April 24, 2017

Divestment Forum at Johns Hopkins Underlines Flaws of Divestment

A recent forum at Johns Hopkins University (JHU) explored the topic of fossil fuel divestment with a group of panelists with varying opinions on the issue. Once again, the reality of divestment as an ineffective and costly investment strategy was center stage.

Divestment has been debated at Johns Hopkins over the past few years, and a proposal to divest from the Carbon 200 is currently being considered on campus by the Public Interest Investment Advisory Committee (PIIAC), a group created by the Board of Trustees.

Panelist Frank Wolak, who heads the program on energy and sustainable development at Stanford, made the case against divestment.  He rightly claimed that divestment would not be financially impactful and that the negatives of divesting far outweigh the benefits. “Even if all universities decided to divest, this would have no effect on global equity markets and no effect on the ability of these companies to raise capital,” he stated.

Wolak, who is also a professor of economics at Stanford, instead highlighted more tangible ways for the university to impact climate change.  He proposed projects like an app to monitor student carbon footprints, as opposed to divestment which would only make a “trivial” impact on emissions.

Rafael Castilla, director of investments at the University of Michigan’s Investment Office, also spoke to the hypocrisy of “demonizing” fossil fuels—which is inherent in the act of divestment.  He proved his point by stating, “I took a plane over here, [which] burned jet fuel. In the house I live in we burn natural gas.”

On the other side of the issue, Ellen Dorsey, executive director of the Wallace Fund, argued in favor of divestment at the forum.  She overstated the abundance and stability of renewable energy resources, claiming it is an “exploding industry” and that “what began as an ethical call to action quickly became aligned with financial self-interest.” While it is true renewables continue to grow, Dorsey’s argument ignores the financial realities of the fossil fuel industry, which include a continued global dependence on these resources and the improving price environment to name a few.

While the Johns Hopkins divestment proposal has received support from the Student Government Association, the JHU administration is less keen to embrace this strategy.  In a recent interview with the student newspaper, University President Ronald J. Daniels raised concerns about how to implement divestment and how selling shares of a particular company could introduce a slippery slope moving forward.  From the Johns Hopkins Student-Letter interview:

“’It’s important to figure out how to draw principled lines around what you would want to divest if you decide to divest. If you are going to think about divestment, is it just coal? Is it all fossil?’ …One could go on and on in terms of things that we find odious about types of corporate behavior. But then the question is ‘are every one of these going to be a target?’ That was an important theme that came up in the session last night.”

JHU Provost Sunil Kumar also called divestment “a serious matter” in advance of the forum. He continued:

“Divestment is a serious matter, because there are social as well as financial considerations we have to pay attention to. We have to make sure we get the best possible financial strategy to support the whole mission of the university—which involves funding student scholarships as well as supporting our research mission. But we also have to live up to our commitments to be stewards of the environment, and to show our values in our decisions.”

Those complex ways include new costs of investment decisions – such as the transaction and management fees of divestment – as well as issues of effectiveness, with divestment merely transferring shares in a company and not actually impacting the environment. According to the student newspaper, “nearly a third of the university’s $3.8 billion endowment is privately invested” and “$35 million of the endowment directly invested in fossil fuels.”  In turn, any decision to divest will lead to frictional costs of divestment – costs that have the potential to rob endowment funds of as much as 12 percent of their total value over a 20-year timeframe.

The Hopkins divestment group Refuel our Future has since staged a sit in on campus, and is calling for a decision on divestment by the Public Interest Investment Advisory Committee May 17 from the university.  It is unclear if that deadline will be met, but if the rejections from other schools say anything, we can expect a “no” from the university in the future.