee has decided to maintain the University’s current approach to investing, including in the energy sector.  We believe that our approach respects our current ethical and investment principles while fulfilling our fiduciary responsibilities.  The Investment Committee does not believe at this time that selling any or all holdings within the University’s endowment that are deemed to support fossil-fuel extraction would clearly serve the purpose of either slowing the production or use of fossil-fuel created energy or encouraging the production of alternative energy sources.  This perspective is supported by the fact that, at this time, only a limited number of universities have opted to divest completely from fossil-fuel-oriented companies.  Unlike the days of apartheid and its associated divestment movement, no consensus on the wisdom and efficacy of fossil-fuel divestment has been reached, even among faith-driven institutions such as SCU. 

The Investment Committee reached its conclusions after a review of the endowment fund’s compliance with its SRI guidelines.  SCU’s investment policy includes “respect and preservation of the environment” among its five core socially responsible investment principles, and the Socially Responsible Investing Subcommittee is tasked with considering these issues as they arise.

The SRI Subcommittee and the broader Investment Committee concluded that, on the whole, our current investment strategy is not in conflict with SCU’s mission to be an environmental steward.  The endowment fund serves as a vital source of student scholarships, endowed professorships, and University resources that ensure the long-term viability of the University. Making the drastic changes advocated by FF SCU would not be a fiscally responsible course of action.

I want to make clear what the University’s positions are in this important matter.

Direct Ownership:

• The SCU endowment’s direct ownership portfolio is already positioned consistently with our SRI principles and with FF SCU’s request: SCU’s endowment contains no direct investments in any of the top 200 fossil fuel extraction companies as listed by the Carbon Tracker Initiative (http://www.carbontracker.org/wp-content/uploads/2014/05/New-Brochure-4-CTI-web.pdf) and the University has no plans to initiate direct investments in these sectors.

Commingled Funds:

• SCU’s only investments in fossil fuel extraction companies are contained in third-party managed funds. Within these commingled funds, no individual investor can liquidate underlying securities or mandate that certain holdings – such as the 200 in the Carbon Tracker Initiative at issue in the FF SCU request -- be screened out. 
• SCU’s holds almost no coal-related investments in our diversified commingled funds.  Coal represents a de minimis portion of our portfolio – less than one-half of one percent.
• The array of fund choices that would be available to SCU if we chose to withdraw from every fund investing in companies or activities proscribed by FF SCU would leave us in an irresponsibly un-diversified and financially unsound position.  We have determined that the financial erosion would do far more harm to the University and its overarching mission – including its ability to champion environmental stewardship, carbon-footprint reduction, and environmental justice – than any hoped-for benefit from such divestment.
• It would be prohibitively costly for SCU to sell shares in funds holding securities of the 200 companies FF SCU has identified and replace them with other investments.  We engaged the services of consulting firm Cambridge Associates to analyze the cost of shedding and replacing all funds which invest in the 200 companies that FF SCU says are objectionable.  Cambridge’s estimate of the potential return impact from restricting the asset classes available, as well as reduced opportunities for manager outperformance, is 110 basis points – over $8 million – annually.  Their analysis did not include the potential transaction costs of redeeming private capital investments.

We have decided to take several constructive actions to further advance our progress toward our ethical, socially responsible and financial goals.  We believe that it is appropriate to seek discrete opportunities that help advance SCU’s mission and values while also meeting our standards for responsible and prudent investing.  Some new steps we have therefore decided to take include:

New Investments:

1. A minimum $5 million seed investment in the Catholic Endowment Fund (“CEF” www.catholicinvest.org) that meets the socially responsible investing criteria (including protecting the environment) of the United States Conference of Catholic Bishops (“USCCB”). The CEF was recently launched to enable smaller endowments and religiously affiliated organizations to invest in a diverse, high-quality portfolio that is managed in harmony with their SRI principles. SCU’s investment will help nurture the fund and make its socially responsible investments available to more institutions.

2. Increase our investments and commitments in funds that are focused on sustainability and renewable sources of energy by $5 million to $10 million over the next six to 12 months.

3. Provide funding to on-campus “green” revolving investment vehicles that will invest in sustainability innovations.  As recommended by the Sustainable Endowments Institute’s Billion Dollar Green Challenge, energy savings from ideas created from the fund could be reinvested to foster further innovations.  Our initial allocation to these innovations will be $250,000.   We will create a committee that includes representation from faculty, students and staff to manage these vehicles. Students will be engaged both to innovate and to participate in the selection process of the projects that will receive funding.

We appreciate the sincere and responsible efforts by FF SCU to raise the issue of environmental sustainability on campus.  The University continues to incorporate best practices in this important area and will examine them in future meetings when appropriate.

