Projects That Worked Series: Aligning University Investments with the Culture Movement

This next series will be focusing on advocacy that has worked in University and organization history. Sometimes it can be really difficult to visualize the start to end of a project, and the truth that it is different for every project. I know there has been a lot of incredible advocacy over the last several decades, but I wanted to share a couple specific examples of when UPUA has intersected with projects and how they happened.

The first project I will be featuring is “Aligning University Investments with the Culture Movement”. Over the last two decades, the world has seen a huge cultural shift to be focusing on issues such as sustainability, social impact, supporting marginalized communities, and more. This cultural shift has manifested itself in many ways across all levels of corporate, social, and educational leadership.

At Penn State specifically, we often think about sustainability as recycling, turning the lights off when we leave a room, using reusable water bottles, and getting food from the dining hall in Green-2-Go’s. When we expand the scope of sustainability beyond ourselves, we also think about switching Penn State vehicles to an entirely electric fleet, a University-wide composting initiative, or implementing solar panels. 

Both levels of this sustainability are extremely important, and to students, these levels usually feel the most tangible, immediately impactful, and influential on our daily lives. They might be smaller in scope (only influencing our campus or our individual lives), but they are very important because they integrate the culture and mindset of sustainability into each of our habits and values. We incorporate small practices to protect the environment into our daily life so that we grow to be sustainably-minded leaders of businesses and institutions when our decisions have even more impact.

Those decisions made at the highest level of company and institutional leadership are usually very broad and strategic; their levels of impact are sometimes abstract and might not affect the daily lives of constituents. But long-term, they can have a huge impact on large-scale unsustainable practices. 

UPUA thinks about sustainability across all of those levels because they are all extremely important.

About three years ago, members of UPUA began to challenge the decisions at the highest University levels relating to sustainability. Students wanted to see more transparency and a commitment to sustainability from the Penn State Investment Council (PSIC), who manages the University endowment.

Quick Crash Course on the University Endowment and PSIC:

The endowment is part of Penn State’s long-term investment pool (LTIP), which also includes non-endowed funds (NEF). The endowment is invested in a commingled fund of assets that is broadly diversified among stocks, bonds, venture capital, private equity, hedge funds, and real estate. The endowment consists of permanent endowment funds, which come from donor gifts that can never be spent, and quasi-endowments created by the University with unrestricted funds. Many quasi-endowments were created as matching funds to incentivize donor gifts and must be used for the same restricted purposes as the donor gifts.

Permanent endowment principal must exist in perpetuity and can never be spent. Annually the Penn State Investment Council recommends an endowment spending distribution to the Penn State Board of Trustees. The current endowment spending rate is 5%. The spending rate is multiplied by the previous 20-quarter average market value of the endowment to generate a gross annual spending distribution which primarily goes to donor restricted purposes, like financial aid and endowed professorships. 

Penn State’s endowment market value was valued at about $4.45 billion as of 6/30/2022.

The Office of Investment Management (OIM) oversees the day-to-day management and administration of University investment funds. OIM submits policies and practices as appropriate for achieving investment and spending objectives to the Penn State Investment Council (PSIC) and Board of Trustees for their approval.

The membership of the Penn State Investment Council can be found here. The Chair of the PSIC is Sara Thorndike. The PSIC is authorized to administer the spending and Long-Term Investment Pool (LTIP) policies. Non-Endowed Funds (NEF) should be invested to provide liquidity for working capital over the annual operating cycle of the University.

Sources
Investment Management Reports
President’s Report on Endowments and Philanthropy
Investment Management
P&I Article on Endowment
Board of Trustees Investment Council Establishment Resolution

UPUA pushed for the PSIC to consider divesting from fossil fuel investments. “Fossil fuels” refer to coal, petroleum, natural gas, oil shales, bitumens, tar sands, and heavy oils, and they are non-renewable resources. Companies burn fossil fuels “to generate electricity, and to power transportation (for example, cars and planes) and industrial processes.” The burning of fossil fuels is extremely harmful to the earth because it emits greenhouse gasses (CO2 and NO2) that increase the greenhouse effect and raises average temperatures on Earth, the process releases pollutants that are harmful to take in, increasing the acidity of precipitation, and more. (Source)

The fossil fuel industry is huge and dominates a large part of the world’s economy. Exxonmobil is one of the largest companies in the world, and almost “nearly every foundation and academic endowment invested in fossil fuels”. (Source) At first, when the sustainability movement proposed divestment from fossil fuels, it seemed like a relatively large ask, but it has turned into a $40.51 trillion movement. (Source) The goal with divesting is that eventually these companies will no longer be a viable industry. Also, people want to stigmatize fossil fuels and large-scale unsustainable practices. Universities like Harvard, Brown, Oregon State, Syracuse, Stanford, and many more have made these commitments already.

Because of this movement, UPUA advocated for Penn State to divest from fossil fuels. We didn’t do it perfectly at first though. We didn’t know who managed the endowment and its investments, so a lot of advocacy was directed at the University President’s Council (administration), who really didn’t have much leverage on this topic. After conversation with the Senior Vice President of Finance & Business, we learned about the Penn State Investment Council (PSIC) and their purview. The problem with that is that it was hard to demonstrate that this really is a big enough issue that it deserved enough weight to truly impact more than $4 billion of investments.

To demonstrate student desire to see this happen, UPUA conducted a public referendum for the student body to give a yes or no answer on: “Penn State should (1) commit to divestment from its long-term holdings in fossil fuel asset classes as quickly as possible; (2) release information about its current holdings in fossil fuels; and (3) publicly comment on the proposed divestiture.” (Source: Resolution #01-16: Supporting the Fossil Fuel Divestment Student Referendum Results and the Penn State Climate Action Petition) The UPUA Elections Commissioners counted 3307 total student votes. Of this, 2961 students (90%) agreed with the referendum question, while 288 students disagreed; 58 opted to skip the question. (Source) This advocacy was continued in partnership with the Association of Big Ten Schools (ABTS) as all Big Ten schools pushed for divestment across the Big Ten. (Source)

The PSIC shared regularly that sustainable considerations were always a part of their decision-making processes when it came to investments. There are limitations to what they can share about their investment decisions, however, which meant that accountability was difficult to implement. This year, several trustees worked together with Sara Thorndike, current Senior Vice President of Finance & Business, to brainstorm a way for language to be introduced that would affirm Penn State and specifically the PSIC’s commitment to environmental and social considerations. 

The language would have to be approved by the Board of Trustees, and it was important to keep in mind that any language that is too strict or too authoritarian would likely be rejected by some trustees. Many people believe that the biggest thing the PSIC should be considering when investing millions of dollars is what will yield the greatest returns to our overall University budget. At a land-grant institution like Penn State, where affordability of the University is an essential consideration, that argument makes a lot of sense. Other groups feel strongly that you do not have to compromise great returns on investments by divesting from fossil fuels. But in anticipation of hesitancies from trustees who highly prioritized investment returns, it was important to get the language just right.

On Friday, February 17, the full board passed the following resolution pertaining to the PSIC with a majority vote:

“To acknowledge and reaffirm the University’s existing practices with its ongoing and future investment policies and strategies, the University's funds will be invested to achieve maximum return with an acceptable degree of risk. Within the context of its fiduciary responsibilities, PSIC may continue to take social and environmental considerations into account in the administration  of the University’s investments.”

That wording might seem vague, but it is absolutely a huge win for students and the rest of the Penn State community. This language does not require divestment from fossil fuels, and there is still work to be done. But this language affirms Penn State’s commitment to work in that direction and takes the first step in a cultural shift at Penn State.