September 30, 2021

Harvard and Princeton Choose Partnership, Not Divestment

Harvard University President Lawrence Bacow has been praised by divestment supporters after releasing a public letter connecting climate change to Harvard’s investment strategy. The trouble is that neither Bacow’s letter, nor his team, ever mentioned divestment.

Bacow’s letter shows the need to focus more on solutions than empty gestures, where industry and academia are partners in the energy transition. A push for divestment at this stage would only impede this effort—while also costing students and schools money.

Partnership, Not Divestment

Harvard’s decision allows for future engagement with the energy industry, following a path taken by Princeton earlier this year. While university communications de-emphasize the role of fossil fuels—and indeed natural resources more broadly—in its investment holdings, the HMC is pursuing a goal of achieving net-zero emissions by 2050.

In it’s Climate Report, HMC wrote:

“Harvard’s commitment to transition its endowment to net-zero GHG emissions by 2050 transcends the binary divestment debate by focusing on portfolio management—on both the supply and demand side of a fossil fuel-reliant economy—with a clear, intentional effect. This commitment complements Harvard’s extensive work in research and scholarship to address climate risk and represents a critical shift towards a holistic campaign to tackle the root causes of accelerating climate change.”

Universities that have announced stringent divestment procedures often find these policies difficult to implement because of the complex nature of some of the funds they hold and the value of partnering with the industry in finding actual solutions within the energy transition.

This is something Princeton recognized earlier this year, when it released new investment criteria that “disassociated” from some companies but stopped short of supporting divestment.

In May, the Princeton CPUC Resource Committee released a set of recommended principles to guide the Committee on Finance of the Board of Trustees in investment decisions. These recommendations included disassociating from the highest greenhouse-gas-emitting sectors of the economy, but acknowledged the need to continue to work with industry:

In its principles, the Resource Committee wrote:

“The fossil fuel industry has been the primary supplier of energy upon which the global economy is currently based. Immediately cutting off the supply of fossil fuels is both unrealistic and potentially harmful to global communities. This concept also applies to Princeton dissociating from the fossil fuel industry: It is not possible to completely dissociate from fossil fuels in the short term.”

For instance, as part of its ongoing work with industry to address the energy transition and climate change, Princeton’s Andlinger Center for Energy and the Environment is partnering with ExxonMobil on research into next-generation energy and environmental technologies.

MIT Energy Initiative is working on developing low-carbon solutions along with Shell, ExxonMobil and Eni. Stanford’s Strategic Energy Alliance is a industry-academia research program to accelerate the transition to affordable, low-carbon energy systems. Founding members include Shell, ExxonMobil and Total.

Research work like this will be crucial to addressing the impacts of climate change in the years to come, and today’s partnerships will pay large dividends in the future.

Little Impact To Harvard’s Endowment

While some categorized comments out of Harvard as a turning point, the reality is Harvard has done little to change its position nor its investments. As Divestment Facts has pointed out before, Harvard Management Company disclosed in February that less than 2 percent of the school’s endowment was invested in fossil fuels.

In its first-ever Climate Report HMC wrote:

“HMC has reduced its overall exposure to fossil fuels — including both direct commodity investments as well as indirect investments in companies that explore for or develop further reserves of fossil fuels held through dedicated externally managed funds — from approximately 11% of the portfolio at the end of fiscal year 2008 to less than 2% at the end of fiscal year 2020, a decrease of more than 80%.”

In the recent letter, Bacow acknowledged that HMC had “legacy investments” comprising a small percentage of the overall endowment “with holdings in the fossil fuel industry.” These investments are the sticking point for pro-divestment activists.

But what are they?

What is a legacy limited partnership?

Legacy investments are assets that the HMC holds through limited partnership private equity funds, generally for a fixed term of 10 years. With the timeframe of these types of investments considered, it should be known that Harvard will remain in its private equity funds for an undisclosed number of years, until they are set to expire. Withdrawing the funds before the investment matures would cost the endowment money.

Still, waiting for private equity funds to mature over the next decade is hardly a full-throated endorsement of divestment. In fact, it’s quite the opposite, since Harvard is not actively trying to liquidate these assets.

Harvard Magazine John Rosenberg had this point in a recent op-ed questioning Bacow’s letter. Referring to the HMC’s Climate Report, Rosenberg argued that investment returns, not pro-divestment sentiment, motivated the HMC’s actions.

Rosenberg wrote:

“…those changes were part of a concerted effort to overhaul the portfolio and HMC’s operations. In an attempt to improve investment returns, HMC has disposed of and otherwise deemphasized commitments to various commodities and real assets (presumably, fossil fuels, but also extensive holdings in timber and agricultural land), and to such asset classes as real estate. All of this was widely publicized as part of HMC’s stem-to-stern overhaul, driven by investment performance.”

Given its limited impact, its surprising the investment decision has attracted as much attention as it has.

The value of dialogue

Divestment proponents have been against working to find a middle ground with school authorities, despite faculty members as well as financial experts objecting to divestment’s quick-fix approach to the climate crisis.

Most recently, Yale University Sustainable Finance Professor Cory Kroninsky, called divestment a “waste of time” that did not have a meaningful impact on climate. The lack of a balanced conversation has curtailed the movement’s potential to actually made progress on climate research or even join forces with the industry to find better climate solutions.

Not only that, but divestment has also failed to discuss its direct impact to consumers and communities that rely on affordable energy and well-paid jobs. As one Harvard student wrote this week, “the livelihoods of many other people are also currently tied to fossil fuels.” A path forward is more complicated than divestment offers.

Bottom line

Divestment will always make headlines, but the focus on real solutions is where academia can play the greatest role in supporting actual benefits for the environment. The Harvard and Princeton examples show that school administrators recognize the value of working relationships with industry. Today’s energy companies are deeply invested in supporting the energy transition. Severing all ties with the conventional energy industry would only limit these schools’ capacity to support this goal.

Going ‘Beyond Divestment’ means that Harvard recognizes the emptiness of the divestment narrative, and its ability to drive any real change.