July 10, 2015

Columbia J-School Dean: Engagement, Not Divestment, the Better Approach on Climate

Thursday night’s panel discussion hosted by Columbia University, billed as a high-level discussion on fossil-fuel investments in a carbon-constrained world, included surprisingly little discussion on the topic of fossil fuel divestment, as well as a noticeable lack of students — especially from Columbia. Sitting right there in the audience ourselves, we couldn’t help but leave with the distinct impression that most folks in the room were sincerely concerned about climate change, and utterly unconvinced that divestment represents a sensible or effective way of addressing it.

The panel included Jeffrey Sachs of Columbia; Ken Cohen of ExxonMobil; Stephen Coll of Columbia’s Graduate School of Journalism; Todd Kendall of Compass Lexecon; and Patrick McGinley, who teaches at West Virginia Univ.’s College of Law. The panel was moderated by Michael Gerrard of Columbia Law School.

Whenever mention of divestment did find its way into the discussion, it wasn’t for long – and it wasn’t treated as a particularly sophisticated idea.  Noted shortcomings of the tactic referenced by the panelists include the effect it would have in diminishing shareholders’ ability to engage targeted companies, and influence their positions on issues from within.  At one point, Steve Coll emphasized that “if you want to change the laws, strategic engagement is going to be necessary.”

The blunt force weapon of divestment (one person we heard described it as using a hack-saw to cut roast beef) was also called to the mat by Coll for its failure to account for and differentiate among the wide variety of assets that a typical oil and gas company may have in its portfolio.  “There are complications in calculating the emissions from natural gas extraction versus heavy oil versus light oil versus coal, but those facts matter,” Coll said.  “Surely there is a difference between the least offensive natural gas holdings” and other assets that some may find objectionable. “I recognize there are some campaigners who don’t see the difference… but Exxon Mobil is 50% a natural gas company. That has to be part of this negotiation.”

Coll’s reservations about the effectiveness of divestment were shared by his co-panelist, economist Todd Kendell, who worked with University of Chicago’s Daniel Fischel on the ground-breaking report “Fossil Fuel Divestment: A Costly and Ineffective Investment Strategy.”  In his presentation at Columbia yesterday, Mr. Kendall enumerated once again the numerous (and voluminous) costs the university would be forced to bear if it were to go down the road of divestment – namely: big-time trading and compliance costs, and a loss of all the benefits you typically get from having a diversified portfolio. Turns out, your portfolio can’t really be considered diversified if you exclude such an important (and uncorrelated-with-the-rest-of-the-economy) sector such as energy from the mix.

As Kendall stated: “Over a 50 year period, (divested universities) are talking about a 20-25 percent loss in the value of their equity portfolios.  For a college or university, that’s a substantial hit to its ability to satisfy goals: to fund research, to fund student scholarships; these are all things that are potentially lost when you (divest).”

To our surprise (we won’t underestimate you again in the future, Columbia!), the absolute folly and futility of divestment was a fairly well understood concept among those in the audience, including Sister Pat Daly, a representative of institutional faith investors that has owned stock in ExxonMobil for over 20 years.  Although Sister Daly was happy to challenge Exxon’s Cohen, on a few issues – that’s basically been her job for the past 35 years — she made quite clear that she was no fan of divestment herself.

For his part, Columbia’s Jeff Sachs focused most of his arguments on other subjects entirely (as he is wont to do) – stuff like demanding that industry speed up its research efforts and find new solutions for addressing climate change.  Solutions that enviros themselves refuse. As Sachs stated during the event:

“Let me also add a couple of things for my environmental friends. Every kind of energy alternative creates problems you don’t like. So if you happen to be in Nantucket, you don’t like wind turbines. In Chile, which uses fossil fuels, they didn’t want power lines to bring hydro power and the activists protested against the zero-carbon hydro power. Now many of you, but not me, are against nuclear power; you don’t want that either. And some projects in the desert, you don’t want to upset the desert lizards which large solar fields. And I mean this seriously: if I have to vote I’m going to vote first for electricity.”

Sachs did suggest that divestment as a strategy was bound not to work because the underlying problem it seeks to fix“ is a long-term and complicated problem.” He added: “We have a $106 trillion world economy that runs 80 percent on fossil fuels … it is not like a construction set where you can shut down the world economy for 10 years and retool it.”

ExxonMobil’s Cohen agreed with this assessment and described how his company is taking the lead on investing in the research for a breakthrough technology (and maintaining its position as a world leader in carbon capture and storage technology) while simultaneously, you know, keeping everyone’s lights on and providing the fuel we need to attend the event that evening.

Said Cohen: “We view our role at ExxonMobil as two pronged. One is to provide the energy that is making this possible today, making modern life possible today around the world, while at the same time reducing the environmental footprint that is associated with energy production and use.”