December 30, 2016

A Semester of Let Downs for Divestment Activists

As the New Year rolls in, the team at DivestmentFacts.com has taken a look back at the semester and what it meant for the divestment movement. From new rejections to examples of student and faculty support against the issue, here is what the past few months have meant for this campaign.

Notre Dame

This September, Notre Dame President Fr. John Jenkins announced the implementation of a five-year sustainability plan while rejecting divestment. From his remarks:

“Nearly all acknowledge that there is no practical plan by which we could cease using fossil fuels in the immediate future and continue the work of the University. It seems to me at least a practical inconsistency to attempt to stigmatize an industry, as proponents of divestment hope, from which, we admit, we must purchase.”

The Notre Dame rejection comes as a huge blow to the divestment movement, which has led a concerted effort to lobby Catholic institutions to divest following the Pope’s call to action on climate change. But as we’ve noted, Notre Dame follows a number of other Catholic universities including Boston College, which have also said no to divestment on the basis of its ineffectiveness at supporting the environment, not to mention its high costs.

Univ. of Pennsylvania (UPenn)

This year, UPenn also joined the Ivy League ranks of Harvard, Brown and Cornell in rejecting divestment by a unanimous decision earlier this fall. The UPenn Board ultimately concluded that fossil fuel use simply cannot be placed on the same moral plane as other social issues the university has taken a stance on, such as genocide and apartheid. In an official letter to Fossil Free Penn, Chairman David Cohen explained:

“The Committee unanimously found that the Fossil Free Penn proposal does not meet the established criteria for divestment. As a result, the Committee did not recommend divestment… While the Trustees recognize that the ‘bar’ of moral evil presents a rigorously high barrier of consideration, we are resolute in our belief that such a high barrier must be maintained so that investment decisions and the endowment are not used for the purpose of making public policy statements.”

In fact, unlike some of the “moral evils” activists try to compare to fossil fuels, our society and economy heavily depends on reliable, affordable energy access. As featured in the World Energy Outlook, “access to modern energy is essential for the provision of clean water, sanitation and healthcare and for the provision of reliable and efficient lighting, heating, cooking, mechanical power, transport and telecommunications services.” The Energy Information Administration (EIA) has also stated multiple times that oil and gas will constitute 80 percent of the world’s energy use by 2040 while overall energy consumption worldwide will continue to grow by 56 percent during that period.

Rice University

Some schools went a step further than just pointing out the hypocrisy and impracticality of fossil fuel divestment by highlighting how successful investments in the energy industry have allowed endowments to thrive. Rice University, which has deep historical roots in the energy industry, has traditionally relied on oil and gas assets as a “productive source[s] of revenue” to the Rice Endowment.

More recently, Allison Thacker, President and CIO of the Rice Management Company echoed this sentiment regarding energy investment’s role in increasing the value of the endowment, stating:

“I do not consider blanket divestment to be the solution for sustainability in the future… We have a policy stating that Rice does not endorse nor boycott products. We have successfully invested in fossil fuels and natural resources and have collaborated with the energy industry in other ways as well.”

Blanket divestment has been criticized by other academics like Frank Wolak, director of the Program on Energy and Sustainable Development at Stanford, who argued that divestment “comes at the expense of meaningful action” as it does nothing to reduce global greenhouse emissions.

Harvard Court Case

Despite Harvard University’s long opposition to divestment, a small group of student activists recently turned to litigation tactics to try and revive the failing campaign’s momentum on campus. In 2014, the Harvard Climate Justice Coalition filed a lawsuit claiming investment in fossil fuel companies is “a breach of fiduciary and charitable duties as a public charity and nonprofit corporation,” asking the court to demand Harvard “immediately withdraw” its holdings. To activists’ dismay, the Massachusetts Appeals Court ruled against the students in a unanimous decision this fall – determining Harvard University is not legally required to divest.

What’s more, the Appeals Court agreed that students’ claims of “fossil fuel investments have a chilling effect on academic freedom and have other negative impacts on their education at the university…were too speculative, too conclusory, and not sufficiently personal to establish standing.’’ With their means to legal recourse effectively shut down, it’s safe to say the divestment conversation at Harvard is over.

Northeastern University

While the Harvard court case defeat of divestment drew a good deal of media attention, Northeastern University quietly rejected divestment in July, opting instead for investing in sustainability efforts. In the underreported announcement, Treasurer Thomas Nedell stated:

“We have deliberately chosen to invest, not divest. This approach is consistent with Northeastern’s character as an institution that actively engages with the world, not one that retreats from global challenges.”

Northeastern Professor Matthew Nisbet also wrote that divestment leader Bill McKibben’s efforts, “make for potent cultural symbols, but such strategies can deflect attention from far more substantive goals.” The Northeastern rejection is a clear call for open engagement with the energy industry over symbolic divestment.

