University endowments are under scrutiny. As federal policymakers impose higher taxes on endowment income and greater restrictions on how funds are to be used, stakeholders that include students, donors and alumni have increasingly called for institutions to divest or realign endowment investments according to social, geopolitical and climate priorities. The combined internal and external forces potentially complicate endowments’ governance and decisionmaking.
However, although governance challenges are surfacing in the form of engagement and discussion, they are not yet translating into widespread changes to investment policy or portfolio allocation. Instead, practitioners say that stakeholder and political pressure on endowments is being largely absorbed by existing governance frameworks, which set the stage for incremental policy changes.
A Test of Governance
Georges Dyer, the co-founder and executive director of the Crane Institute of Sustainability and head of the Intentional Endowments Network, concedes that the convergence of stakeholder pressure and federal policy changes have made the past few years “a disruptive time” for endowment management.
“There have been waves of stakeholder and student activism around different aspects of endowment management over the years,” Dyer says, but the most recent surge in activist pressure—largely surrounding calls to divest from interests in the Middle East— has been particularly complex due to the ideological tensions underlying different stakeholders’ positions. “That has definitely put trustees in a challenging position to navigate.”
The dynamic between trustees and stakeholders is already inherently complex, in part because of the competing time horizons that inform their respective priorities. Sloane Ortel, the founder and CIO of Ethical Capital, points out that investment offices are tasked with stewarding endowments over decades, while many stakeholders tend to home in on more immediate social or political concerns.
“This makes [investment officers and stakeholders] natural rivals unless they figure out how to disagree constructively,” Ortel says—a tension that can become particularly pronounced during periods of acute social or political disruption.
Consultant Cambridge Associates suggests that institutions must increasingly rely on internal governance mechanisms to better process and contain stakeholder demands—and mitigate potentially conflicting interests—without defaulting to hasty action. These constraints are vital for ensuring that stakeholders and investment officers are aligned in how they approach the matter at hand.
A recent Cambridge paper outlined a three-pronged road map for institutions seeking to navigate decisionmaking specifically in response to divestment campaigns from activist stakeholders. This approach urges institutions to “define the exclusion,” “navigate complex issues with good governance,” and “weigh other considerations.” This should force clarity on how and why investments would be excluded and how outcomes would be measured, as well as how any divestment or exclusion decision would factor into broader investment strategies, while also meeting fiduciary responsibilities.
Dyer asserts that, from his experience as a practitioner, many institutions already have implemented governance structures that are equipped to meet the challenges of the moment. Dyer explains that, in some cases, institutions overhauled their decisionmaking processes during “the most recent previous wave” of activism from students, donors and alumni about fossil fuel divestment, which gathered steam in the mid-2010s.
Although each endowment’s process is different according to each institution’s unique circumstances, Dyer has observed some common threads.
“In general, what we’ve seen is a process of learning about the issue or issues that are important and material as they relate to [responsible investment], and then through that process of learning, building some consensus on what the board’s position or approach will be,” Dyer says. That position then becomes institutionalized into the endowment’s investment policy statement and goes on to inform future action.
Some institutions have formalized processes that standardize a clear pipeline of inputs and approvals. According to a paper from the Nonprofit Policy Forum, institutions such as Columbia University, the Johns Hopkins University and the University of Massachusetts have developed advisory committees for community members to raise investment concerns, which are then evaluated by each institution’s governing authority before becoming subject to formal deliberation. If the deliberation period produces a decision to divest, it can culminate in a vote on a policy statement that is usually made by the board.
The Complexities of Divestment
In some instances, stakeholder pressure does translate into concrete investment decisions. A recent study published in the Journal of Financial Economics found that the endowments of donation-dependent universities that had faced stakeholder pressure showed the highest adoption rates for ‘responsible investment’ policies.
However, there is limited evidence that recent calls for divestment have resulted in meaningful uptake. Instead, investment practitioners and academic researchers have largely expressed caution at bowing to activist pressure.
In a 2024 interview with Inside Higher Ed, Michael Poliakoff, president and CEO of the American Council of Trustees and Alumni, declared divestment “an unimaginable slippery slope” and implored institutions to “make it clear that management of the portfolio is the duty of the trustees.” Though more restrained in its tone, significant research further suggests that divestment raises an array of potential risks and challenges.
As one paper pointed out, each divestment decision sets a precedent for future decisions, effectively forcing institutions to define which specific issues warrant consideration as an investment-policy lever. This creates an ongoing governance burden: As soon as an institution divests in response to a particular cause, it becomes more difficult to push back on future demands from other causes.
Some of the challenges boil down to sheer logistics. Dyer points out that many calls for divestment include severing ties with companies that have a broad array of business interests, and the companies’ connection to the cause sparking the demand in the first place may be relatively minor.
“There are obviously complications around divesting from specific companies when a lot of these endowments are invested in commingled funds,” Dyer says. These “practical challenges” have led many institutions to “set a pretty high bar” for divestment.
Though previous activist campaigns led to actual divestment, the current Middle East-related movement has largely remained at the level of discussion. “From what we’ve seen and heard, there have been lots of conversations,” Dyer says. “But I don’t know of many examples where investment policies have actually changed.”
Tags: Divestment, Endowments, Governance