NEW BRUNSWICK, NJ—A Rutgers University committee is tentatively scheduled to submit a report recommending whether or not to pull the university’s $80 million investments in the fossil fuel industry.
The latest development comes as students and environmental activists continue to pressure the University to make the change.
Now, the powerful Rutgers Board of Governors has announced a “special” remote meeting on March 9 at 11am to vote on changes to their investment policy, but school officials have not responded to questions about what exactly is proposed.
Divestment is the selling of financial assets to make a fiduciary, political, or social statement.
Historically, the goal of divestment has been to withdraw endorsement from organizations involved in unethical behavior. In recent years, many institutions strategically divest from fossil fuels to affirm their moral stance on climate change.
Burning fossil fuels releases carbon dioxide into the atmosphere, increasing greenhouse gas concentrations, thus warming the planet.
Warming that exceeds 1.5 degrees Celsius above pre-1800’s levels may magnify extreme weather events, increase flooding risks, and alter global ecosystems according to an International Panel on Climate Change (IPCC) Special Report.
Rutgers is one of over 300 universities across the country with an active fossil fuel divestment campaign galvanized by students and faculty demanding accountability and an ethical responsibility to not exploit natural resources.
As of June 30, 2019, Rutgers’ endowment had a total market value of over $1.36 billion and assets equivalent to $1.476 billion. The endowment serves as a permanent source of income for the University, outside of state funds and income from tuition.
Like most institutions of higher education, Rutgers’ endowment is primarily financed through charitable donations and is crucial for funding student aid, supporting research, attracting senior faculty, and maintaining physical infrastructure. Though most of the endowment remains untouched to accrue returns on investment, the JCOI has a spending policy of 4% each year, to fund programs for which the endowment was established.
These funds are invested in eight sectors—Public Equities, Private Equity, Real Estate, Opportunistic Credit, Hedge, Private, Cash, and Fixed Income—and the return provides 2% of Rutgers’ total revenues, according to the University.
Rutgers’ endowment is managed by the Rutgers University Investment Office, which is tasked with establishing and enacting allocation objectives, acquiring and observing outside investment managers, and adjusting the investment portfolio accordingly.
The Investment Office is ultimately supervised by the Rutgers Joint Committee on Investments (JCOI), the University’s fiduciary oversight body composed of four members each from the Rutgers Board of Governors and the Board of Trustees:
- Tilak Lal — Chair
- Mark Angelson
- William Best
- Gary Chropuvka
- Margaret Derrick
- Frank Hundley
- Robert Mortensen
- Richard Shindell
According to the Rutgers Climate Task Force Phase 2 Report, the greenhouse gas emissions associated with fossil fuel assets totals about 240,000 tons, representing a substantial portion of the University’s “Scope 3 emissions.”
Since Rutgers directly finances, but does not own or operate, the source of these emissions, the University’s investments are considered Scope 3 according to the Environmental Protection Agency (EPA).
Rutgers’ publicly available holdings statement shows that the University is currently investing nearly 6% of the endowment—or more than $47.8 million—in 19 fossil fuel exploration and extraction funds.
Endowment assets either fund fossil fuel companies directly or subsidize private equity firms specializing in the industry. For instance, Rutgers’ largest single investment in the fossil fuel sector—nearly $12.8 million—is split between two Merit Energy funds.
Merit Energy, one of the United States’ largest privately held oil and gas companies, owns and operates 13,500 wells that produce over 123,000 barrels of oil per day.
Although investments in organizations like Merit Energy demonstrate Rutgers’ direct relationship to the fossil fuel industry, assets in private equity firms are less clear cut.
While fossil fuel extraction companies currently dominate EnCap’s investment portfolio, the organization recently committed itself to an Energy Transition Strategy focused on increasing assets in renewable energy technologies such as solar and wind.
Even EnCap notes that in the next 20 years, U.S. energy generated by nuclear and fossil fuels is predicted to decline by over 30%, and renewable energy production is expected to grow by nearly 20%.
EnCap’s response to this trend is encapsulated on their website: “We believe this transition toward renewables and away from coal and nuclear presents exciting opportunities for the firm.”
In line with this mentality is the 2018 Institute for Energy Economics and Financial Analysis report “The Financial Case for Fossil Fuel Divestment,” which argues that the fossil fuel sector is shrinking financially and continued investment in the industry is risky.
Over the past five years, stock indices without oil and gas holdings have outperformed their identical counterparts that include fossil fuels, and returns from the oil and gas sectors are not expected to replicate past profits.
“When you do what Rutgers is doing, when you divest, you are taking away that lifeblood of money that is supporting and perpetuating the [fossil fuel] industry,” says Maya van Rossum, the Delaware Riverkeeper and founder of the Green Amendment Movement, a campaign to enact environmental rights amendments to state and federal Constitutions.
“That’s why what [Rutgers has] accomplished is so powerful and important. Inspiring others to do the same is going to be incredibly important to finding a way to control this industry and shut it down before it’s too late,” says van Rossum.
