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September 20, 2016

BU Divests Without Actually Divesting in Latest Climate Announcement

UPDATE: We told you yesterday that the recent BU Board climate announcement amounts to nothing more than lip service to protesters, and it seems that the Divest BU group on campus agrees.  After the announcement was made public, they released a pretty blistering statement that right off the bat called out this decision for what it is:

BU remains invested in the fossil fuel industry. According to an email from President Brown sent out to the school today, our Board of Trustees decided last week to  “commit, on a best-efforts basis, to avoid investing in coal and tar sands extractors”, using vague language that does not guarantee a commitment to divestment. The Advisory Committee on Socially Responsible Investing (ACSRI) recommended both divestment from coal and tar sands as well as divestment from companies continuing to explore for more fossil fuel reserves. The Board of Trustees not only inadequately addressed the first portion of the recommendation, but also completely neglected the second, failing to take a true stance against the role every fossil fuel company plays in the urgent crisis of climate change. They have placed BU on the wrong side of climate history by continuing to support oil, natural gas, and the rest of the fossil fuel industry.” (emphasis added)

When the university’s own divest group can’t find anything positive from BU’s climate pledge, you know that there’s no substance to it.

 

After meeting last week, the Boston University Board of Trustees decided to adopt a broad Climate Action Plan, which “[includes] efforts to avoid investments in companies that extract” coal and oil sands.  The plan also sets goals for greater energy efficiency on campus, additional climate research and the inclusion of investment managers with expertise in the renewables space.

Pro-divestment activists, who staged rallies on campus ahead of the Board’s annual fall meeting, will no doubt tout this as a victory.  But, it doesn’t take much to see that this is one of the weakest attempts at “divestment” yet, following in the footsteps of the Syracuse model.  In fact, the term divestment doesn’t even apply here, as that would actually require selling assets.  Instead, as reported in BU Today:

“The trustees noted that total avoidance of coal and tar sands companies may not be possible, because the University’s portfolio includes vehicles such as mutual funds, whose managers choose stocks, and passive index investing. That latter is tied to the performance of a particular stock index—say, the S&P 500—whose holdings BU has no say over.”

So in reality, the Board is not compelling investment managers to sell anything, and recognizes that it can’t really be done.  In fact, it’s not clear how many direct assets BU’s $1.6 billion endowment even has invested in those resources to begin with, but in last year’s annual report, the school noted that a majority of all investments are in limited partnerships and commingled funds.

As schools like UMass and the University of Maryland continue to appease protesters by making thinly-veiled “divestment” decisions, they continually add up to nothing more than an empty gesture that barely moves the needle.  There is a reason that universities are unable and unwilling to commit to full divestment, it’s incredibly expensive.

As Prof. Hendrik Bessembinder tabulated in this recent report, full divestment could cost universities millions of dollars in management and transaction fees alone.  It’s precisely because most endowments are invested in commingled assets like mutual funds, index funds and ETFs rather than direct equity holdings.

On top of that, portfolios that divest from the energy sector are set to lose millions more in lost profits.  As Prof. Fischel discovered, this is because fossil fuel investments are one of the most effective ways to diversify a portfolio and hedge against inflation.

There’s not much to this BU announcement, and one can assume it’s because the Board understands divestment to be a pointless and costly strategy.  Even Divest BU Secretary Masha Vernik acknowledged that the push for divestment was symbolic when according to the Daily Free Press she said at a recent rally, “When we take our money out of fossil fuel, it morally discredits [fossil fuel companies].”

Notice she did not mention anything about stock prices or CO2 levels.

Time and time again we’ve seen that divestment neither impacts targeted companies, nor has any effect on climate change.  BU is the latest of a string of universities to appease students with weak climate declarations, only this time they didn’t even promise to “divest.”