SCU Administrative positition

Subject: SCU Fossil-fuel Investments // FYI

Date: June 1st, 2015

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 ( 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” 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.
  1. 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.
  1. 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.


Michael Hindery, Vice President for Finance & Administration



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