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October 22, 2015

MIT Latest Major University to Reject Divestment

After months of discussion and debate, Massachusetts Institute of Technology announced it will not divest its endowment from fossil fuels, echoing previous comments from the university doubting the merits or effectiveness of divestment.  Instead, the school announced a “plan for action on climate change” that places a greater emphasis on engagement and research initiatives. As the Boston Globe notes, MIT is the latest in a long string of universities to consider, and ultimately reject divestment, “But most colleges, including Harvard, have rejected the idea of divestment. Harvard says the endowment is intended “to advance academic aims, not to serve other purposes, however worthy.”

The push to divest came primarily from a student group, Divest MIT, which had lobbied university officials to rid MIT’s $12 billion endowment from all fossil fuel holdings.  President Reif and the administration agreed to meet with group representatives and held ongoing conversations with them over the past year, but ultimately concluded that divesting is not a viable solution:

“We believe that divestment — a dramatic public disengagement — is incompatible with the strategy of engagement with industry to solve problems that is at the heart of today’s plan. Combatting climate change will require intense collaboration across the research community, industry and government.”

 Similar to what other experts have argued in the past, MIT’s official statement characterized divestment as an empty gesture, accomplishing nothing more than symbolism:

“In our judgment, a symbolic public move to divest is not the most effective way for MIT to drive progress on climate, and pursuing it would interfere with two promising strategies: active engagement and bold convening.”

This is not the first time the MIT and its faculty has spoken out about divestment.  In July, the MIT Climate Change Conversation Committee was tasked with exploring the effects of selling all fossil fuel holdings.  After much debate, the group also rejected calls for blanket divestment:

“The committee rejected the idea of a blanket divestment from all fossil fuel companies, primarily because of (i) a view that any positive effect could be diluted by lumping together firms that differ dramatically in their roles in the climate issue, and (ii) a concern that such action could cause significant loss of engagement opportunities with companies (including research funding and opportunities to influence corporate behavior).” (Report of the MIT Climate Change Conversation Committee)

As recent academic reports have highlighted, divesting is not just ineffective, but could prove costly to students.  Dr. Bradford Cornell, Visiting Professor at the California Institute of Technology, pinpointed exactly how MIT’s endowment would fare from divesting.  According to his report, if MIT were to rid its $12.4 billion dollar endowment from fossil fuels, it would mean losing almost $18 million in gains every year.  Compounded over a span of decades, that number becomes significant.  In addition, tracking endowment performance over 50-years, the fund would be reduced by more than seven percent.

Such declines in portfolio performance can have a real impact on schools, students and faculty.  As Prof. Daniel Fischel found in this groundbreaking study earlier this year, divestment is not an effective strategy, and does not accomplish anything of substance.  However, between compliance costs and sustained losses, divesting can backfire on institutions.

“These costs reduce the returns of an institution’s investments and thereby reduce the institution’s ability to achieve its goals. As one article on university endowment spending by the Association of American Universities noted, ‘[b]y far the most common categories of endowment expenditures are scholarships and financial aid, faculty chairs and salaries and academic support programs…’ The costs imposed by divestment therefore have real impacts on institutions and those who rely upon them.”

A university like MIT that prides itself in cutting edge research world be missing out on substantial funds that could be put toward finding innovative solutions or funding student support.

Ultimately, MIT made the right decision for the university and its students regarding divestment.  As President Reif said in today’s official announcement:

In our judgment, the deliberate public act of divestment would entangle MIT in a movement whose core tactic is large-scale public shaming. This would retard rather than encourage the open collaboration and ability to hear new ideas that are central to our research relationships, central to our ability to help government and business think creatively together, and central to our ability to convene and inform the thinking of those with opposing views.” (emphasis added)

In the end, MIT’s administration based their decision their research which showed how ineffective, and ultimately fruitless, the strategy of divesting can be in addressing climate change.