Washington and Lee students and faculty agree there are no right answers in the debate about how investors can use their money to make a positive environmental impact. But some solutions are easier than others.

“It is incredibly difficult to divest,” Grace Rustay, ’27, said in a panel last month. “But what it’s not incredibly difficult to do is invest in our students.”

Rustay said that if Washington and Lee University wants to be “not unmindful of the future” like its motto implies, it must prioritize teaching students how to develop a portfolio that is “greener and brighter and better.”

Rustay and Ryman Smith, ’27, said they have spent the past year working to establish the Sustainable Innovation Investment Society to fill a gap in W&L’s environmental activism. Their goal is to advise students on how to manage an investment portfolio of companies that are adding net environmental benefit to the world with innovative business models and technologies.

The new approach is necessary, Smith said during the panel, because divesting from fossil fuel companies may not be the most effective or realistic strategy to address climate change.

The panel was hosted on Feb. 17 by DivestW&L, a student organization that advocates for the university to pull its investments from fossil fuel companies to promote a more ethical endowment that better aligns with university sustainability goals.

“There are definitely a lot of arguments that can be made about divestment and against divestment — financially, morally, all those sorts of things,” DivestW&L leader Darby Burgett, ’26, said. “We just want people to be educated about the topic.”

Panelists weigh downsides of divesting

One panelist, Associate Professor of Accounting Megan Hess, said there are three main challenges of divestment that make it “not necessarily the best strategy to achieve your sustainability goals.”

The first, she said, is that it’s “not like we can flip a switch” and pull the university’s money out of fossil fuel companies overnight. The process would likely take years — and leave the university’s operating budget in flux in the meantime.

Another challenge, she said, is that the primary goal of the endowment is to preserve capital, and the best way to do that is to spread investments out across different sectors. That way, if one sector doesn’t perform well, another can balance it out.

“Anytime you eliminate a category altogether on moral grounds, you’re limiting the ability to diversify risk,” Hess said.

Hess said the third challenge is that divestment can have the opposite effect of what investors intend. When investors take their money away from big polluters, they’re not stopping those companies from polluting, she said. They’re actually inhibiting those companies from innovating and adopting greener practices.

Regardless, the decision to divest isn’t often in Washington and Lee administrators’ hands, said Treasurer and Vice President for Finance and Administration Steve McAllister, another panelist.

About 85% of the endowment is directly managed by an outside firm called Makena Capital Management. The rest of the more than $1.9 billion aggregate endowment is held for liquidity purposes or given to student groups such as the Williams Investment Society (WIS) to manage, he said.

The board of trustees’ investment committee has “not had a lot of discussions” about environmentally responsible investing, with or without Makena representatives present, McAllister said.

“It’s one of those things where we need to engage more thoughtfully than we have in the past,” he said. McAllister added that those conversations should begin in the spring.

McAllister said his focus has been on preserving the endowment so that the university can have the money it needs to become more sustainable. Recent environmental advancements on campus such as sourcing solar energy and adopting a more efficient water system were expensive, he said, and only made possible due to a robust endowment.

“I’ve thought less about, frankly, [environmental, social, and governance] investing and more about what are the tangible things that W&L can do,” McAllister said.

Burgett said DivestW&L will continue to encourage the board of trustees, WIS and others who can influence the university’s endowment to consider divestment as an option.

“Divestment requires active conversation, and that’s what we’re here for,” she said.

Students turn to investing

Rustay and Smith said a more accessible way to foster environmentalism in the finance sector is to make smart investments.

They announced the formation of the Sustainable Innovation Investment Society (SIIS) at the February panel, pitched the society to the university’s Sustainability Committee three days later, and plan to discuss funding options with McAllister by the end of the month. Their goal is to have the society ready for enrollment by 2026, they said.

SIIS would be structured similarly to WIS, Smith said, where students can balance hands-on investment experience with classroom experience to make the most of managing a portfolio. SIIS will differ from other societies by focusing its investments on companies that are adding net positive environmental impacts to the world with ethical business strategies, innovative technologies and sustainable management.

Smith added that SIIS will create an opportunity for STEM students to learn finance and business skills. At the same time, it will encourage Williams School students to get out of their investment bubble and learn how to evaluate companies’ environmental impact.

“I think that makes [SIIS] unique in that it’s really an opportunity for students to harness interdisciplinary studies,” Smith said.

As Rustay networks with alumni who are interested in serving on the society’s board, she said she’s learned from them that SIIS’s curriculum is needed now more than ever.

“There’s a huge demand for folks who know how to construct a portfolio consistent with the values of their investors, but that’s not something that W&L necessarily teaches,” Rustay said. “We want to train students to be able to take an active role in reshaping what our financial institutions do, with a sustainability-centered lens.”

But green investing has its challenges too, Hess said during the panel.

“This is often a bigger upfront investment for a lower reward and with a longer timeline,” Hess said. “So what you really need to be successful in making these decarbonization investments is patient capital: people willing to invest and not look for a quick, one year turnaround.”

ESG has problems of its own

Rustay said one of the most challenging aspects of forming SIIS was navigating difficult conversations about ESG — a framework that assesses companies’ performance in environmental, social and governance categories.

ESG has been weaponized by conservatives who consider it a part of a “woke capitalism liberal agenda” and say it “unfairly puts a finger on the market scale in a way that benefits Democratic priorities,” according to Fordham Journal of Corporate & Financial Law. Hess said that ESG has become so politicized that several states have pulled state funds and pensions out of firms that have ESG-focused investment strategies.

ESG is criticized by environmental experts, too, because of its “fundamentally squishy metrics,” Rustay said.

For example, some oil companies can meet ESG criteria because they are well-governed, even though they have detrimental environmental impacts, Smith said. Similarly, an environmentally-friendly company like Tesla can fail to meet ESG criteria because it doesn’t have a sustainable governance structure.

ESG’s biggest problem is its lack of reporting regulations, Smith said. Companies “don’t really have an incentive to accurately report what they’re doing, so they have an incentive to greenwash,” he said — or make claims about environmentally positive impacts or decarbonization efforts that aren’t legitimate.

Rustay and Smith said their mission is to help students learn how to evaluate companies without leaning on flimsy ESG frameworks and prove that environmentally-conscious investing can be profitable.

“ESG has become so deeply political and politically polarizing. Smart investment shouldn’t be,” Rustay said.