In the immediate future, Fr. Engh has initiated further discussions brought about by these students' inquiry and passionate activism. Look for more information about the upcoming planned conference in November about the complex topic of climate change, fossil fuels, and our responsibilities as individuals, global community members, and a Jesuit Catholic institution of higher education.

Please contact me if you have any questions or comments.

Sincerely,

Michael Hindery

Dear Students, Faculty, Staff, Alumni, and other members of the Santa Clara University community,

In June of 2015, Michael Hindery, SCU’s Vice President for Finance & Administration, sent an email to all campus affiliates on the topic of fossil fuel divestment. This letter, which has been attached to this email for reference, formally laid out the administration’s stance on the issue for the first time.

For the past two and a half years, Fossil Free SCU has advocated for the immediate cessation of new investments in fossil fuel extraction companies and complete divestment from these corporations within five years. The fossil fuel industry perpetuates an oppressive system that marginalizes the poor and disenfranchised communities our Jesuit values call us to protect. To fund this extractive economy is to perpetuate an unjust world in order to profit from the wreckage. In our many meetings with members of the Board of Trustees, Michael Hindery, President Michael Engh, CIO John Kerrigan and others, Fossil Free SCU members voiced their wide range of concerns in financially supporting the companies that contribute most to climate change.

The Administration’s current response to our call to divest, summarized from the letter, is as follows:

• Continuation of all current and future fossil fuel investments with no reduction commitments.
• A minimum $5 million investment in the Catholic Endowment Fund.
• $5-10 million investment in funds focused on sustainability and renewable energy sources, such as the recent Shared-X investment.
• Introduction of the Campus Sustainability Investment Fund.

While we support the new, sustainable investments, the University’s decision to not divest is unacceptable. In the following paragraphs, we respond to this decision.

A large part of the University’s decision rests on the fact that all of SCU’s fossil fuel investments are in commingled funds (no direct investments). The administration has maintained that individual investors cannot mandate that certain holdings be screened out of these funds. However, the University’s Socially Responsible Investment Guidelines already establishes a list of companies and industries to avoid, including those repeatedly cited for gross ecological violations or for harming human life. For this reason, we divested from South African Apartheid decades ago and Massey Energy in 2009. The fossil fuel industry, just like the focuses of past successful divestment efforts, violates many of the University’s preexisting socially responsible criteria. Therefore, it should already be excluded under our current investment policy. If we trust the Administration’s assertion that our commingled funds do not include any investments that violate our socially responsible criteria, implying they can sufficiently influence the composition of funds, why can’t fossil fuel extraction companies be included in our investment screens?

While fossil fuels are an undeniably lucrative short-term investment, they are also a stranded asset, meaning that they are overvalued in the long-term. In the near future, fossil fuels will be succeeded by renewable energies - the definition of fiscally unsustainable. Fossil fuel investments carry risk, as well. Take the recent example of Shell Oil, who after abandoning their plans for drilling in the Arctic lost billions of dollars. For reinvestment, Fossil Free SCUadvocates for companies that have sustainable business plans, like renewable energies. In contrast to their oil, gas and coal counterparts, wind and solar returns are increasing at a growing rate, a highly profitable opportunity. We also strive to reinvest in funds that support cooperative, local, “living economies”, which helps to transition to a more just and democratic society.

This past November, SCU hosted “Our Future on a Shared Planet: Silicon Valley in Conversation with the Environmental Teachings of Pope Francis”, a conference focusing on the recent papal encyclical Laudato Si. The conference’s final panel (video recording available here) focused on the encyclical’s implications for Santa Clara’s mission, community, and social responsibility. The speakers discussed how a rapidly growing portion of the human family is being displaced by the negative consequences of climate change: sea level rise and flooding of ancestral lands, drought and resulting crop failure, and, as seen in southwest Asia, political instability and the rise of global terrorism. Climate refugees, and most people in the developing world, often do not have the resources or time to advocate for environmental justice. Consequently, as privileged members of the Western world, and as part of a wealthy, predominantly white Catholic institution, it is our duty to mitigate the effects of climate change for which we are most responsible. Santa Clara needs to show that it cares about the plight of our impoverished brothers and sisters when it actually matters, not only when it is fiscally convenient to do so. In this case, that action is to divest.

In agreement with the Administrative letter, the University has done well in campus sustainability. Our STARS report (Sustainability Tracking, Assessment and Rating System) is higher than many other schools in the nation. Yet, under the “Investment” category, we score a miniscule 0.76 points out of 7.0 points possible, a significant loss. Unfortunately, the University’s action on sustainability does not currently extend the boundaries of our campus to encompass the wider community of which we are a part. We are not a leader in climate neutrality, nor in sustainable practice, until we begin to take necessary progressive action like divestment. In the words of Fr. Jack Treacy, SCU must take that lead and become a “prophetic University” once again.

