American colleges and universities collectively own over $528 billion in assets via their endowments--a pool of money whose power for social good has not gone unnoticed by their students. Armed with the belief that their educational institutions have a moral responsibility to address the imminent threat posed by climate change and the outsized power of the fossil fuel industry in preventing climate action, students across the country are spearheading campaigns to divest university endowments from fossil fuel industries. These student-led coalitions are responsible for shifting over 15% of the $7.93 trillion divested from the coal, oil, and gas industries to date, and have become key sustainers of the global climate justice movement since the first campus campaign took shape in 2010.
While divestment commitments represent enormous victories for student organizing and socially-responsible investment (SRI) alike, the withdrawal of university funds from unethical investments is only part of divestment’s potential impact. After deciding to divest, institutional investors must consider how to re-weight their investment portfolios, prompting a series of decisions about how to reinvest divested funds. Far from an afterthought or technicality, campaigns’ reinvestment “asks” are a crucial part of divestment’s theory of change. Reinvestment presents a unique opportunity for universities to partner with their local communities to promote equitable economic development and energy democracy. In particular, campaigns’ embrace of community investment would strengthen the crucial role that divestment movements play in fostering long-term system change. This strategy creates a powerful opportunity to engage young people in new economy work while leveraging the resources of some of our most powerful institutions to shift financial capacity from the extractive economy to a new energy system.
What is community investment?
Typically, divestment campaigns ask their institutions to reinvest divested funds in socially-responsible investments (SRI) of some kind. While all forms of SRI open up possibilities for new funding streams for community development, there is a prime opportunity for student divestment campaigns to promote strategies more closely tied to building community wealth and local energy democracy through community investment.
Community investment refers to a set of investment strategies and instruments that target positive social and environmental impacts in specific communities and geographies. Anchor institutions, like hospitals and universities, can utilize community investment to direct institutional capital to communities and individuals underserved by conventional financial services, providing access to credit, equity, capital, and basic banking products that these communities would otherwise lack. Often, community investments are made through Community Development Financial Institutions (CDFIs). CDFIs are mission-driven institutions like community development banks, credit unions, and loan funds that aim to counteract economic inequality by deploying capital to address conventional market failures and creating economic opportunities for creditworthy but underserved businesses and families. CDFIs’ financial infrastructure and community knowledge make them a natural partner for higher education institutions seeking to engage in community investment.
Despite its social benefits, community investment should not be mistaken for charity. As stated by the Intentional Endowments Network, community investment “involves a financial product available for investment that can be managed in terms of risk and return.” Investment opportunities and products exist across a wide variety of asset classes, including cash and cash equivalents; fixed income investments; private equity and venture capital; and real assets. And, with assets of $185.4 billion, community investing is the fastest growing component of SRI, nearly doubling in assets between 2014 and 2016, and growing more than 50 percent from 2016 to 2018.
So, why should student fossil fuel divestment campaigns organize around community investment?
Community wealth and energy democracy
Community investment is a chance for divestment campaigns to actualize their climate justice missions by promoting energy democracy in their communities. Energy democracy is the idea that as we decarbonize our energy systems and push for 100% renewables, communities--not profit-driven corporations--must be at the center of the decision-making processes about the sources, access, and governance of their energy sources.
Photo: Tri-County Community Solar Tour, from Clean Energy Resource Teams
Community investment for energy democracy can take a variety of forms. Universities can invest in CDFIs, green revolving funds, or green public service banks, all of which generate loans that could support community-based renewable energy developments, efficiency projects, and related enterprises. University investment in these institutions would provide capital to address the deep-seated racial and economic inequalities magnified by climate change, while also promoting local self-determination--a key component of the "just transition." Campuses could also invest directly in community-based renewable energy utilities (i.e. solar energy cooperatives) which grant communities greater control over their own energy resources while ensuring that in an era of climate change, the tools of transition aren’t only made available to those with lots of roof space or money. One such initiative is underway in New York City’s Sunset Park neighborhood: the Brooklyn Army Terminal (BAT) will soon be home to a groundbreaking cooperatively-owned rooftop solar garden, giving hundreds of families and businesses access to clean energy in a neighborhood where nearly 30% of residents live below the poverty line. Sunset Park’s solar co-op shows that all people have a meaningful role to play in the clean energy transition, but also that cross-sector collaboration is required to overcome the barriers that prevent investment in and access to clean energy solutions. As Carla Skandier and Johanna Bozuwa highlight in their recent report, An Anchor Strategy for the Energy Transition, “close to 51 percent of people in the country lack access to solar because they rent their housing, can’t cover the upfront costs, or live in locations with poor conditions to generate power. Decentralized renewable energy can be particularly prohibitive for lower income households without the credit history or upfront cash needed to participate.” Community investment can begin to address these structural barriers to economic security in ways that extend beyond a single project or investment. For instance, Sunset Park’s project will also hire local job trainees and recruit residents to participate in a free solar installation training program, revealing the potential for the benefits of community-driven renewable energy development to ripple across the communities that we invest in.
Divestment campaigns’ unique role
While investing in a CDFI or solar co-op might appear “untraditional” or even “irresponsible” to university investment officers, divestment campaigns’ moral charters and history of challenging status quo operations positions them well to expand their campuses’ perceptions of what comprises a prudent university investment in light of climate change.
