Despite a lengthy debunk of their false claims, the folks at the Institute for Energy Economics and Financial Analysis (IEEFA) are once again spreading misleading claims and misinterpreting economic research in an attempt to paint divestment as a viable choice for pension managers.
This time around a new piece posted by IEEFA’s Executive Director, Tom Sanzillo, completely misconstrues the findings of highly regarded economic consulting firm Compass Lexecon and lead author Prof. Daniel Fischel’s divestment research to push a false narrative about the nature of divestment in Colorado.
For background, Prof. Daniel Fischel, of the University of Chicago Law School, authored a recent report that analyzed the potential impact of divesting the Colorado Public Employees’ Retirement Association (PERA), and found that PERA would lose up to $50 million per year if it were to fully divest from fossil fuels, and up to $646 billion in foregone returns over 50 years. Prof. Fischel outlined these important findings in an opinion piece placed in Colorado Politics, stating in sum:
“Fossil fuel divestment is not an issue that should be taken lightly. It carries significant financial implications and will cost Colorado and PERA recipients tens of millions of dollars annually and hundreds of billions of dollars in the long-run. Given the precarious state of Colorado’s pension fund, divestment would only exacerbate the situation and cause further financial injury to the pensioners who depend on the fund for payments and to the taxpayers who help support it.”
Fast forward to this week: IEEFA Executive Director Tom Sanzililo posted a response opinion piece with multiple falsehoods and even intimates that Fischel’s piece “comes perilously close to misleading advice according to the Security and Exchange Commission rule on forward-looking statements.”
Most of Sanzillo’s points are based on a report IEEFA put out recently which had numerous shortcomings already debunked by Divestment Facts, available HERE. There’s no need to relitigate each point again, but it’s important to clarify what Fischel’s findings are and how Sanzillo has once again completely misinterpreted the report’s conclusions.
For starters, Sanzillo harps on the fact that Prof. Fischel and his team look at the past 50 years to construct their findings, stating “what were the conditions under which the past performance was achieved and will it be repeated?” and “oil and gas stocks aren’t going to regain their former glory. And while the energy sector remains a behemoth, its current and future performance will not resemble the past.”
Yet Fischel et. al never argue that past performance determines future returns. In fact, the report specifically acknowledges that there is no way to predict what stock prices will do. From Fischel’s 2015 report:
“… Regardless of recent events, there is no way to reliably predict future returns in advance, and therefore, the best guide to the potential effects of diversification – and the standard approach of financial scholars and analysts to such questions – is to examine longterm averages.”
The argument Fischel puts forward is that fossil fuels are the least correlated to the broader market, and therefore provide the most diversification benefits. Their findings of possible financial losses are tied to risk, not whether energy producing stocks go up or down.
By giving up the diversification benefits of the energy sector, investors either can sacrifice returns or incur more risk. Fischel and his team simply calculated the risk-adjusted returns of a fossil free portfolio and found it would underperform a non-divested portfolio by 0.14. Because pensions have millions, if not billions in assets, those losses expand overtime to very sizable numbers.
Interestingly enough, Fischel and his team actually took a conservative approach to their estimates, leaving out losses associated with active portfolio management and transaction costs. Sanzillo ignores this fact in this attempted debunk, but dozens of institutions that have rejected divestment cite these very costs as a primary reason for rejecting ineffective divestment. In fact, the transaction and management costs related to divestment have the potential to rob endowment funds of as much as 12 percent of their total value over a 20-year timeframe.
Let’s look at the evidence:
Still not convinced divestment is costly? Let’s take the California Public Employees’ Retirement System (CalPERS), the nation’s largest pension fund and one that voted unanimously to curtail its divestment policy last year. The reason? CalPERS’s previous divestment initiatives cost the pension more than $8 billion in taxpayer and pensioner dollars since their inception.
Bottom line: Don’t be fooled by the latest claims put forward by a group that is funded heavily by the Rockefeller Brothers Fund—who is also bankrolling the broader divestment movement. The economics speak for themselves, which is why countless universities and pension funds have rejected the empty gesture that is divestment.
Divestment could mean millions in annual shortfalls and billions in missed returns for both New York and Colorado’s state pension funds
REPORT | NY FACT SHEET I CO FACT SHEET
A new study by Prof. Daniel Fischel of the University of Chicago Law School and co-authors Christopher Fiore and Todd Kendall of economic consulting firm Compass Lexecon finds that both the Colorado Public Employees’ Retirement Association (PERA) and the New York State Common Retirement Fund stand to lose millions every year if they were to fully divest from fossil fuels.
In response to increased pressure on Colorado and New York politicians to support divestment, the report—which follows up on their earlier study of pensions in other states—examines the potential impact of a narrow divestment policy that includes oil, natural gas and coal, as well as a broad policy that also includes utility stocks, to determine the financial implications of such an investment strategy. To do so, Prof. Fischel and his team used all available data on current holdings to calculate returns on those holdings over the past 50 years. This data was compared to an otherwise identical risk-adjusted portfolio absent of fossil fuel-related stocks.
