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October 6, 2016

The University of Denver’s Divestment Debate: What Have We Learned So Far?

Today, a special task force at the University of Denver (DU) will hold its final scheduled hearing into fossil-fuel divestment. According to the program, the task force will hear from DU student activists who support divestment.

At this point in the process, it’s worth reviewing what we have learned since the first public meeting of the task force three months ago.

350.org is running the campaign, not students

If the task force actually hears from DU students today, it will be a first. At two previous hearings, paid activists with 350.org – based in New York City – have presented the pro-divestment case. In fact, at the second such hearing, 350.org took the place of the “Divest DU” students who were supposed to present at the last minute.

This was not surprising. Divest DU’s petition calling for divestment is largely word-for-word reprint of the template petition drafted by 350.org for use at universities across the country. In fact, the DU campaign is one of hundreds organized by “Fossil Free,” the pro-divestment arm of 350.org.

According to The Seattle Times, the fossil-fuel divestment campaign aims to “demonize” producers of oil, natural gas and coal. Convincing universities to shun investments that touch oil, gas or coal creates “a growing stigmatization of fossil fuels, which then leads to political space for restrictive legislation,” according to 350.org analyst Brett Fleishman, who spoke to the task force on Aug. 4.

In the quest to stigmatize fossil-fuel companies and fossil-fuel workers, 350.org has compared the oil, gas and coal production to the “crimes of slavery, totalitarianism, colonialism or apartheid.” Bill McKibben, the founder of 350.org, has compared the fossil fuel industry to Nazi Germany and describes the climate policy debate in war-like terms. Elsewhere, McKibben has called the fossil fuel industry as a “zombie” that he’s determined to “kill.”

In Colorado, 350.org is also one of the national activist groups behind a series of anti-fracking ballot measures which aim to shut down the state’s oil and natural gas sector. These measures have failed to make the ballot in 2014 and 2016 thanks to broad, bipartisan opposition. For example, Gov. John Hickenlooper (D) has called these efforts “radical” and “extreme” and Ken Salazar – a former U.S. Senator for Colorado, former Interior Secretary for President Obama, and current head of Democratic presidential candidate Hillary Clinton’s transition team – has warned these “ill-conceived” measures would “undermine businesses across the state, damage our economy and kill jobs.”

The fossil-fuel divestment campaign at DU isn’t the work of student activists. It is run by a national anti-fossil fuel group as part of a much bigger campaign against the state’s energy sector. And the handful of students recruited by 350.org have been misled, unfortunately, into creating a platform for fringe environmental campaigning at DU.

Fossil-fuel divestment makes DU faculty nervous

The last meeting of the DU divestment task force, on Sept. 29, heard from four faculty members. They were representatives of the Faculty Senate and experts in sustainability and philanthropy. Not one of them – not a single one – called on the DU trustees to divest from fossil fuels.

This was remarkable, because earlier this year the activists successfully lobbied the Faculty Senate into passing a favorable resolution on fossil-fuel divestment. But closer examination of that debate revealed serious misgivings about the issue among DU faculty.

In June, a report from the Faculty Senate’s outgoing president Dr. Arthur Jones explained the problem. There was “considerable disagreement” within the ad hoc committee set up to study the issue, and the group eventually settled on a “symbolic recommendation” for fossil-fuel divestment. When the full Senate voted on the symbolic divestment measure, almost a third of its members still opposed it. A major concern was the potential for divestment to “impact negatively the institution’s efforts to increase resources for financial aid,” Jones said.

Later, DU Associate Dean for Academic Affairs Dr. Frank Laird called fossil-fuel divestment a distraction from the real work of developing energy sources that can eventually take over from fossil fuels. “Changing a system like that is the work of a lifetime, and then some,” Laird said. “There is no shortcut,” he added. “The divestment movement promotes a narrative that says we can short-circuit that long and difficult process of changing the system. As such, it diverts time and attention away from the very difficult and complex task that lies before us,” Laird said.

Financial experts warn against divestment

In mid-August, the task force heard from Wendy Dominguez of Innovest Portfolio Solutions, an investment advisory firm based in Denver, who discussed the hidden costs of fossil-fuel divestment. She cautioned that increased portfolio risk and underperformance could threaten the viability of endowment-funded educational programs.

Untangling DU’s endowment – worth more than $600 million – from any investment touching oil, natural gas or coal would be an arduous and costly process. Furthermore, Dominguez cautioned that DU would have difficulty finding a financial manager willing to take on a portfolio full of stipulations that increase financial risk.

Then there are the transactional costs. Dominguez estimated it could cost hundreds of thousands of dollars to review each of DU’s commingled investment funds for connections to fossil fuels. She also warned this would be an ongoing expense:

“You can’t just set the policy and expect the managers to go ahead and do this. We think you have to continually circle back [to check] that there aren’t securities getting into their portfolio that are in conflict with the policies. That is an additional fee for a consultant like us.”

Innovest’s counsel to DU echoes the findings of a series of reports, commissioned by the Independent Petroleum Association of America, into the hidden costs of fossil-fuel divestment. They warn of lower investment returns and higher management fees that reduce the amount of money available for basic budget priorities, such as student financial aid and staff salaries.

A recent report by Arizona State University finance Professor Henrik Bessembinder, for example, found that the transaction and management costs related to divestment have the potential to rob a medium-sized endowment fund like DU’s of $52 million to $298 million over a 20-year time frame.

