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September 25, 2017

“Fake Divestment” At Syracuse Didn’t Impact Endowment…Because it was Fake

Yesterday Syracuse University’s (SU) student newspaper ran an article proclaiming that the school’s decision to divest its direct holdings two years ago has not had an adverse effect on the endowment, contending that, “The university’s chief financial officer said there is no evidence the endowment has suffered as a result of divestment.”

Unfortunately, the paper missed some of the facts on divestment and what actually went down at Syracuse.

The claim that divestment did not impact the endowment flies in the face of what economist after economist predict based on the limitations on fund diversification as well as the transactional and other frictional costs associated with a divestment policy.  So how can these thoughtful analyses all prove to be wrong in SU’s case?  It’s not until halfway down that we get the answer: “By the time SU made a formal divestment announcement, the endowment already was not directly invested in any fossil fuel companies.”

That solves that mystery.

SU’s divestment decision didn’t cost the endowment any money, because they didn’t actually divest any fossil fuel stocks to begin with. In fact, SU’s divestment is the gold standard and namesake for fake divestment known as the “Syracuse model — when a college pledges divestment while having no fossil fuel investments to divest.  This is not a “signal” for financial managers, but just another example of the symbolic but empty impacts divestment often carries.

The “Syracuse model” has since been adopted by many other schools that hope to placate activists while actually retaining their fossil fuel investments.  These universities include (to name a few) the University of Massachusetts (UMass), which divested its direct investments in fossil fuels (approximately 1% of its entire endowment); Boston University, which agreed to “avoid” but not “divest” any coal and oil sands stocks; and Columbia University, which announced that it was divesting its direct holdings from companies that engaged in thermal coal production but not metallurgic coal production… but then did not confirm it had any such holdings.

Syracuse students should be glad this divestment was empty, as a healthy and diversified endowment is to their benefit.  It is their scholarships, their research programs, and their facilities that the endowment funds. Actual divestment would put these benefits at risk, but this fake divestment is just that.