“New York and Colorado have both come under political pressure to give up pension investments in fossil fuels, but at what cost? Our research shows that large pension funds stand to lose a substantial amount of value if they decide to adopt a divestment policy,” said Prof. Fischel. “The energy sector plays an important role in diversifying a given portfolio, so eliminating that exposure means higher risk and reduced returns to the tune of millions if not trillions of dollars over an extended timeframe. These types of costs leave pensions to make a hard choice: reduce pensioner benefits or increase contributions from taxpayers to the fund.”
Accordingly, when adjusted for risk, Colorado’s annual cost of divestment could range from $36 million for narrow divestment to $50 million for broad divestment. Over a 50-year timeframe, that cost skyrockets to between $470 billion under the narrow policy and $646 billion, or a 10.12 percent loss, under the broad policy. These loses are equivalent to cutting individual pension payments to Colorado beneficiaries by $300 to $400 annually or cutting annual benefit payments to roughly 1,000 Coloradoans.
For New York’s $190 billion pension, the expected annual cost of divestment ranged from $136 million for narrow divestment to $198 million under the broad strategy. To put these numbers into perspective, the average pension for retirees in the Employee’s Retirement System (ERS) was $23,026 in FY 2017. A $198 million loss due to divestment equals the yearly pension payments for 8,598 ERS retirees. Over 50 years, the costs of divestment for New York State add up to $1.1 trillion under the narrow approach and $1.5 trillion under the broad approach. To make up for the substantial shortfall caused by divestment, the State will either have to lower pension payouts or seek new revenue from taxpayers.
“Research continues to show that divestment is all cost and no environmental gain,” said Jeff Eshelman, Independent Petroleum Association of America (IPAA) senior vice president of operations and public affairs. “Activists continue to force divestment policies upon pension funds, but the numbers show it’s becoming increasingly difficult to justify their stance. Both Colorado and New York State rely on fossil fuels for the vast majority of their energy needs. Divestment ignores this reality and puts the financial future of pensioners and taxpayers at risk, all to make an empty political statement.”
The report comes following previous academic research commissioned by IPAA on the subject of fossil fuel divestment. While this report focuses on impacts of divestment due to diversification loss, the impacts of giving up investments in fossil fuels are likely to be higher when combined with other factors like transaction costs associated with selling investments and compliance costs associated with adhering to a “fossil free” portfolio.
This report follows a previous 2017 study that quantified divestment’s impact on the California Public Employees’ Retirement System (CalPERS), as well as public pension funds in New York City, Chicago, and San Francisco. Fischel and his team calculated that the 11 funds analyzed would lose up to a combined $4.9 trillion under a broad divestment regime. In the case of CalPERS alone, the total cost of divestment was estimated to be up to $289 million per year.
Copies of previous reports, fact sheets and other collaterals can be found here.
Supportive Commentary
Suffolk County Association of Municipal Employees (2017): “The reality is that fossil fuels are not only sector based investment but have significant impact of diversified portfolios. Additionally, fossil fuels are meaningfully integrated into nearly every facet of the global business sector. To divest immediately would be akin to telling the world not to breath air.”
Vermont Pension Investment Committee (2017): “Fossil fuel divestment may introduce meaningful diversification risk, increase costs – including cost to restructure the VPIC portfolio from commingled funds into to SMAs, higher management fees, and operational costs, reduce VPIC’s proxy voting and engagement opportunities across an entire sector of the economy, introduce a slippery slope potential for other restrictions, particularly for other aspects of today’s carbon economy. Fossil fuel divestment does not reduce the global economic dependence on, or demand for, fossil fuels, or impact the financing of the targeted companies.”
New York State Comptroller Tom DiNapoli (2015): “My fiduciary duty requires me to focus on the long-term value of the Fund. To achieve that objective the Fund works to maximize returns and minimize risks. Key to accomplishing this objective is diversifying the Fund’s investments across sectors and asset classes – including the energy sector, where fossil fuels continue to play an integral role in powering the world’s electricity generators, industry, transportation and infrastructure.”
Denver Post Editorial Board (2017): “Here in Colorado, fossil-fuel development plays an important role as a corporate citizen that provides good jobs for many workers while also providing the important bridge fuel that is natural gas: a fuel that inexpensively keeps the lights on while producing far less pollution than coal, for example…Further, it’s also not even clear that such a divestment would have any impact whatsoever on climate change.”
University of Denver Board of Trustees (2017): “…divestment in fossil fuel companies, or any other industry, would not be an effective means of mitigating global warming nor would it be consistent with the endowment’s long-term purpose to provide enduring benefit to present and future students, faculty, staff and other stakeholders.”
Last week, Fossil Free CU, the student divestment group at the University of Colorado at Boulder, announced it was ceasing operations in a Facebook post. It’s a somewhat ironic development based on the fact that CU Boulder is typically ranked among the nation’s “greenest” campuses each year—but it’s a reflection of where the divestment movement stands both in the state of Colorado and across the country.
The closure comes after a five year campaign that proved unsuccessful in convincing the state-wide elected Board of Regents to divest from fossil fuels. In 2015, the CU Board of Regents voted against divestment in a 7-2 vote, a tally which included “no” votes from two Democrats. The vote came despite organized protests by students that included sit-ins and camp-outs in the snow.