Divestment from fossil fuels is a critical step in curbing irreversible damage to our planet, and showing through action, rather than through words alone, that Santa Clara University does not support the morals and practices of these corporations. By divesting, SCU will create an avenue for long term financial stability, return to its core values, and finally take its place as a leader among Jesuit universities in sustainable action and social justice. As Pope Francis writes, “Human beings, while capable of the worst, are also capable of rising above themselves, choosing again what is good, and making a new start.” It is time for Santa Clara University to begin that start.

Sincerely,

Fossil Free SCU, a joint campaign by SCCAP’s BLEJIT program and the student-run GREEN Club. 

Dear Members of Fossil Free SCU:

I am writing in response to your January 11, 2016 email to Santa Clara University students, faculty, staff, alumni and other members of the SCU community.  Your email reiterated the request that you made to the SCU administration in April 2014: “the immediate cessation of new investments in fossil fuel extraction companies and complete divestment from these corporations within five years.”

In response to your April 2014 request, the administration met with you nine times from April 2014 through May 2015 to discuss your request.  On June 1, 2015, I issued a written response to you that we shared with the entire SCU community.  In that response, I stated that SCU has no direct investments in any of the top 200 fossil fuel extraction companies and has no plans to initiate direct investments in these companies.   SCU’s position in this regard is among the most socially responsible of all colleges and universities in the United States.  

I also stated that the University would make direct investments over the next 12 months of at least $15 million in funds focused on sustainability and renewable sources of energy.  In addition, we would establish a $250,000 fund for investing in on-campus “green” initiatives and ideas.  As of January 2016, we have made commitments in excess of $10 million, and the $250,000 fund is in place and will receive the first round of project proposals later this month. Again, these actions make SCU among the most proactive in the United States. 

The University’s administration and Trustees took very seriously your April 2014 proposal. We met with FF SCU at length to discuss the issues, options and impacts. We engaged outside resources to assist us with our analysis of the issues, and we kept you informed of this work at our periodic meetings. One of the extremely important things we determined is that the cost to the University of complying with your request for complete divestment would be more than $8 million annually in endowment earnings. As context, our endowment currently provides approximately $32 million annually to support student financial aid, faculty compensation and research, academic programs, and athletics. Consistent with our Socially Responsible Investment Policy and with our commitment to Jesuit values and ideals, we determined that divestment of commingled funds was not in SCU’s best interests. 

We have recently reviewed the fossil fuel investment positions of the other leading Jesuit and Catholic colleges and universities and learned that none of them have completely divested of fossil fuel companies.  The University of Dayton is the only known Catholic university to commit to full divestment.  We’ve been unable to identify another college or university in the United States with an endowment of more than $100 million who has made a decision to divest completely as you advocate. Some colleges and universities have recently announced decisions to divest of direct investments in coal companies or other fossil fuel extraction companies. As noted in my June 1, 2015 email, SCU already is in this position ahead of many others.

Your January 11, 2016 email raises a number of points. However, it does not introduce new data or arguments from those that we explored with you during our 14-month engagement preceding my June 1, 2015 letter.  You state that SCU’s ultimate decision not to divest is “unacceptable.” However, those responsible for managing and overseeing the University’s endowment arrived at this decision last May only after extensive deliberations and thoughtful reflection on the University’s Socially Responsible Investment Policy and our Jesuit values.

In another email of January 20, 2016, FF SCU sent a message to SCU alumni reframing the discussion. You raised demands and asked SCU alumni to “halt all donations and gifts to the University until fossil fuel divestment is agreed upon.”  In that email, you shifted the conversation from thoughtful engagement and discourse to making “demands” and staging a philanthropic boycott. I was pleased with your subsequent actions withdrawing your position that alumni and friends stop contributing to SCU and apologizing for the email. The administration remains committed to respectful dialogue on this issue.

As you articulate, Santa Clara’s commitment to Jesuit values and practice of environmental and social justice are distinguishing characteristics of our identity. We are unwavering in our commitment to these core values.  In that spirit, we have engaged with you on this important issue. We remain open to continuing our dialogue with you and to consider any new information or relevant factors as they develop.  In response to your January 11, 2016 email, we affirm the decisions that we made last May.

While my June 1, 2015 email, your January 11, 2016 email, and this response were sent to the entire SCU community, in the future we will work with you directly and respond only to FF SCU in order to relieve the entire community of a steady stream of emails on this topic.

Sincerely,

Mike Hindery