September 15, 2017

BREAKING: Johns Hopkins Advisory Committee Reviews Divestment, Highlighting Empty Gesture Approach

The Public Interest Investment Advisory Committee (PIIAC) at Johns Hopkins has released their recommendation and report on divestment, a document that will now go to the Board of Trustees for consideration. The report – while having zero actual authority on a future decision by the university — calls for partial divestment of the university’s already limited fossil fuel investments and “monitoring of comingled accounts.” Ironically, the report simultaneously calls out many of the exact reasons why dozens of colleges have said no to this costly gesture.

Here’s what you need to know.

1) No direct fossil fuel holdings to begin with. From the report, “As of March 2017 there were no direct holdings in the University’s equity portfolio of CU 200 companies. However, we do not have information for the period between April 2017 and the present, and so recommend that any such direct holdings be divested. In addition, we recommend that there be no new such direct investments going forward.”

In other words, the endowment has no fossil fuel holdings to begin with and they recommend continuing with the status quo. This is in line with previous “Syracuse model” gestures, an approach where a university agrees to only divest their direct holdings while having no direct investments to begin with.  How impactful.

2) Recommends divesting “operating cash accounts” of fossil fuels. The report recommends the school to “divest immediately from bond holdings in Carbon Underground 200 companies (CU 200).” It goes on to state, “Currently Johns Hopkins’ direct investments in the CU 200 companies amount to $6.4 million. This exposure is solely from bonds in the operating cash accounts. The operating cash accounts are not a portion of the University’s endowment.”

Translation: Any divestment that would occur would not be related to the university’s endowment at all.

3) Opts for “monitoring” over larger divestment. The report notes for co-mingled funds Hopkins should “Monitor investment in CU 200 companies, with minimum of annual reporting of such investments and with the goal of reducing the amount of such holdings over time.” This approach makes a lot of sense given the high transaction and management costs of divesting.

4) Report acknowledges concerns of divestment. To the advisory committee’s credit, the group includes many of the concerns surrounding a larger divestment decision. For starters, that divestment is ineffective and has been rejected by many leading colleges. From the report:

“High-profile schools with large endowments, Harvard University being the most prominent, debated but ultimately decided against divestment. Billionaire philanthropist Bill Gates called divestment one of the “false solutions” to the energy crisis, seemingly considering it a misleading quick-fix.”

The report also calls out the lack of impact divestment has on targeted companies, despite supporting it as a symbolic tactic anyway:

“Divestment advocates and critics agree that the strategy is not likely to have any direct financial impact on fossil fuel companies. When institutions or individuals divest, the stocks and bonds they sell are bought by other investors. Furthermore, much of the global fossil fuel supply is held by companies that are owned by governments that do not publicly trade their stock. Nor will divestment, in and of itself, reduce the levels of carbon emissions and greenhouse gases that cause climate change.”

The report continues, highlighting comments from leading professor Robert Stavins of Harvard:

“Some critics of divestment argue that, as a symbolic gesture, its influence will be at best negligible and at worst pernicious. Robert N. Stavins, a Harvard professor and leading scholar of climate change policy, considers divestment an easy, feel-good measure that distracts attention from the more difficult but necessary changes in public policy “at the international, national and sub-national levels.” Many of the universities and colleges in the U.S. that decided against divestment from 2011 to 2016 articulated similar arguments, suggesting that constructive engagement or renewed commitments to green energy would have better success at slowing climate change.”

Not exactly arguments that support a future decision to divest.

Bottom Line: Today’s report is a non-binding suggestion more than anything else. It is up to the Board of Trustees to decide if Hopkins should actually divest. What we do know now, however, is that Hopkins has no direct fossil fuel investments in its endowment, and any future divestment would be a Syracuse model empty gesture at its finest.  We will wait and see what happens next, but for now this report is just another suggestion.