Chair, Gonzaga University Board of Trustees
502 E Boone Ave
Spokane, WA 99258
March 3, 2017
Dear Mr. Morris:
I am writing today to urge the Investment Committee to purse divestment from fossil fuels in the Gonzaga University endowment. The impacts of global warming are no longer a problem far in the horizon, but are looming above our heads. As a Catholic, Jesuit institution, we cannot ignore the ethical issues that exist with fossil fuel use. In keeping with the University’s Mission Statement, Gonzaga’s endowment cannot profit from the immoral system of fossil fuel use and production. As a student in the School of Business pursing Finance as well as a minor in Environmental Studies, I strongly believe that divestment a sound decision to make both ethically and economically.
Divestment is defined as realizing the market value of an asset by selling, liquidating, or exchanging it. As it relates to the Gonzaga University endowment, this would mean liquidating investments that are in the fossil fuel market. Typically, divestment asks that the portfolio managers liquidate stake in The Carbon Underground 200 Companies, which is updated annually by Fossil Free Indexes. To divest from these companies is in line with both the Catholic concern of The University and the financial goals for the long-term horizon.
Managing a university endowment is a serious matter, as it was reported that some schools with large endowments get about half of their operating budgets from income of the endowment’s funds. Understandably, the Investment Committee is committed to pursing a financial strategy that earns the highest yield possible. Due to the nature of an endowment, funds may be allocated to less efficient markets while still profiting in the long-run from these illiquid investments. In this position, The University may invest with social interests in mind and still reap rewards over time as society shifts to favor Environmental, Social, and Governance (ESG) concerns.
Socially Responsible Investing (SRI) is a movement of both private investors and institutions that seeks to combine financial and social interests; the Gonzaga University endowment would do well to also follow SRI motives. In a study by Miriam von Wallis and Christian Klein, it was concluded that SRI investment does pay. Whether comparing financial performance with the Jensen alpha, average return, or Tobin’s Q, to name a few, all returns calculated were positive for the multitude of portfolios studied. The Jensen alpha measures of risk-adjusted performance of a portfolio relation to the expected market return. Tobin’s Q is a ratio of the market value of a company’s assets in relation to the replacement cost of the company’s book value. Through the multitude of financial performance measures, the trend remains: SRI investment brings positive returns. Moving forward with divestment, I recommend following the Dow Jones Sustainability Index as well as the Domini Social Index, by KLD, to best identify benchmarks for investment returns. Additionally, when liquidating assets related to the fossil fuel industry, there are plenty of conventional buyers, so any concern over share price is irrelevant to the matter.
As I previously mentioned, ESG takes SRI principles one step further, factoring sustainability and ethical impact into the investment of a corporation. According to a report by the Forum for Sustainable and Responsible Investment, assets under management (AUM) in ESG investments are increasing in both number and type of options available across asset classes. Of course, short term investing in fossil fuels may bring great returns to a portfolio as the market shifts; but here lies a key point for Gonzaga University divestment: the endowment is a long-term, risk, adjusted entity. Long-term goals ought to be valued greater than year-to-year returns. In 2012, Deutsche Bank published a report on long-term value and performance of ESG investing. It was found that higher ESG ratings correlated with a lower cost of capital and a marker-based outperformance in 89% of the studies. Clearly, ESG investing does in fact pay off.
To divest is not only profitable, but also an ethical decision. The Mission Statement of The University states that Gonzaga fosters a mature commitment to dignity of the human person, social justice, diversity, intercultural competence, global engagement, solidarity with the poor and vulnerable, and care for the planet. Profiting from the fossil fuel industry only aids an immoral system, one that must be held accountable for the climate damages it has wrought. Although climate changes impact us all globally, it does a deep injustice to the poor; rising sea levels threaten food supply and livelihood of developing island nations. Impoverished populations, although contributing the least to climate change, feel the greatest affects; impoverished areas tend to lie where wet tropical regions will become wetter, and drought-prone areas will become drier. This threatens way of life, development of whole countries, and food availability, to name a few. The Mission Statement cites dignity of all humans, social justice, and solidarity with the poor and vulnerable in addition to stewardship for the planet. To remain invested in fossil fuels is to go against University Mission. Divestment will help financial performance as well as the growth of a sustainable economy, which will in turn aid marginalized populations.
In the past, The University withdrew investments from companies engaged in South Africa during the Apartheid. Just as investing in the immoral system of the South African Apartheid government was wrong, so too is the investment in fossil fuels that harm our planet. At present, many others and myself are awaiting the summary of the endowment’s investments in “sin stocks.” Understanding the reach of The University’s financing is the first step in divestment. As I have explained above, divestment is a sound decision both ethically and financially. Returns on ESG investments are anticipated to only grow as the SRI space becomes part of standard portfolio management. The nature of an endowment fund affords the opportunity to take advantage of illiquid markets to maximize portfolio returns; the community of Gonzaga University stands to benefit from the choice to divest. I urge you to consider divestment of The University endowment, and to follow the mission of Gonzaga University, a Catholic and Jesuit institution, when considering financial choices. When considering my plea, I ask that you additionally send this information to the Chair of the Investment Committee, Chair of the Board of Regents, and President of the University and share it with your constituents.
[This student has asked to be anonymous for the purposes of posting to this blog, but will send it with attribution to the Board. I can relay comments to the author directly, if you post them in the comments section below.]
 “What is divestment?.” BusinessDictionary.com. Accessed February 23, 2017. http://www.businessdictionary.com/definition/divestment.html.
 Lorin, Janet. “University Endowments.” Bloomberg.com. January 31, 2017. Accessed February 23, 2017. https://www.bloomberg.com/quicktake/university-endowments.
 Miriam von Wallis & Christian Klein. “Ethical requirement and financial interest: a literature review on socially responsible investing,” Business Research (2015) 8: 61.
 Report on US Sustainable, Responsible and Impact Investing Trends 2014. The Forum for Sustainable and Responsible Investment, 2014. Accessed February 23, 2017. http://www.ussif.org/Files/Publications/SIF_Trends_14.F.ES.pdf.
 Sustainable Investing: Establishing Long-Term Value and Performance. Deutsche Bank Group. Accessed February 23, 2017. https://institutional.deutscheam.com/content/_media/Sustainable_Investing_2012.pdf.
 “Gonzaga University, Spokane Washington.” Gonzaga University. Accessed February 23, 2017. http://www.gonzaga.edu/about/Mission/MissionStatement.asp.
Runger, Cindy. “Gonzaga must stop its contribution to South Africa’s racism, repression.” The Gonzaga Bulletin [Spokane] 20 October 1989. Divestment @ Gonzaga. Web. Accessed 3 March 2017.