The below article was published by the New York Sun, photo credit: AP/Ng Han Guan
New legislation would require private colleges and universities to cut ties with sanctioned companies, reflecting mounting concerns about the ethics of endowment portfolios.
Universities could be forced to cut their ties with China amid growing pressure from students, advocacy groups, and Congress to dissassociate from the human rights abuses against Muslim Uyghurs led by the Chinese Communist Party since 2014.
A Republican congressman, Greg Murphy of North Carolina, is pushing legislation that would require schools to divest from firms listed on U.S. government sanction lists. While the bill is unlikely to pass in the current Democrat-controlled Congress, it demonstrates to universities that Congress wants to intervene on how they spend their endowments.
“Because colleges and universities have an educational mission and receive the significant benefit of tax-exempt status, they have a moral obligation not to use their endowments to invest in companies that contribute to human rights violations and are detrimental to the national security of the United States,” Mr. Murphy wrote in a recent letter to 15 colleges and universities.
Mr. Murphy’s legislation, the Protecting Endowments From our Adversaries Act, would impose an excise tax on investments in such companies by private colleges and universities with endowments of more than $1 million. The total value of U.S. university endowments at the end of the 2021 fiscal year was $821 billion.
“I cannot understand how universities that are founded in the values of academic freedom, excellence, and creating a future where everybody has equal opportunity to pursue their dreams, end up in a situation where they would be aiding and abetting repression,” a human rights lawyer, Rayhan Asat, told the Sun.
Ms. Asat’s brother is being held in a Uyghur concentration camp. More than 70 Harvard student organizations from across the university signed a statement demanding his release.
Yet Harvard recently hosted a Chinese Communist Party official at the Harvard College China Forum, a move that was condemned by the prime minister of the East Turkistan government in exile, Salih Hudayar. In April, the university was considering reducing its Chinese investments, according to Bloomberg, mirroring Yale’s investigation of its endowment allocations in China. No further action has yet been taken by either school.
Precedence exists for universities divesting their endowments from entities deemed unethical. American universities took a leading role in ending the South African apartheid through the act of divestment. More recently, campus movements on climate change have pressured schools like Boston University to shift their endowments away from fossil fuels. After Russia invaded Ukraine in March, many schools quickly divested from Russian assets.
Ms. Asat urges universities to “apply the same standards that you would apply for other atrocities as you have done in the case of Russia.” She argued that universities are hesitant to divest from China because they fear backlash from the Chinese government: “Professors are very critical of Russia. But how often do you hear professors talk about China’s repression so publicly?”
Others see divestment as antithetical to schools’ dedication to raising awareness of international issues. “I think restricting ties with China is a terrible idea,” a Harvard professor of Chinese studies, Peter Bol, told the Sun. “It increases ignorance rather than lessening it.” Mr. Bol serves as a member of the Harvard China Fund, which “supports teaching and research on China and promotes Harvard’s presence in China,” according to its mission statement.
Ms. Asat is “a big proponent of allowing Chinese students to learn about these causes,” she said, noting the tendency for Chinese political elites to send their children to prominent universities in the United States. “That’s the leverage point that universities can exercise.”
Universities’ hesitancy toward divestment also lies in their need to prioritize their bottom lines in order to achieve their main missions: teaching and research. Yet given the poor performance of Chinese equities in the last two years, largely due to governance issues, fiduciary duties and ethical concerns might actually be in alignment.
“If Chinese companies are involved in atrocities against Uyghurs and they don’t want U.S. investors to know it, they might refuse to comply with U.S. accounting standards or auditing standards,” the president of the divestment advocacy group Athenai Institute, John Metz, said. “As a result of that, investors aren’t getting a fair, adequate, or remotely accurate picture of what the bottom line looks like for that company.”
Mr. Metz reasoned that universities are not aware of how heavily index or mutual funds have allocated their endowments toward China, an issue that organizations like Athenai aim to address. “There are risks out there that Wall Street hasn’t adequately accounted for,” he said. “If universities can account for those risks, not only will they be on the right side of history, not only will they play a role in sending a message to the Chinese government, but they can also save money.”
Additionally, another geopolitical crisis, such as an invasion of Taiwan, “could force divestment under very unfavorable terms,” Mr. Metz argued. “Divestment should happen before a crisis, not after.”
Numerous alternative investors are already shifting their preferences to Southeast Asia.
Many schools pledge to shape their students into civic and moral leaders. Mr. Metz held that universities with the largest endowments, like Harvard and Yale, have the greatest potential to act upon this promise by standing against instances of human rights violations. “They should be held to a higher standard than smaller universities — not only because they have the potential to make a bigger difference, but also because they generally have more resources to investigate their own investments.”
The chairman of Yale University’s Advisory Committee on Investor Responsibility, Jonathan Macey, has contended that doing business in China is not automatically grounds for divestment, drawing a distinction between the contributions to the Uygher crisis of state-owned enterprises and private businesses in China.
Ms. Asat underlined that private companies in China are under the thumb of the Chinese Communist Party, citing how they are required to comply with government-commissioned forced labor. “The human rights movement is not asking companies to divest permanently,” she said. “All we ask is for institutions, entities, cloud companies to end the Uyghur human rights crisis, and when the repression ends, normalcy can resume.”
Last year, in a first, the Catholic University of America committed to audit its endowment for entities linked to Uyghur atrocities. Students at the University of Maryland, Georgetown University, and the University of California Irvine have since passed resolutions calling for divestment from companies sanctioned by the U.S. government and an advocacy group, the Uyghur Human Rights Project, for their involvement in the crisis.
A bipartisan consensus is emerging on decoupling campus cash from Communist crimes. The College Democrats of America and the College Republican National Committee signed a letter in 2020 urging Washington to address this issue — representing the first time both organizations had agreed to any kind of joint statement. If Mr. Murphy’s bill becomes law, pressure from Congress could compel more universities to act.
Ultimately, widespread divestment in higher education could send a signal to Wall Street that China is becoming “uninvestable,” Mr. Metz said. “Hopefully we won’t need legislation targeting the private sector. Hopefully, we’ll get to a point where everyday Americans’ money is protected from investments in these companies.”