SA: April 5, 2013 Letter From President Re: R. 32

Dear Adam,

Thank you for advancing “Resolution 32: Toward a Responsible Endowment.” I am pleased that the Student Assembly acknowledges Cornell’s campus-wide efforts on sustainability, energy conservation and environmental responsibility, as exemplified by our Climate Action Plan commitment to reach carbon neutrality by 2050.

While we are increasingly evaluating social and environmental aspects in addition to financial considerations when making investment decisions regarding the endowment, we have no plans in the foreseeable future to divest from direct holdings or commingled funds in the fossil fuels industry.

As you know, Cornell’s endowment is the sum of its permanent invested capital that generates funds each year to help support the operation of the university. Our foremost priority for the endowment is its growth and stability so that the earnings from the funds can continue to strengthen the university’s core missions of teaching, discovery, and engagement. The endowment is not a cash reserve that Cornell can draw upon at will.

It is important that we continue to invest in sectors of the economy that we believe can earn returns high enough to keep up with our annual withdrawal used for operating funds as well as with inflation. The energy sector is expected to be one of the highest returning asset classes in the coming years and also tends to be a very good hedge against inflation, particularly unanticipated inflation. This hedge is important to protect the real purchasing power of the endowment going forward.

Divesting from fossil fuel energy-related investments currently held in the endowment would impact the performance of the endowment negatively in several significant way:

• A substantial proportion of Cornell’s current energy related investments is held in private partnerships that require assets to be locked up for as much 12–14 years. If we were to divest, we would need to sell those assets in a private transaction and would need to discount the assets, resulting in a loss for Cornell.
• The publicly traded energy companies in the portfolio collectively have the largest research and development budgets committed to alternative energy strategies. For example, the top five energy companies have more than $20 billion committed to alternative/sustainable energy research and development. Divestment from these companies would be to divest from the very same entities that are making significant research efforts toward a revised energy future. Also, were we to divest, we would have no ability as shareholders to impact these decision.
• Cornell invests its assets through third part investment managers with the latitude to invest across all sectors of the economy. If we were to exclude a significant sector such as energy, we might find it difficult to partner with top-tier investment firms.
• Finally, the endowment provides approximately 11% of Cornell’s operating revenues, supporting critical programs across the university, including financial aid. Divesting from a large and successful part of our endowment portfolio could put our operating budget at risk. As you are aware, that operating budget is now balanced after a difficult four years of severe budget cuts and workforce reductions and I am unwilling to jeopardize that delicate balance.

Your call for divestment is appropriately asking us to act on our commitment to sustainability, which is deep and long-standing. We pursue it in our research, in our teaching and in how we operate our campuses. The university also actively seeks opportunities to invest in renewable energy sources, such as wind, hydro and solar. As the opportunities multiply within the scope of our endowment’s risk guidelines, we can expect our portfolio in renewables to increase as well.

Currently, we consider portfolio managers for the endowment that participate in investments related to renewable energy, technological advances in the area of climate change and remediation, and appropriate husbanding of natural resources. The Investment Office actively seeks investments in alternative energy strategies, as evidenced by our current $60-million allocation in renewable and alternative energy, sustainable forestry and environmental credit investments. We remain committed to identifying managers with alternative energy investment strategies that meet our endowment’s return and risk parameters. In fact, Chief Invest Officer A. J. Edwards has been instructed to intensify his efforts to identify such investment opportunities.

I appreciate your willingness, along with other students, to meet with Mr. Edwards and chair of the Investment Committee, Don Opatrny, and anticipate such conversations continuing in the months ahead. I have asked Mr. Edwards to reach out in the near future to schedule the next such meeting.

Your commitment to this issue is appreciated. We welcome constructive meetings with Cornellians who are committed to the long-term betterment of our global community as well as our institution’s mission of discovery, learning and engagement.

Best regards,

David Skorton

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