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December 9, 2016

Barnard Divestment Task Force Ignores Costs, Recommends Partial Divestment

This week, the Barnard Task Force on Divestment officially recommended that the Board of Trustees vote to divest from coal and oil sands companies and those that “actively deny climate change.”  The Task Force chose this direction out of five different divestment scenarios ranging from maintaining the status quo to full divestment.  The Board of Trustees will vote on whether to divest when it meets in March 2017, yet questions about how Barnard would move forward with even this limited path remain unanswered.

For starters, the Task Force recommends a symbolic divestment gesture, while categorically rejecting full divestment of fossil fuels, calling the act “too broad” and saying it “lacks…science-based differentiation.” From the report:

“…A blanket ban on an entire industry would raise questions of academic and scientific bias; Barnard-based research relating to fossil fuels could be questioned because it is supported by an institution that has taken a stand against the sector as a whole.” (emphasis added)

In the report, Barnard also noted that “most institutions of higher education that have considered the divestment question have chosen not to divest.”  This is especially true among Barnard’s peer universities in New York. In June of this year, NYU’s Board of Trustees elected not to divest citing their fiduciary responsibility to “support the University’s academic and research missions” and not “[use] its endowment as a tool for simply making statements.” One year ago, Columbia’s Advisory Committee on Socially Responsible Investing also decided against divestment, instead opting for other actions like increased research and investment in renewable energy.

Then there is the question of how Barnard would actually divest. Unlike Columbia’s independently managed endowment, Barnard’s is pooled with 13 other institutions and managed by an organization called Investure.  In its report, the Task Force notes that the endowment consists of nearly 900 individual funds within Investure’s broader portfolio.  Among the 13 other institutions whose endowments are pooled with Barnard’s, several have already rejected divestment, including Middlebury and Dickinson College.

Additionally, Investure does not directly invest any of Barnard’s assets in fossil fuels, so all of the university’s energy investments are held in third party funds and managed by separate financial managers.  This makes divestment a very complicated process.  The Task Force itself admitted that its recommended form of divestment would take years.

“At June 30, 2016, Barnard’s endowment included approximately $18 million in private equity partnerships that had some exposure to the fossil fuel industry. While Barnard can sell its partnerships to others, it will likely have to do so at a discount resulting in losses to the endowment that the Task Force does not recommend. Rather, a commitment to divest from climate deniers would have to be achieved over a period of years and would not necessarily be fully realized until we liquidate our private partnership obligations.” (emphasis added)

The Task Force also added another layer of difficulty by recommending divestment from “climate deniers” without defining what exactly that means.  If the Board signs off on the Task Force’s proposal, Barnard would then need to create a working group to develop criteria for investment managers to use to screen fossil fuel companies.  By their own admission, this definition would be consistently changing based on the latest actions of a given company, which would require investments to change in tandem. From the report:

“It should also be noted that monitoring ‘climate deniers’ will be an on-going exercise, requiring constant review and probably additional management expense.” (emphasis added)

This finding is in line with a study by ASU Professor Hendrik Bessembinder, which found that transaction and management costs related to divestment can reduce endowment funds by as much as 12 percent over a 20 year timeframe.  Since Barnard’s divestment guidelines will be constantly in flux, it’s safe to say that their management fees will accrue quickly as financial advisors are forced to continually rearrange investments to comply.

From a purely financial gains and losses standpoint, The Task Force concluded “that it could not predict the future financial impact of fossil fuel divestment,” but it did run several investing models over a ten year time frame.  In one of the worst case scenarios, the fund would lose over 18 million dollars over that time span (see Table 4 of the report).

The Task Force will submit its new report to the Board’s Committee on Investments ahead of its annual meeting in December.  After this review, the Committee will recommend to the greater Board of Trustees whether or not the college should divest, with an official decision set for March 2017. Only time will tell if Barnard’s Board endorses the Task Force’s recommendation, but judging by the projected costs and admission of the ineffectiveness of divestment, the facts should prevail.