The University at Buffalo Foundation used an offshore fund to invest in fracking and fossil fuels, even as university officials sought to portray UB as a national leader in climate-change and sustainability research.
The foundation invested through EnCap Flatrock Midstream, a venture capital firm that focuses solely on North American oil and gas extraction and production.
The foundation, a private entity that manages contributions on behalf of the public university, had investments totaling more than $940 million in 2016-17, although it’s not clear how much of that was in the fossil fuel industry.
Foundation officials have declined to provide details about where foundation money is invested or allocated, despite growing pressure from students and faculty for such information.
The EnCap Flatrock Midstream investment came to light Nov. 17, when the International Consortium of Investigative Journalists released more data from the Paradise Papers, leaked documents mostly from the Appleby law firm showing how huge amounts of money are invested, often secretly, in offshore tax havens.
The UB Foundation was among more than 100 higher education institutions identified that were growing endowments through the use of entities incorporated outside the U.S. EnCap Flatrock Midstream is based in San Antonio, Texas, but the fund it manages, EnCap Flatrock Midstream Fund III-C, was registered in the Cayman Islands.
Foundation Executive Director Edward P. Schneider declined to be interviewed for this story, but he emailed a statement to The Buffalo News saying the foundation was “actively looking at our policies governing investments in general, including fossil fuels.”
He also said the foundation had met with the student group Fossil Free UB, and others, to discuss investment issues.
Students have been pressing the foundation for more than a year to reveal the extent to which it invests in oil and gas companies and to divest from those companies.
Three students who attended the meeting with Schneider earlier this month said he gave the impression that the foundation did not directly invest in fossil fuel companies, although its complex portfolio of funds might at times include holdings in such companies.
EnCap Flatrock Midstream’s portfolio, however, consists entirely of oil and gas related companies, including many associated with the controversial process known as fracking used to extract natural gas from shale.
“That’s basically a direct investment,” said Meghan Griffin, a UB senior from Stony Point, Rockland County. “Just because you have a middle-man doesn’t mean you’re not directly investing in these fields. That is just completely contradicting what they were saying.”
Among others in the meeting were Dr. Philip L. Glick, professor of surgery, pediatrics and management and chairman of the Faculty Senate; Cristian Tiu, associate professor of finance, chairman of the finance department and member of the foundation’s investment committee; and Ryan A. Mcpherson, UB’s chief sustainability officer.
The meeting was productive, but Glick said the recent Paradise Papers information raised new questions.
Schneider gave no indication during the meeting that UB was invested in a venture capital fund focused exclusively on oil and gas extraction, according to several sources. Such an investment would seem at odds with the university’s values on sustainability, Glick said.
“If I had known that information, if I had known about the Paradise report before that meeting and before another meeting later on, I would have asked Ed Schneider whether this report is true or not and if not, please clarify, and if it is, please explain,” Glick said.
Push for divestment
When burned, fossil fuels such as oil, coal and natural gas produce carbon emissions, which scientists believe help create a dense layer of gases. They say that layer traps heat radiating from Earth in the atmosphere and causes global warning through a greenhouse effect.
Fossil fuel divestment has become a major concern on campuses around the country. Many universities have endowments worth hundreds of millions, or even billions, of dollars, making them major players in the investment world.
Students like Griffin believe that divestment efforts will help break the fossil fuel industry’s hold on the economy and government, leading to greater use of renewable energy sources, such as solar and wind power, and slowing climate change.
Some universities in recent years have agreed to pull back from fossil fuel investment. Syracuse University pledged in 2015 to not directly invest in publicly traded companies that extract fossil fuels. Stanford University, the University of Maine, the University of Dayton and the University of Hawaii also decided against fossil fuel investment.
At UB, undergraduate and graduate student governments, the Faculty Senate and the Professional Staff Senate all approved resolutions urging the foundation to divest from fossil fuel stocks and bonds within five years.
The foundation can earn healthy returns elsewhere, said Alexa Ringer, a sophomore and leader in Fossil Free UB.
“There are different companies and indexes that are socially responsible and profitable and don’t have fossil fuel companies in their portfolios,” Ringer said.
