As students head back to campus this fall, a national campaign aimed at forcing endowments to divest from fossil fuels will no-doubt kick up again, with national organizers from groups like 350.org urging students to rally to the cause. But just how has divestment fared over recent years, and how effective has it been? As the New York Times explains, “on college campuses, where the movement began roughly four years ago, divestment drives appear to be meeting some resistance.”
Whether heading back to campus or simply monitoring this debate as it unfolds, here’s what you need to know about divestment.
More schools are rejecting divestment than moving forward
What do Stanford University, New York University, Cambridge University, George Washington University and the University of Utah all have in common? These are just some of the country’s leading universities that have rejected divestment in the last six months alone, as have top tier schools like Swarthmore College, ironically the birthplace of the divestment movement, and Middlebury College, found in the home state of the divestment movement’s founder Bill McKibben.
As the President of Harvard University, another elite school that has 1) rejected divestment and 2) has the largest endowment of any other university, stated in opposition to divestment, “I don’t think that divestment is an appropriate tool, because I don’t think the endowment should be used for exerting political pressure. It is meant to fund the wide range of activities that the University undertakes. As we said before, 35 percent of our operating budget comes from the endowment. That is why people gave their funds to create the endowment. It should not be used as a weapon to exert pressure on one group or another.”
The few schools that have agreed to divest are only giving up virtually non-existent “direct holdings”
When the University System of Maryland Foundation (USMF) announced it would “divest” from fossil fuels, divestment activists cheered victory. But, as DivestmentFacts.com noted earlier, USMF, along with UMass and the DC pension fund, are examples of empty gesture divestment pledges, also known as users of the “Syracuse model.” In this scenario, like so many others, USMF announced it would only sell direct investments from fossil fuels. Think of it like managing your own personal investment account, where you can sell off individual stocks, versus attempting to manage your 401K account, which is invested in a variety of funds meant to provide a consistent return overtime.
According to the school paper, USFM, for instance, “has no direct investments in coal, tar sands or any companies on the Carbon Underground 200 list.” So what exactly is the school divesting?
USFM is not alone, of course. As Bloomberg explains:
Georgetown University said it would purge its $1.5 billion endowment of direct coal holdings, with President John DeGioia saying climate change “requires our most serious attention.” The Washington university later said the amount involved was “insubstantial.”
Oxford University, calling itself “a world leader in the battle against climate change,” said in May it would avoid direct investments in coal and oil-sands companies in its $2.6 billion endowment. The British university, in fact, held none, it said. Syracuse University similarly announced it would divest from fossil fuels only to say it had no direct holdings.
Last May, Stanford’s President John Hennessy, citing his school’s responsibility “as a global citizen to promote sustainability for our planet,” said the university would divest direct stakes in the 100 largest coal-mining companies. Student activists at Stanford Fossil Free called it “a groundbreaking victory.” The commitment amounts to only a “small fraction” of the portion of the $21.4 billion endowment that the university manages itself, according to Lisa Lapin, a Stanford spokeswoman. Lapin declined to say how much the university manages directly.
By selling only direct funds – much to the applause of activists – endowments can say they have “divested” without having to incur the actual costs of doing so. This is because these schools have little to no direct investments to begin with while the majority of their holdings sit in co-mingled funds.
Unlike schools that follow the Syracuse model, schools that actually divest fossil fuel holdings are looking at an expensive and complex process.
Yes, divestment is really costly for schools
When students and faculty across the country return to campus to enjoy the benefits of their endowment, such as financial aid, research grants and cutting edge facilities, they should keep in mind the real cost associated with divestment that would directly threaten these activities. A recent report by Prof. Hendrik Bessembinder from Arizona State University, for instance, looks at the hidden costs that accompany divestment, including the fixed costs related to complicated transactions and actively managing a “fossil-free” endowment. The report found that a typical large endowment like the USMF would translate into a loss in value of as much as $7.4 billion over 20 years. Those numbers alone should be enough to question the merits of divestment.
Another report from Prof. Daniel Fischel of the University of Chicago published a study that explored the impact on investment revenues, finding schools that sell their fossil fuel assets can expect returns 70 base points lower than their peers. Apply that to the $456 billion that comprises total university endowment assets and this deduction would decrease annual growth by nearly $3.2 billion each year.
Fischel’s conclusions were corroborated in a second study by California Institute of Technology Prof. Dr. Bradford Cornell who explored the impact of divestment on a small group of elite schools. Assessing Harvard, Yale, MIT, Columbia and NYU, he found that if each school divested their endowments, they would collectively experience more than $195 million annually in lost returns. Not surprisingly, each of these five schools has chosen to reject divestment, despite sustained campaigns to force their hands.
Faulty divestment figures reveal little divestment support
Despite claims from groups like Arabella Advisors or The Guardian, the total amount of universities and organizations that have actually divested is quite small. Activists often push over-exaggerated numbers alleging $2.6 trillion or even $3.4 trillion has been divested. But outlets like MSNBC, Mother Jones and The New York Times were all quick to debunk these numbers as flawed and misleading. As Mother Jones explains:
“That big number—$2.6 trillion—has nothing to do with the amount of money that is actually being pulled out of fossil fuel stocks. In fact, the investment consultancy behind today’s report has no idea how much money the institutions surveyed have invested in fossil fuels, and thus how much they have pledged to divest. Instead, that number refers to the total size of all the assets held by those institutions—hence the word “representing” in the quote above from the report. And that’s a huge difference.”
And as noted earlier, many U.S. schools included in this list of institutions that follow the “Syracuse Model” don’t hold or divest any assets at all.
Even still, if this logic was used to calculate the total endowment of schools that have fully divested within the United States, the total amount only adds up to roughly $2 billion dollars. This is because a good portion of schools that have pledged to divest are small colleges with less than 1,000 students like Warren Wilson College and Unity College. If $2 billion sounds like a lot, it absolutely pales in comparison to the $456 billion that constitutes total U.S. university endowment assets. Just comparing it to Harvard University’s $36 billion endowment that rejected divestment makes the case clear.
Divestment has no tangible impact on the environment
Most importantly, and perhaps most ironically, divestment does not accomplish the very objective its supporters claim to fight for. Academics and institutions have agreed that divestment does little in the way of actually reducing greenhouse gas emissions and combatting climate change. The American Securities Project found divestment would “not cause any meaningful financial impact to fossil fuel companies, but could hurt the universities and colleges that depend of fossil fuel share dividends.”
Frank Wolak, the director of the Program on Energy and Sustainable Development at Stanford, has also highlighted the environmental costs of divestment. He states, “Divestment comes at the expense of meaningful action. It will do nothing to reduce global greenhouse emissions. It will not prevent these companies from raising capital.”
Outside of colleges, major endowments, pensions and charitable funds are rejecting divestment, opting for engagement
The Guardian’s original “Keep-It-In-The-Ground” campaign focused on pressuring the Gates and Wellcome Trust to divest from fossil fuels. Both foundations ultimately rejected divestment and opted for real solutions instead. Bill Gates was even more succinct, calling divestment a “false solution” and launching a new Breakthrough Energy Coalition aimed at bringing some of the world’s largest private companies together to invest billions into energy research and development.
As scholars and individuals in pursuit of knowledge, students and faculty members should keep in mind the facts when heading back to school: divestment is an empty gesture that is losing steam. Is it really worth the financial risk?
All quotes featured by professors and school leaders on this website are public statements made by individuals and are not necessarily representative of the institution of which they are associated. Said schools and universities are also not affiliated with IPAA or DivestmentFacts.com.