Student support has been crucial to advancing the call to divestment. In February 2020, the Rutgers Endowment Justice Collective, a coalition of organizations focused on ethical investment, submitted a 10-page report to the JCOI detailing why the University should divest from multiple industries, including fossil fuels.
In their response to the report, the chairman of the JCOI, and the Chief Financial Officer, J. Michael Gower, employed the official policy on divestment, created in 2015, for the first time in July 2020 by establishing an ad hoc Committee on Divestment led by Brian Ballentine, Senior Vice President for Strategy and Senior Advisor to the President.
“It’s a relatively new policy,” explained Ballentine. “While the University has taken a much more holistic view of aligning its mission and how it uses its resources, as far as divestment, this is the first time the policy has been taken in. One area where I am focused is making sure we can set a precedent that we can be really proud of, both from a community perspective and an intellectual perspective.”
Ballentine explained how the mission of the ad hoc Committee is to review the areas of assessment per the standards of Rutgers’ Investment Policy and advise the JCOI accordingly.
“The areas for assessment [of the divestment request] include: Is there clear consensus around this issue across the university; evidence that the university has taken steps already to begin divesting from a certain industry or moving away from it; and finally, whether or not the evidence looks like for the social injustice or social harm that is connected to the industry,” described Ballentine.
This investigation will reveal whether divestment aligns with University values and fiduciary responsibility, however, it will only be a recommendation: the decision to remove Rutgers’ holdings in fossil fuel companies ultimately lies with the JCOI.
But it’s unclear how the Board of Governors might change the policy at their March 9 meeting. Spokesperson Dory Devlin did not respond to inquiries from New Brunswick Today, and the Secretary of the Board has not yet released the text of the resolution on their agenda.
While the University only enacted an official policy on divestment in 2015, the call for ethical investment at Rutgers dates back to 1978 when the University divested from companies that did not comply with the Sullivan Principles, a list of requirements for South African corporations that demands equal treatment of races both inside and outside the workplace.
Although activists celebrated this initiative at the time, Rutgers reinvested in several companies claiming to be compliant within two years of divesting.
Angered by the reversion, students, faculty, and alumni joined forces to create the Rutgers Coalition for Divestment from the South African apartheid movement, which would ultimately push the University and the State of New Jersey to divest $6.4 million from businesses associated with apartheid.
Over the course of seven months, which culminated in Rutgers removing the entirety of their holdings from companies doing business in South Africa, the Coalition held sit-ins, rallies, a hunger strike, and the first national sleep-in for apartheid.
The movement gained traction, eventually reaching the ears of Reverend Jesse Jackson, a prominent Baptist minister and civil rights activist, who attended a rally held by the Coalition to show his support.
As the campaign became more publicized, Democratic elected officials, including Assemblyman Willie B. Brown, began pursuing legislation that would require New Jersey to divest from South Africa.
In 1985, the New Jersey State Legislature passed a bill that ceased $2 billion of pension fund investments in companies associated with apartheid, and Governor Thomas Kean signed it into law.
The power of divestment is still very real today. In May 2020, the University of California (UC) became the largest school system to divest from fossil fuels, selling off more than $1 billion in assets over the course of one year.
Following the divestment announcement, the UC’s lead investors noted their decision was based on “sound financial thinking,” and not necessarily political pressure or ideology.
This past fall, 90% of voters in Rutgers’ official undergraduate governing body—Rutgers University Student Assembly (RUSA)—supported a referendum to “divest” the University’s endowment from fossil fuels.
The referendum passed by an overwhelming majority of 3317 to 281 on October 2 in the largest turnout for a fall election in RUSA history.
Although successes like these affirm student support for Rutgers’ divestment from fossil fuels, much administrative work needs to be done.
“Looking at what the holdings are, in any sort of divestment analysis, understanding what the investments are and the nature of those investments and how those pertain to university finances is going to be the work of the committee. That is why it’s so important from a community perspective to have faculty members who are finance and corporate governance and corporate social responsibility, as well, to help really advise the board both on the social aspects and fiduciary responsibilities,” explained Ballentine.
The ad hoc Committee is composed of faculty, staff, and four students—one representative each from Rutgers New Brunswick, Rutgers Camden, Rutgers Newark and RUSA—all with equal influence and standing.
While the faculty and staff members were appointed based on experience and knowledge of corporate governance and corporate social responsibility, Ballentine looked to student governments to identify undergraduates who are active with climate action and equipped for committee responsibilities, including adhering to a research process that is rigorous, academic, fact-based, and supportive of University values.
The Committee published their official website on December 8, 2020 and deliberated throughout Rutgers’ winter recess.
Although much planning remains to be done, Ballentine remains optimistic about how the JCOI will respond to the ad hoc Committee’s work.
“We are fortunate at Rutgers to have a Board that is closely aligned with the university’s mission and is a strong supporter of our community,” said Ballentine. “You’re talking about people that are all former students of the university. In general, I think we have a terrific Board of Governors and Board of Trustees that shares our missions and our values.”
Editors Note: The authors of this article are part of the Rutgers-based group, Students for Environmental Awareness, one of the members of the coalition advocating for Rutgers to divest from the fossil fuel industry.