Tim Buckley, the CEO of asset manager Vanguard, recently came out in support of his firm’s choice to not subscribe to environmental, social and governance investing. “Mr. Buckley … knows that Vanguard can’t promise to be a fiduciary to its clients while also committing to align its assets with the 2050 net-zero target,” said the Wall Street Journal’s Terrence Keeley. Buckley sees that investing clients’ capital in ESG funds is effectively betting on a future rooted in unproven technology and unpredictable government policy, both of which pose investment risks for the future. Recent action by the Tufts Community Union implies that this future, to them, is somehow knowable.
The TCU Senate recently petitioned Tufts to divest from fossil fuels. Tufts Climate Action, the student organization leading the charge, wants Tufts to reassess its investment policy relating to fossil fuels and move up its deadline for carbon neutrality to 2030. Though I believe that TCA has good intentions, their actions have larger ramifications that need to be addressed.
While a change in investment style is feasible, a transition to renewable energy will take substantial time. New technologies need to be developed before anyone has a chance to reduce emissions considerably, though carbon capture technology has gotten off the ground successfully in a few instances. Existing technologies are not 100% green, as they are often made out to be. For example, very few students understand that electric vehicles both produce high amounts of carbon and rely on electricity from the grid — a grid that runs on oil and natural gas. Additionally, oil and gas companies have thrived over the past fiscal year largely due to the surge in demand caused by the invasion of Ukraine. While oil and gas might not be a dominant force in the future, they are today, and that cannot be dismissed. I encourage TCA to be more sensitive to macroeconomic factors and their own judgment and less so to the unease of students.
Currently, New England residents are facing a harsh winter and even harsher energy prices. Roy Mathews reported in the Wall Street Journal that “while most of New England still relies primarily on oil and gas to satisfy its energy needs, power-plant closures and pipeline cancellations ensure that households and businesses are paying more for heat and electricity than they have in decades.” Mathews goes on to describe the numerous political policies that have either stalled or entirely stopped pipeline projects that would move natural gas to New England in a faster and more emissions-friendly manner. In addition, regional government policies have allowed for the closure of nearly all the regional nuclear power plants, another important energy source.
TCA clearly does not have a grasp on the macroeconomic implications of divesting from oil and natural gas. The United States’ grid runs entirely on them, whether or not we like to admit it (houses, businesses, electric cars and gas stoves). If the entire car-owning population switched to using electric cars tomorrow, people would have to sacrifice electricity, heating and more just to be able to drive. In addition, due to the conflict between Ukraine and Russia and the resulting shortage of oil and gas in Western Europe, Germany has had to revert back to using coal as a primary energy source because its renewables projects are not fully functional and very expensive. Not to mention, renewables fail when the wind doesn’t blow and the sun doesn’t shine. TCA needs to change its attitude: The focus should be on investing long-term in renewables, not divesting from anything. TCA’s perspective does not incorporate the here and now, instead focusing only on a vision for the future that the world is not ready for.
Investing in ESG is not as promising as it is made out to be. For example, Bloomberg reports that in 2022, the 10 largest ESG funds “all posted double digit losses,” with most of them underperforming in both the energy sector and the S&P 500. I would urge the TCA to think less about ESG and more about impact investing. According to the Global Impact Investing Network, “impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.” Should the Investment Office agree to integrate the TCA’s views into their investment strategy, the TCA should not only consider the contents of the investments but also how they will contribute to the value of the endowment. However, I believe that this hypothetical ought not to occur.
I firmly believe that the Board of Trustees and any other relevant administrative parties should not seek to implement the beliefs and opinions of students when it comes to investment philosophy for the Tufts Endowment. I am not suggesting censoring students in any way, but students should not be given a platform with the intention of directly impacting university policy. Tufts should not take any student views seriously when it comes to policies and decisions that require subject-matter expertise. I do not know the makeup of the members of TCA, but I doubt any of them have a MBA, CFA or any FINRA certifications or licenses.
TCA’s platform is ESG on steroids. It needs to be put into perspective so that Tufts students know what is going on. They should incorporate impact investing into their platform in order to facilitate more effective conversations with university leadership. At the end of the day, a financially healthy endowment will allow Tufts to be more flexible with how it allocates money toward climate-related initiatives. While the Investment Office should work to be more transparent, at the same time, they should not bow down to student activism.