Universities and climate advocates reject divestment

In the three months since the DU task force held its first meeting, Notre Dame and the University of Pennsylvania have rejected divestment. They join a long list of institutions that have seen through fossil-fuel divestment as an expensive political stunt that hurts students and staff without benefiting the environment at all. Other universities to reject divestment include Harvard University, MIT, Columbia University, Swarthmore College, New York University, Duke University and Brown University. In Colorado, the list of institutions to reject fossil-fuel divestment includes Colorado College, Fort Lewis College and the University of Colorado.

In fact, the value of U.S. university endowments to reject full divestment from oil, gas and coal exceeds $230 billion, according to data compiled by Divestment Facts. By comparison, the value of endowments that have pledged full divestment is just $2 billion.

The lopsided outcome shows just how badly 350.org is losing the argument over fossil-fuel divestment. For example, at Cornell University – which has rejected divestment – Earth and Atmospheric Science Prof. Larry Brown has warned that divestment “undermines the most precious asset a university has in addressing any controversial issue: its reputation as an unbiased source of scientific knowledge.” The University of Michigan flatly rejected the idea that there’s anything “immoral and unethical” about oil, natural gas and coal production when it provides the energy necessary “to operate the university, to conduct research and to provide patient care” through the university’s hospital system.

Tufts University warned that divestment would slash $75 million from the value of its endowment, and in turn, spending cuts that could deny “scholarships for 100 undergraduates or annual stipends for 125 Ph.D. students.” And during the debate over fossil-fuel divestment at the University of Colorado, oil and gas instructor Lisa Hamil dismantled claims by 350.org that stigmatizing energy producers is the moral thing to do: “[Divestment groups] cloak themselves in moral and ethical superiority, but is it moral or ethical to sacrifice the quality of a student’s education just to make a political statement?”

To these universities, you can also add some leading thinkers in climate policy and supporters of aggressive limits on carbon dioxide emissions. Robert Stavins of Harvard University, for example, warns that fossil-fuel divestment “would hurt, not help efforts to address global climate change.” Software billionaire and philanthropist Bill Gates calls divestment a “false solution” that uses up people’s “idealism and energy on something that won’t emit less carbon.”

As for the insistence of 350.org and other groups that wind, solar and other renewables are the only acceptable energy sources, here’s what climate activist and retired NASA scientist James Hansen has this to say: “[S]uggesting that renewables will let us phase rapidly off fossil fuels in the United States, China, India, or the world as a whole is almost the equivalent of believing in the Easter Bunny and Tooth Fairy.”

DU is an environmental leader, but 350.org doesn’t care

The decision by 350.org was curious, to say the least, because the university already has a strong track record on cutting emissions. DU has cut carbon emissions by 15 percent since 2006, even as the university has grown, enrolling six percent more students and employing five percent more staff over the same period, according to a July 7 presentation to the divestment task force.

But then again, 350.org does this kind of thing all the time. Some of the nation’s most eco-friendly schools – according to Princeton ReviewU.S. News & World Report  and even the Sierra Club – have still found themselves targeted by 350.org’s fossil-fuel divestment campaign. And, in fact, more schools on these Top 10 lists have rejected fossil-fuel divestment than supported it.

According to the Sierra Club’s list of America’s Greenest Colleges, three of the top ten schools have come out in opposition to divestment while only one school – Green Mountain College — has pledged divestment. Those top three schools, University of California, Irvine, American University, and Dickinson College are all considered “Cool Schools” by the Sierra Club and are “dedicated to greening every level of their operation.” Meanwhile, they have each said no to divestment.

At the Princeton Review, six of their Top 10 Green Colleges have also rejected divestment while only two have pledged divestment.  And of U.S. News & World Report’s Top 10 Eco-Friendly Colleges, four of the schools have rejected divestment while only two have pledged divestment.

None of that matters to the divestment activists, of course. For groups like 350.org, environmental outcomes aren’t the most important thing. What matters is political outcomes from political campaigns, because that’s all they know how to do.

350.org can’t even make its own case

Perhaps the most important lesson from the DU divestment task force is how quickly the arguments of 350.org collapse under the mildest of scrutiny. During the 350.org’s first appearance, activist Brett Fleishman suggested it will be “game over” and “there will be no 50 years from now” if citizens and governments refuse to endorse the group’s extreme environmental positions. When a member of the task force questioned this “Armageddon” scenario, Fleishman replied with a straight face: “The science is Armageddon science.”

During the group’s second appearance, 350.org’s “narrative strategy consultant” Michaela Mujica-Steiner was asked to justify her assertion that the cyclical nature of fossil fuel development makes it inherently riskier as an investment than any other industry. Not only did Mujica-Steiner fail to justify the assertion, she accidentally admitted that the business cycle of fossil fuels isn’t much different than the business cycle of other industries or even the broader economy:

“It may not be that different from some other industries and I’ll admit I don’t know as much about other industries so I can’t really speak as much to how other industries function in cycles. … So it might be the same cycle in terms of other resources. I would imagine and speculate that it probably is. And maybe it’s almost the nature of our economy to be a boom and bust cycle. I’m not, I’m not sure because it seems like that would probably happen in other markets as well, but I would say that especially when you’re considering, you’re taking renewables into consideration and taking these other factors with the market and the policy regulations, you may see maybe the boom and bust cycle more … highlighted.”

Nobody who watches that answer, or any 350.org’s representations to the task force, would trust this group with their 401(k) or even their checking account. And yet, 350.org is trying to dictate how DU should manage a $600 million endowment, a financial resource that’s essential to the current and future operations of the university.

With so much at stake, how can 350.org continue to argue that fossil-fuel divestment makes financial or moral sense for DU? How much longer will this group shamelessly play politics with the financial health of this university and all who care about its future?