University Endowments Face Pressure from Divestment and Tax Plans

A House committee recently advanced legislation aimed at limiting proxy advisers while federal lawmakers have proposed higher taxes and tighter rules on endowment income. At the same time, donors, students and alumni have increased demands that institutions divest or realign funds for social, geopolitical and climate reasons.

Calls to cut ties with companies linked to conflicts in the Middle East have been prominent in recent months. Those campaigns have highlighted sharp differences among stakeholder groups, complicating trustees’ decisions. Investment teams, charged with preserving endowments over decades, face pressure that can conflict with calls for faster social or political responses.

Many institutions are using existing governance systems to handle these pressures. Georges Dyer, co-founder and executive director of the Crane Institute of Sustainability, described the past few years as “a disruptive time” for endowment management and said trustees are balancing competing priorities. Sloane Ortel, founder and chief investment officer of Ethical Capital, warned investment officers and stakeholders can become “natural rivals” without agreed procedures for engagement.

Consultants recommend formal processes to limit ad hoc reactions. A recent advisory paper from Cambridge Associates urges institutions to define which investments would be excluded, rely on governance for evaluating complex cases, and assess how exclusions would affect overall strategy and fiduciary duties. The paper frames these steps as a way to make decisions transparent and to measure outcomes.

Some universities have set up formal channels for community input. Columbia University, Johns Hopkins University and the University of Massachusetts have advisory committees that let students, alumni and other community members raise concerns. Those inputs are reviewed by governing authorities and can lead to formal deliberations and board votes on policy statements.

A study in the Journal of Financial Economics found donation-dependent universities that faced pressure were more likely to adopt responsible investment policies. Researchers and practitioners, however, report limited evidence that recent divestment campaigns have produced widespread portfolio changes. In a 2024 interview, Michael Poliakoff, president and chief executive of the American Council of Trustees and Alumni, called divestment “an unimaginable slippery slope” and urged that trustees retain control of portfolio management.

Practical and precedent concerns make trustees cautious. Endowments often hold assets in pooled or commingled funds, which complicates divestment from specific companies. Companies targeted by activists can have diverse operations, making links to a single issue hard to isolate. Each divestment decision can create a precedent that invites future demands on other issues, increasing governance work for trustees.

Where changes have occurred, they typically followed extended internal review and consensus-building. Many endowment offices continue to rely on established committee structures, advisory inputs and written investment policies to process stakeholder demands while maintaining long-term stewardship responsibilities.