April 13, 2018

NYU and Middlebury Stand by Their Decisions to Reject Divestment

This week administrators at NYU and Middlebury College stood their ground against student activists demanding fossil fuel divestment.  In both instances their reasons were simple and straightforward; fossil fuel divestment will decrease investment returns and damage the endowment, a realization the Chief Investment Officer for the New York City Retirement System came to this week as well.

If this is starting to sound like the movie Groundhog Day, it’s because NYU rejected divestment in June 2016 and then again in December 2017.  Middlebury College, despite being the employer of divestment fanatic and 350.org founder Bill McKibben, was quick to reject divestment way back in August 2013.   And university boards and administrators will continue to reject divestment no matter how many years go by or which students take up the cause because there is a fundamental flaw in the policy: it asks administrators to renege on their fiduciary duty for an entirely symbolic gesture.

In the words of Middlebury’s investment manager, Alice Handy, when she was arguing that fossil fuels are still critical to the energy sector in the United States:

“We have a long way to go in the country. Your board has said that if these are good investments, you should be making them.”

And as Marc Wais, the Senior Vice President for Student Affairs at NYU, put it in a blistering letter to students this week:

“With regard to divestment, there appears to be several faulty premises underlying your demand…The Board is not bent on making fossil fuel investments.  Their concern is that prohibiting such investments would exclude NYU from participating in many, many funds that they believe are important for growing the endowment, which in turn supports NYU’s academic mission and student financial aid.”

This latter point is important. Though  students are often quick to malign administrators for not pursuing divestment, they are ultimately looking after the best interests of the school, the students and the faculty.  In fact, Dr. Hendrik Bessembinder, a finance professor at Arizona State University, calculated that between trading costs, compliance costs and diversification cost “the average endowment ‘hole’ created by fossil fuel divestment results in a 15.2 percent drop in transfers from endowment accounts to school programs.”  This means increased tuition rates (or a reduction in scholarship offerings) and a reduction in faculty spending, which could lead to fewer classes or increased class sizes.

One can only hope student activists decide to think through the consequences of divesting before submitting yet another divestment proposal to their boards.  At the end of the day, they are taking up their administrators’ and board’s precious time advocating for a policy that has already been so rigorously (and reasonably) rejected.