But big investment returns on oil and gas have made investors reluctant to pull away. Large public universities, in particular, feel forced to find other sources of revenues as many states hold the reins or pull back on higher education funding.
Among the other universities that invested through EnCap Flatrock Midstream were Michigan State University, Rutgers University, the University of Houston, Denison University and Purdue University.
On its website, the International Consortium of Investigative Journalists wrote that university endowments are required to pay taxes only when they invest in “debt-financed financial firms, such as private equity funds and hedge funds.” To avoid those taxes, universities assign entities called “blocker funds” the legal responsibility of otherwise taxable investments. “These entities are then incorporated in zero-tax jurisdictions, such as Bermuda and the Cayman Islands,” according to the ICIJ.
“That’s how corporate greed is financed,” Griffin said.
Schneider noted in his statement that the foundation’s primary objective was to advance the university’s mission of research, scholarship, service and educational excellence.
“As such, UBF has to be thoughtful and deliberate in its investment approach as we seek to maximize returns and the benefits for the university,” he said. “Not doing so could severely impact the foundation’s ability to provide scholarship funds for students with financial need or provide critical seed funding for faculty research.”
It’s not clear how much the UB Foundation invested in EnCap Flatrock Midstream or in individual Big Oil and gas stocks.
The foundation’s $940 million total investment portfolio includes $125 million in venture capital/private equity partnerships. Nearly half the foundation’s investments, about $428 million, were in equity securities, according to its most recent financial statements. The foundation’s most recent tax returns show investments of $153 million in Central America and the Caribbean, which includes the Cayman Islands.
The university itself has taken steps toward combating climate change, but the foundation’s investment with EnCap Flatrock Midstream undermines those efforts and makes UB look hypocritical, said Ringer, a student leader in Fossil Free UB.
UB aspires to be a leader on energy and environmental concerns. In 2014, the university established a new institute called Research and Education in Energy, Environment and Water, or RENEW, focusing on the pressing global problems in energy, water and the environment. More than 100 faculty members in disciplines across six schools at UB are focusing on research in sustainability, climate change and natural resources.
In June, following President Trump’s announcement that the United States will withdraw from the Paris climate accord that aims to slow global warming, UB President Satish K. Tripathi issued a statement saying the university will continue to seek solutions to climate change, through using renewable energies on campus and through its interdisciplinary research efforts.
Other UB initiatives in the past have put the university at odds with those intentions.
UB was heavily criticized in 2012 for its Shale Resources and Society Institute, which produced a flawed study on the safety of fracking by researchers that in the past had been funded by a natural gas industry group.
Tripathi ultimately shut down the institute, saying there was a “cloud of uncertainty” about whether its research was objective and independent.
But the episode resulted in lingering skepticism about how money is raised and spent at UB and its foundation. Faculty and watchdog groups for years have tried various tactics to pry more financial information from the foundation and its six affiliates.
Buffalo lawyer and UB Law School alumnus John N. Lipsitz currently is challenging the UB Foundation Faculty-Student Housing Corp. in State Supreme Court for the release of planning, meeting and financial information.
The Faculty-Student Housing Corp. financed more than $100 million for the construction of seven student apartment projects on or near the North Campus that were opened between 1998 and 2001. Lipsitz maintains that it should be subject to the state Open Meetings Law and the state Freedom of Information Law.
In an interview with The News, Lipsitz cited the Shale Institute as a motivating factor in efforts to push the foundation to be more transparent about how it operates.
“I was concerned that there may be unaccountable private interests infiltrating a public university of which I am a very proud graduate,” Lipsitz said. “It gave the imprimatur of the university to a position on fracking that was favorable to industry. It was kind of a put on job.”
In 2013, the UB Faculty Senate formally asked Tripathi, who is a member of the UB Foundation board, to make more foundation information publicly available. But Tripathi declined. The foundation board also rejected a request from the Faculty Senate in 2016 to have a faculty member, staff member and student serve on the board.
“They have to start answering questions. They just can’t act like nothing’s going on now,” Glick said.