Yale Daily News

Following the faculty senate meeting on divestment, Chief Investment Officer David Swensen defended Yale’s guidelines for ethical investing in a post addressed to the Yale community.

Breaking the Yale Investments Office’s long silence on the issue, Swensen’s update followed an unprecedented Thursday FAS Senate meeting, which welcomed Swensen and several activists from the Endowment Justice Coalition to speak to the senators. In the update, Swensen explained how the YIO works with external money managers to navigate both the financial and environmental implications of each investment. Building on a similar update from 2016, Swensen also shared changes that his office has made to Yale’s portfolio, including dropping investments that did not adhere to Yale’s guidelines for ethical investor policy, though he did not explicitly mention the term “divestment.”

“Yale’s investment policy regarding climate change reduces portfolio risk and supports our fiduciary responsibility — to provide substantial, stable financial support for current and future scholars through the prudent management of Yale’s Endowment,” Swensen wrote in the update. “This support enables Yale to pursue its mission and to contribute to climate change solutions through its greatest areas of strength: research, scholarship and education.”

Since 2016 — when Swensen last updated the Yale community on the YIO website — Yale has exited multiple public positions and liquidated investments that did not fit into its ethical investing policy, according to the update. According to Swensen, Yale’s exposure to thermal coal and oil sands has declined to about 0.02 percent of the endowment’s current market value since 2014. As of June 30, Yale’s endowment was worth $30.3 billion. And while private investments take much longer to remove from the portfolio than public holdings, Swensen wrote that the YIO is making progress.

“Although the process has been slower than we would have liked, the good news is that the remaining thermal coal private investments are on the way out of the portfolio,” Swensen wrote.

Historically, the YIO has declined to share information about its investment practices. Still, Swensen told the News that when he met with members of one of Yale’s sustainability committees — which include Vice President for Facilities and Campus Development John Bollier and Dean of the School of Forestry and Environmental Science Indy Burke — those members seemed to have limited information on the YIO.

As a result, Swensen said, those committee members suggested to University President Peter Salovey that both the level and frequency of communication about Yale’s investments be increased. According to Swensen, that conversation occurred independently of the November protest.

Salovey did not immediately respond to comment Thursday night.

In an interview with the News before Thursday’s FAS Senate meeting, Swensen explained his plans for the meeting. Namely, he said that he aimed to detail Yale’s investment policies and describe what he perceives as flaws in common divestment arguments.

Many of these arguments involve a demand that universities pull their holdings from companies involved in the exploration or extraction of fossil fuels. According to Swensen, activists often fail to address the complexities of nonrenewable energy resources — which account for about 90 percent of United States energy consumption, per 2018 data from the U.S. Energy Information Administration. Petroleum, natural gas and coal account for about 80 percent of all consumption. Nuclear power makes up 10 percent, and renewable energy sources account for the other 10 percent.

Instead of preventing companies from exploring new sources of fossil fuels, he said, the focus should fall instead upon the types of energy that are prioritized. According to Swensen, completely halting exploration and development of fossil fuels would cause a significant drop in oil and gas production in the United States within one year. As a result, those losses would translate to a greater emphasis on coal, which Swensen said produces more emissions than oil or gas.

“If you just produced from existing wells, and you didn’t explore … and you didn’t drill new wells to exploit what you’ve got, the production would go down by 25 to 30 percent for gas and for oil,” Swensen told the News. “And so that means that you’re going to end up favoring coal, relative to gas and oil. Why would you do that? That’s perverse. It actually makes things worse. It’s not a very thoughtful demand.”

Another pitfall of divestment arguments is that they tend to lump together all of these fossil fuels into the same category, Swensen added.

“One of the problems is that this demand is put out there without any analysis, without any support,” Swensen said. “There should be a white paper that explains why stopping exploration and development of existing reserves is going to make the climate crisis less severe.”

In an interview with the News, EJC member Ben Levin ’20 described the Thursday update as a positive reframing of a 2014 update, in which the University first outlined its policies for ethical investment with regards to greenhouse gas emissions.

“It shows that Swensen believes that he’s on the right side of this,” Levin said. “It shows that the pressure that our movement has built is forcing the University administration to justify itself, which is a positive sign. But it’s going to take even more pressure, which we’ll keep building up, to win.”

Swensen’s statement on the YIO website echoed the University’s statement from November — following the protest at the Harvard-Yale Game — that emphasized scholarship as Yale’s greatest weapon against the climate crisis. The update also gave greater detail to how the YIO vets its investments — information that has not been widely disseminated until now.

According to the update, YIO staff regularly discuss the relationship between their investments and climate change with their external managers, who oversee the majority of Yale’s endowment. Yale’s external managers have also conducted “environmental, social and governance” screens of those investments, employed “state of the art energy audits and developed their own carbon pricing analytics.”

Swensen also included examples in which these practices were applied. In one instance, he wrote, one manager reached out to the YIO while considering an investment in the oil sands industry. After speaking with YIO staff about the potential climate change risks, the manager elected against that particular investment.

Debate surrounding divestment has not been limited to fossil fuels in the past. In the 1980s, protests rocked campus as students demanded that the University divest from companies with dealings in South Africa, which at the time still conducted a policy of apartheid.

Still, Swensen told the News that the polemic around fossil fuels is different than that of previous divestment movements because now, a national organization — Fossil Free — dictates “that divestment is the goal, and that really limits conversation in a way that’s not productive.”

“I think the debate’s going to continue,” Swensen said.

The Yale Investments Office is located at 55 Whitney Ave.

Valerie Pavilonis | valerie.pavilonis@yale.edu

Correction, Feb. 22: A previous version of this article said that YIO members have conducted “environmental, social and governance” screens of certain investments. In fact, Yale’s external managers have conducted these screens. The article has been updated to reflect this.

  • Will Wilkin

    I am surprised and heartened by Mr. Swensen’s making a climate argument to rationalize lack of divestment in oil and gas exploration and production! Basically he says if we don’t fund continued oil and gas exploration and production then coal will rush in to replace declining petro production. Ultimately I find that argument absurd, since petro emissions are of course central to the climate change crisis. In fact, methane leaks are of such a scale that probably the large recent shift to gas has no positive GHG effect and might actually be worse than coal from a climate perspective (leaving particulate emissions aside for now). Not to mention that shift gives false comfort that “we’re improving” even as new gas infrastructure creates a longer lock-in period of continued worsening of the GHG levels. We will never mitigate climate change by continuing petro exploration and production!

    So why am I heartened at Mr. Swensen’s argument? Because he concedes climate change is a serious problem and even a criterion for investment decisions…so it can’t be long until the Yale community in large majority call him on this Emperor Wears No Clothes fact of petro=GHG emissions that he is still denying in practice while already conceding in words.

    • Nancy Morris

      That is not an accurate summary of Swensen’s argument against divestment.

  • Higherominous Bosh

    Disruplets?