University of Denver

The University of Denver sought to take a deeper look at divestment this year through a series of hearings held by the DU divestment special task force. The 350.org-run campaign in Denver met staunch resistance from faculty members and local financial specialists during the hearings. Wendy Dominguez of the Denver-based Innovest Portfolio Solutions discussed the hidden costs of fossil fuel divestment, warning that increased portfolio risk and underperformance could threaten the viability of endowment-funded academic programs. From her remarks:

 “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.”

Another report by Arizona State University finance Professor Henrik Bessembinder similarly 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. Echoing the opposition voiced by various academics and faculty to DU’s divestment, Divestment Facts recently held an energy forum in Colorado in which economists, industry leaders and the University of Colorado Regent-elect Heidi Ganahl urged DU to reject the proposal to divest. As Ganahl noted,

“Universities across the country, including the University of Colorado, have determined that it is in the best interests of their missions, their students and other constituents to have a diversified investment portfolio, which includes the energy sector. They have rejected calls for divestment not only because it is a questionable investment strategy, but also because the direct beneficiaries of investments are students who receive scholarship funds and faculty whose research is supported in part by investment income.”

On the same day that Colorado leaders came out against university divestment, Divestment Facts also launched a social media campaign to raise awareness of fossil fuel divestment and how abandoning oil and gas investments could reduce important financial aid and scholarships. The animated video explains,

 “When a school sells of shares of a fossil fuel company, they don’t just disappear. Someone else buys the stock. There is no financial harm to companies, nor any gain for the environment.

And people are listening. In an editorial, The Denver Post, called DU divestment “unrealistic and unwise” given the important role fossil-fuel development plays in Colorado and the nation. The board further highlights divestment’s cost to the endowment and inability to have an impact on the environment, writing,

“[T]aking 350.org’s marching orders would harm DU’s ability to serve its students, and constrain its ability to invest in companies ‘that are also working on meaningful change’…Further, it’s also not even clear that such a divestment would have any impact whatsoever on climate change.”

The debate in Denver will certainly be one to keep an eye out for in 2017 as the social media campaign continues to roll out and shape the divestment conversation in Colorado.

Barnard College

This December, the Barnard Task Force on Divestment officially recommended that the Board of Trustees vote to divest from coal and oil sands companies and those that “actively deny climate change.”  While a small step forward for divestment advocates on campus, it’s worth highlighting that the Task Force recommended only a symbolic divestment gesture, while categorically rejecting full divestment of fossil fuels, calling the act “too broad” and saying it “lacks…science-based differentiation.” From the report:

“…A blanket ban on an entire industry would raise questions of academic and scientific bias; Barnard-based research relating to fossil fuels could be questioned because it is supported by an institution that has taken a stand against the sector as a whole.”

In the report, Barnard also noted that “most institutions of higher education that have considered the divestment question have chosen not to divest” and that its own divestment efforts would be “on-going exercise, requiring constant review and probably additional management expense.” The Board of Trustees is set to make a final decision on divestment in March 2017.

Boston University

Boston University’s Board of Trustees also moved forward with a limited divestment decision this fall, including “efforts to avoid investments in companies that extract” coal and oil sands. A clear example of the Syracuse model – divesting only from direct investments, or investments one doesn’t even have – BU Today highlights that the decision isn’t even a real divestment as the school is not selling anything. From the report:

“The trustees noted that total avoidance of coal and tar sands companies may not be possible, because the University’s portfolio includes vehicles such as mutual funds, whose managers choose stocks, and passive index investing. That latter is tied to the performance of a particular stock index—say, the S&P 500—whose holdings BU has no say over.”

BU’s $1.6 billion endowment is largely invested in limited partnerships and commingled funds, making an actual divestment effort extremely difficult to perform. Even Divest BU agreed, stating “BU remains invested in the fossil fuel industry” and that the university used “vague language that does not guarantee a commitment to divestment.”

Deflated and Debunked, Divestment limps on into the New Year

This year, the divestment campaign met resistance, rejection and a heavy dose of reality at every turn. Despite an Arabella Advisors report falsely claiming $5.2 trillion in divestment pledges have been made across the globe, Divestment Facts quickly debunked the over-exaggerated number. It turns out that—similar to Arabella’s $2.6 trillion claim from 2015—the report is an aggregation of the total value of combined assets of institutions that it claims have “pledged to divest.” Mother Jones noted, “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” and further called out Arabella for having “no idea how much money the institutions surveyed have invested in fossil fuels, and thus how much they pledged to divest.” Even one of the media’s biggest proponents of divestment, The Guardian, admitted “it is often difficult to calculate the precise proportion of fossil fuel investments in complex funds, but about $400bn of the $5.2tn total is likely to be in coal, oil and gas.”

While the report leaves plenty of questions left to be answered about the real facts and figures behind the divestment movement, one thing goes without saying: fossil fuel divestment has real costs, little to no impact on the environment and no place on college campuses in the New Year.