USC’s divestment from fossil fuels prescribed key updates

The value of the remaining investments in the portfolio has appreciated to $385 million.

The investment office also gave updates on the timeline within which it is supposed to fully withdraw from these investments. In an interview with the Daily Trojan, Amy Diamond, USC’s chief investment officer, said the University is attempting to fulfill its commitment to divestment in a “prudently financial manner.”

“We are very committed to liquidating this portfolio, but the important aspect of it is making sure we do so by generating the most amount of proceeds we can, so that we’re not hurting the endowment, since we are responsible for growing the value of the endowment,” Diamond said.

Pre-existing call contracts triggered an additional $27 million of investment on the original $313 million pot before a bulk of the investments was withdrawn. Despite the withdrawal, the value of USC’s fossil fuel holdings then increased around 23% as of March 2023. Diamond said macroeconomic trends and price hikes related to the pandemic and Russia’s war in Ukraine were the reason for this.

The University will continue what it describes as a 10-year process of withdrawing from partnerships and funds that are mainly invested in fossil fuels, including oil and gas. William Higbie, a Student Sustainability Committee member, was among several students who largely lauded a meeting between SSC members and the investment office for the transparency with which progress was discussed.

In the meeting, the University committed to collaborating with students to provide a quarterly fact sheet about fossil fuel divestment, as well as publicly outline its “Investment Stewardship Policy” by choosing ESG investment standards for the endowment. Higbie, a junior majoring in cinema and media studies, said the meeting was an “extremely positive” sign.

“I walked in not knowing what to expect,” Higbie said. “The last thing frankly anyone had really heard was that they were going to commit to removing and transferring that $277 million in fossil fuel [investments, back in February 2021].”

USC’s divestment efforts are part of a larger trend across higher institutions in the nation: More than 100 universities across the United States have committed to similar strategies, including Columbia University and Dartmouth University.

However, not all institutions have been divesting at the same pace. The UC system fully divested all its fossil fuel holdings almost three years ago following an effort that began six years earlier than USC. When asked why USC had decided on a 10-year timeline, Diamond said it may have been due to the differing private and public natures of the universities’ investments.

“One question would be how much they had in the public markets, which is obviously much easier to divest from,” Diamond said. “We have very limited exposure to oil and gas companies in the public markets.”

Jules Flores, a member of SSC, said divesting away from fossil fuels is a natural financial process.

“We’ve seen that fossil fuel investment is not a wise investment choice,” said Flores, a sophomore majoring in international relations. “It’s going to keep devaluing as other, newer technologies … come up.”

Critics of divestment as a sustainability strategy have labeled it ineffective, pointing out that for an institution to sell its investments in fossil fuels, another party has to buy them. Nonetheless, Flores, described the solution as “the best that we’ve got,” and Higbie said that, as part of a larger divestment movement, USC’s efforts would not go to waste.

“It’s not like USC is divesting in a vacuum,” Higbie said. “When you have institutions like Harvard, and the Los Angeles pension fund, and countless other large institutions, removing their money from dirty energy, it has a very large effect and it makes their stock worth less, which creates uncertainty for their company.”

The potential success of divestment is “a bigger question of whether, collectively, institutional investors can make a change in how the world gets its energy,” Diamond said, adding that many of USC’s peers — including universities like Harvard University that have also committed to divestment — were no longer interested in investing in fossil fuels, scuppering demand and resulting in value discounts for these products.

“That’s direct proof that the efforts that groups like the student group at USC that have really pushed for fossil fuel divestment, collectively, can make change in the world,” Diamond said.

According to Flores, the ethical argument for divestment is too strong to ignore.

“If we keep doing that and funding things that are actively destroying our planet, it’s not just a fiduciary responsibility — it’s an ethical and moral one,” Flores said.

Higbie said that while this line of argument was a “good talking point,” successful mass adoption of sustainable alternatives to fossil fuels would only happen if these options were economically viable.

“People are motivated by what’s more economically viable,” he said. “People aren’t going to buy an electric car if it’s cheaper to have a gas car.”

According to Diamond, the University has made more than $230 million of new, additional investments into environmentally-friendly opportunities during this time, including projects related to carbon capture and solar technology.

“We’re above pace relative to the distributions we’ve received from that portfolio,” Diamond said. “We’re finding more attractive opportunities in areas such as carbon capture and solar and other sorts of infrastructure and investments. That helped for transitioning away from fossil fuels.”

Going forward, Diamond said she expects the vast majority of the University’s portfolio in fossil fuels will be sold off in a much shorter period than the 10-year target the investment office has set itself.

“[Around] half of the portfolio is with two portfolio companies, so the expectation is that once those are liquidated, the value of the portfolio would be significantly below where it is today,” Diamond said. “We expect those to be liquidated within three years and on the outside five years, so it’s going to be a portfolio that has some tail exposure that lasts for quite some time.”

Higbie said the targets the investment office would have to achieve are not just related to the portfolio figures.

“We’re looking for accountability and transparency, along with urgency,” Higbie said.