OCS hosts seminar to discuss peer institution approaches to divestment

The Office of Climate and Sustainability hosted the eighth installment in its “Investing for Mission-Driven Institutions” seminar series Tuesday, centered around approaches to divestment employed by Duke’s peer institutions.

Community members gathered in the Holsti-Anderson Family Assembly Room for the discussion, which featured insights from two partners at the global investment firm Cambridge Associates — Tom Mitchell, partner for the endowment & foundation practice, and Tracy Filosa, managing director and head of Cambridge Associates Institute. CA is one of the leading advisory organizations to university endowments and similar institutional investors.

“We were sort of at the forefront of dealing with fossil fuel divestment when it first became a really organized social movement in the early part of the last decade,” Mitchell said.

The divestment debate at Duke has been long-running, beginning in 2013 when student group Divest Duke, now Duke Climate Coalition, first mobilized around the issue. Since then, it has worked consistently to persuade the Duke University Management Company (DUMAC) to divest the University’s endowment from fossil fuels.

The issue has picked up steam this year, with a number of DCC-organized protests and the release of the Advisory Committee on Investment Responsibility’s February report recommending the University to not pursue divestment. Mitchell and Filosa provided insights on a number of the most contentious points, drawing on their experience working with many of Duke’s peer institutions.

Mitchell noted that nearly all of Duke’s peer institutions — identified as universities with endowments over $1 billion — have engaged in divestment activity to some degree.

Mitchell pointed to most of the schools in the Ivy League, schools in the University of California system, Georgetown, the University of Oxford and the University of Cambridge as just a few of the elite institutions that have followed this practice. He clarified that while Princeton University, Arizona State University and the University of Michigan do not have explicit divestment policies, they have made net-zero commitments regarding their endowments.

CA released a “Fossil Fuel Divestment Discussion” report in 2014 breaking down the major arguments in support of divestment and the possible approaches institutions can take, which has served as a critical resource for universities considering divestment.

According to results from the 2022 version of CA’s client survey, Mitchell noted that the most compelling argument in favor of divestment was its financial prudency in light of increasing climate risks and the move away from fossil fuels as part of the global energy transition. He explained that because university boards are charged with acting as fiduciaries, their ultimate priority in investment decisions is to ensure adequate financial returns.

“We believe as a firm that there are risks related to climate change that will affect all portfolios, irrespective of whether you divest,” Mitchell said. “There’s a greater awareness and a higher level of climate competency that I think is a baseline requirement for all investors.”

Mitchell went on to say that the second and third most influential arguments in favor of divestment were environmental or social reasons and stakeholder satisfaction.

One significant barrier to pursuing divestment strategies at Duke that has come up in previous seminar discussions is the fact that the majority of the University’s endowment is managed using a fund of funds model, meaning that DUMAC does not directly control where funds are invested but instead entrusts those decisions with external portfolio managers.

Filosa noted that endowment management firms must engage in the “due diligence of really finding those managers that are delivering” on values-based priorities. She also said that universities should include language in their investment management policies that explicitly states what their institutional values are in order to ensure that outside fund managers are actually prioritizing such criteria in their investment decisions.

Filosa acknowledged that managing such a large collection of funds creates additional layers of difficulty in tracking where everything is invested, but maintained that she doesn’t think “that absolves an endowment from understanding what [holdings they] own to some extent,” Filosa said.

“Just because a manager has an ESG policy doesn’t mean they’re smart or thoughtful about ESG,” Mitchell said. “We try to unpack that in [our] relationships dealing with managers … understanding how they integrate material factors related to Environment, Social and Governance issues into their policy.”

Both Mitchell and Filosa agreed that grappling with limited transparency surrounding where university endowments are actually being invested can be difficult, though Mitchell expressed that portfolio manager transparency has improved over the past decade. He added that creating consistent definitions of what institutions mean by “divestment” and using standardized metrics for measuring endowment sustainability can accelerate the process.

“It’s become a headache to try and create a clear, comparable picture of [climate] costs,” Mitchell said. “I think we’ll get there — I think that’s where we’re moving.”

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