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June 22, 2016

Cambridge Rejects Divestment, Latest Blow to Divestment Movement

The month of June has not been kind to the divestment movement, with two major universities already deciding not to divest their endowments from fossil fuels.

First, as DivestmentFacts.com already noted, NYU announced it would not divest in a memorandum to students and faculty.  Shortly thereafter, Cambridge University also rebuffed calls to divest, becoming the latest in a string of recent rejections from high-profile universities.

With one of the largest endowments in Britain, Cambridge has been an ongoing target of divestment activists. As made clear in their official report on the matter, however, Cambridge understands that selling its direct holdings amounts to nothing more than an empty gesture.   Instead of divesting, the university instead opted for engagement. From the announcement:

“As is the case with many other charitable institutions, the University holds most of its investment portfolio indirectly. The overwhelming majority of investments (outside individual property assets) are managed on a discretionary basis by external investment managers selected and monitored by the University’s Investment Office, with the oversight of the Investment Board. In this context, the direct exclusion of individual investments that are otherwise legal is considered to be neither an appropriate ethical, nor indeed a practical, policy. Indeed a tokenistic approach may be counterproductive, as there is no guarantee that a desired outcome could be achieved merely by selling a particular share or other investment. Instead, the University intends where possible to pursue a constructive process of engagement and, given the Office’s intermediated investment model, reliance will be placed on working with its selected investment managers.”

Cambridge also decided not to invest in coal or oil sands moving forward, but does not currently have any direct holdings in either and has only a small amount of coal investments in comingled funds.

The Cambridge rejection is the latest blow to the divestment movement, whose most notable accomplishment in the last year has been the paltry decision from UMass to sell only its direct holdings in fossil fuels.  Heralded as a victory by activists, the numbers show that pledge amounts to less than one percent of the entire endowment, while energy investments in comingled funds remain untouched.  As IPAA’s Jeff Eshelman highlighted in The Hill, the UMass decision is “not exactly a big change, but one you may have missed given the media attention around the decision.

Schools continue to avoid divestment because it’s incredibly expensive.  As a recent report by Arizona State University’s Prof. Hendrik Bessembinder shows, divestment can cost endowments as much as 12 percent of their total value over a 20-year timeframe, in transaction and management fees alone. Compounded with Prof. Fischel’s research which calculated the negative impact that selling fossil fuels will have on a portfolio’s economic performance,  it is clear that the symbolic act of divesting is a losing proposition for the school, students and faculty.  As IPAA highlighted in the East Bay Times last week, “Giving up a financial stake in the energy sector is costly strategy and ineffective at generating anything more than a headline.”