June 5, 2017

In Another Blow to the Divest Campaign, Yale Says No to Divestment from Exxon

This weekend, the Yale Daily News announced that the University’s Advisory Committee on Investor Responsibility will not recommend divesting from Exxon Mobil. According to the Chairman of the committee, “Exxon does not appear to be engaging in any conduct or activity that would warrant divestment…There doesn’t seem to be any basis for singling them out for divestment.”

This isn’t the first time Yale has said no to costly divestment measures. In August 2014, Yale’s Corporation’s Committee on Investor Responsibility recommended against divestment, stating it was not “the right means” of addressing concerns related to climate change. Yale has instead focused on tangible efforts to support the environment, including sustainability initiatives on campus. The university also called upon the endowment fund’s managers take into account climate change when making investment decisions, stating “You should encourage managements to mitigate financial risks and to increase financial returns by reducing greenhouse gas emissions.”

In April 2016, Yale again made it clear it would not engage in divestment. University President Swensen stated in a letter to the Yale Community this week that the school was selling its holdings in three companies it found “inconsistent with our principles.” According to the letter, “as of June 30, 2015 the Endowment had de minimal exposure to {thermal coal miners and oil sands producers}. One manager held a small position in a publicly-traded company that engaged in the production and sale of coal. Another manager held interests on Yale’s behalf in two publicly-traded oil sands producers. Combined, these investments represented less than $10 million of exposure to Yale.”

This $10 million pales in comparison to Yale’s nearly $24 billion endowment –the second-largest university endowment in the country – and was described by student divest groups as progress but that  it “didn’t reflect any commitment to divestment on the part of the university.” Furthermore, the letter from Swensen made no mention of oil and natural gas companies – a clear sign of the University’s continued investment into these firms.

It’s no surprise that Yale continues to say no to costly divestment as report after report highlights the high costs and ineffectiveness of divestment.  According to a report by Dr. Bradford Cornell, a visiting professor of financial economics at Caltech and a senior consultant at Compass Lexecon, divestment would cost Yale roughly $51 million each and every year. Meanwhile, Yale’s endowment provides a third of the university’s operating income, supporting “professorships, student scholarships, maintenance, and books.” Another report from Prof. Bessembinder at the W.P. Carey School of Business at Arizona State University finds divestment would result in a 15.2 percent annual reduction in endowment spending. That reduction could lead to as much as $3,265 increase in tuition per student per year, or as much as an 11.5 percent reduction in faculty spending for a private college like Yale.

Furthermore, the well understood reality is that divestment has nothing to do with climate action or supporting the environment. As fellow Ivy League professor Robert Stavins of Harvard University has pointed out, “the message from the divestment movement is fundamentally misguided…We should be focusing on actions that will make a real difference.”  Other Harvard officials have stated, “We agree that climate change is one of the world’s most urgent and serious issues, but we respectfully disagree with Divest Harvard on the means by which a university should confront it.”

Divestment from Exxon or any other oil and natural gas company is just a costly gesture that stands to hurt students while doing nothing to help the environment. Yale made the smart move, saying no to another costly divestment decision.