As voices of morality and social justice on their campuses, campaigns are already pushing for new visions of economic life and greater community responsibility; community investment fits well with their existing strategy and messaging. In particular, campaigns’ powerful narratives around resisting the extractivism of the fossil fuel industry align with community investment, which is also about keeping resources--natural and financial--in communities. Furthermore, while institutions vary in their level of support for community investment, campaigns have the organizing skills and institutional knowledge necessary to pressure ambivalent administrators and boards to take seriously their responsibility to their local communities and their student’s futures.The Democracy Collaborative’s 2013 report, Raising Student Voices: Student Action for University Community Investment features a number of cases of student-led university community investment, including University of Chicago, Fordham University and Wesleyan University, whose investments in local CDFIs and community banks ranged from $500,000 - $1,000,000. While these movements did not grow out of divestment campaigns, they provide powerful insights into community investment partnerships and their local impact. For example, The University of Chicago decided to deposit $1 million dollars into four community banks in 2012, after student organizing around depositing the senior class gift in a community bank. It is estimated that 96% of these deposits stay within Chicago, compared to the 7% average for other banks, generating significant community investment.
Campaigns must also convey the risk that climate change poses to our collective future and university endowments alike, the latter being a resource designed to steward our future life and learning. Left unaddressed, climate catastrophe will disrupt human communities and global investment portfolios in ways that we can only imagine; ignoring the call to act could cause permanent economic damage up to four times the size of the 2008 financial crisis. As we scale-up climate action and de-carbonize our economies, however, a more specific risk emerges for university endowments, as trillions of dollars in global fossil fuel investments become “stranded assets,” having absorbed capital but unable to turn a profit. In light of climate change, fossil fuel investments are not only morally problematic, but inherently time-limited, making them a risky choice for university portfolios, which demand indefinite performance to sustain their institutions.
Photo: Power Up! Divest Fossil Fuels April 2014 Convergence, photo by Shadia Fayne Wood
New coalitions, new possibilities
Both the community investment and divestment movements are fast-growing, and aligning their efforts can open up even more possibilities for the community investment field, student divestment movements, and higher education. . Investee institutions can not only access new investment capital, but they can align themselves with powerful university actors and plug into the global divest-reinvest movement, opening up opportunities for collaboration and coordination at national and international levels. Student divestment campaigns can engage both community partners and intra-university actors in their work (think: service organizations, academic internship programs, community and governmental affairs divisions), broadening their base of support. These relationships with investee organizations are critical, not only to convince investment officers of the merit of community investment, but to inform campaigns’reinvestment strategy Indeed, partner institutions and their needs must be the focus of student campaigns if community investing is to live up to its promise of community empowerment.
These new relationships and coalitions can be leveraged for both climate action and community development, as well as broader university-community partnerships that might be appealing to university administrators. Ideally, universities’ commitments to their communities would not stop at a financial transfer, but manifest in stronger connections between campus campaigns and community organizations. Community investment also provides ample opportunities for universities to engage students in educational opportunities, as Syracuse University shares in a 2017 report on its community investment initiatives, “Community investment is central to the University’s academic mission because it supports experiential learning, broadens student horizons and engages students in addressing societal needs in an impactful way.”
While community investment may be the latest SRI frontier and a prime opportunity for university investment, obstacles remain. Despite the growing trend toward community engagement through academic programs and service learning, far fewer schools are thinking about how to integrate community investment into community engagement research and scholarship. One of the key barriers to university community investment is the fact that it is a relatively new concept; the lack of emulable models can make university investors, accustomed to evaluating investments based on their past performance over long periods of time, nervous. And yet, universities’ long-term investment horizons allow for relatively illiquid investments, uniquely positioning them to finance things like clean energy investments and community loan funds, which, while uncertain in the short-term, can produce the market-rate returns desired by fiduciaries. For example, Boston University, University of Vermont, Weber State, Caltech, and North Central College all have Green Revolving Funds (GRFs), the returns of which suggest that GRFs can significantly outperform average endowment returns while maintaining strong returns over longer periods of time.
The healthcare field has also seen positive results from community investment. For example, Dignity Health, a hospital system based in San Francisco which has directed 1% of its $10 billion in assets in community investments, saw their community investment portfolio outperform traditional investments during the Great Recession, and when considering the positive social, economic, and/or environmental outcomes, shares that they “outperform any market on a year-by-year basis.” A growing number of health systems are integrating community investment into their financial strategies, demonstrating the efficacy and impact of place-based investment programs.
This track record can provide ample inspiration for divestment campaigns entering this new territory. The work of expanding popular imaginaries has always been a key component of divestment campaigns, and will need to continue as students challenge their universities to take their responsibility for their surrounding communities and their students’ futures as seriously as their fiduciary duties. Additionally, good management and properly structured vehicles will aid universities in maximizing the economic benefit and minimizing the risk involved in any investment.
Photo: Gloabl Divestment Day action at University of Washington. Photo from 350.org
There is, however, a key opening in the landscape of university investment as it currently stands.
Most university endowments are heavily invested in mutual funds, rather than direct investments in stocks or bonds. Given the challenges involved in lobbying universities to untangle their endowment funds from larger mutual funds, many campaigns first achieve “partial” divestment commitments, in which universities sell off the small portion of assets directly exposed to fossil fuel industries while leaving the overwhelming majority of their portfolio untouched. While ideally institutions would make more meaningful divestment commitments, the small amount of cash freed up by partial or direct divestment lends itself well to community investment, in which universities direct finite amounts of capital to small-scale institutions. While $500,000 is insignificant to the bottom line of a corporation like Exxon, this capital could prove far more significant to a CDFI, especially because investment capital is often recycled or reinvested through revolving funds. Over time, these small investments have the potential to open up real opportunities for communities. While community investments of all sizes are a good first step for schools trying to get their foot in the door of responsible investment, this is especially the case for campaigns dealing with smaller reinvestment commitments by virtue of their universities’ settling for partial divestment commitments.