During the 2016 elections, the issue remained front and center during the race to replace an at large seat on the Board. Most candidates ended up coming out against the unpopular policy, including 350.org-backed Democrat Alice Madden (after months of avoiding the question). Heidi Ganahl, who ran an anti-divestment campaign, ended up winning the seat.
Instead of continuing to perpetuate unsuccessful divestment protests, Fossil Free CU is now associating itself with the Sunrise movement, a group involved in broader climate policy, but one that does not specifically focus on divestment.
It’s not just CU Boulder–divestment has been an overall failure throughout the state of Colorado. Early this year the University of Denver rejected divestment, despite an intense campaign organized by 350.org. The board did not buy the argument that stigmatizing an industry would somehow help the climate:
“A strategy of industry stigmatization drives a wedge between the University of Denver and the fossil fuel companies that represent an important part of the economic base of Colorado and the nation. Equally important, stigmatizing fossil fuel companies inherently involves stigmatization of their employees as well. As a general matter, the panel believes that stigmatizing individuals based upon a career choice to work for an employer engaged in a lawful enterprise is inappropriate.”
In the lead up to the decision, the Denver Post also called the movement “unrealistic and unwise” in an editorial:
“…it’s completely unrealistic to think that our state, our nation or other others can immediately stop depending on the plentiful fossil fuels available to provide the power we need to live the lives to which we are accustomed. It would be cruel to poor and hardworking people in our country and impoverished nations beyond our borders to do so.”
And Fossil Free CU is not the first Colorado University to stop operations. About a year ago Colorado College’s campus divestment group shut down because of a lack of student interest. As reported by the student newspaper, the Catalyst at the time:
“’Throughout the years there have been a number of proposals to the Board of Trustees, and they have basically been shut down every time,’ said Scott Broadbent, a senior graduating in December. ‘And so I think a lot of kids grew tired… Basically it all fizzled out.’”
It seems that colleges have caught on to the fact that divestment is an empty gesture that does nothing to help the environment. At the end of the day, its price tag isn’t worth the outcome. It appears students can see the tough road ahead of them, and are looking to change direction.
After months of meetings and deliberation, the University of Denver (DU) has officially rejected fossil fuel divestment. According to the DU Board of Trustees:
“Regarding divestment, the Board adopted the task force recommendation that divestment in fossil fuel companies, or any other industry, would not be an effective means of mitigating global warming nor would it be consistent with the endowment’s long-term purpose to provide enduring benefit to present and future students, faculty, staff and other stakeholders. Rather, the University of Denver’s greatest ability to mitigate climate change and foster a sustainable future lies in deploying its core competencies: education, research and the ability to foster informed community discourse and in accelerating its sustainability in its operations.” (emphasis added)
The Board’s report continues:
“A strategy of industry stigmatization drives a wedge between the University of Denver and the fossil fuel companies that represent an important part of the economic base of Colorado and the nation. Equally important, stigmatizing fossil fuel companies inherently involves stigmatization of their employees as well. As a general matter, the panel believes that stigmatizing individuals based upon a career choice to work for an employer engaged in a lawful enterprise is inappropriate.
“As an institution of higher learning, the University of Denver is committed to support the success of DU students by helping to place graduates in positions that are consistent with their education and career interests. These placements span nearly every conceivable field—including energy development and production—in the private, non-profit and public sectors. The task force finds it unimaginable that the University of Denver would choose to stigmatize its own graduates as they pursue careers with legitimate organizations. While members of the task force share the concern for climate change presented by Divest DU students and 350.org, the task force concludes that stigmatizing fossil fuel or energy sector firms and their employees in Colorado and the nation is neither a desirable nor an effective approach to dealing with climate change.”
Instead, University of Denver will adopt a “formal policy addressing climate change, developing partnerships to address issues of climate change and sustainable development through its academic efforts in research, teaching and service, and ensuring that all academic and administrative units embrace efforts to foster sustainability.”
Today’s decision, initially expected last week, comes on the heels of notable rejections around the country this year, with over 45 U.S. colleges now on the record rejecting fossil fuel divestment due to everything from its negligible impact on the environment to the high costs it imposes on students.
In 2016 alone, the divestment campaign has seen rejections from schools like Cornell, UPenn, Notre Dame, Rice University, Northeastern, and University of Utah. Six of the eight Ivy League colleges in the United States are also now on record rejecting divestment, with the only two yet to take a formal stance on the issue — Dartmouth and Princeton — both suggesting they will not move forward with an empty, costly pledge.
So just why has divestment been so ineffective at top universities across the country? For starters, while supporters of the effort believe giving up holdings in fossil fuels has an impact on the environment, divestment has no tangible impact on targeted companies, their practices, or environmental and sustainability cause. As DU professor Frank Laird, a renewable energy advocate who has been sharply critical of fossil-fuel divestment, told the DU Task Force, divestment is “not merely ineffective but I think it can have a negative effect on decarbonizing the energy system because frankly it’s a distraction from a set of large and complex tasks.”
This sentiment has been repeated by universities time and again, with many opting for investments in sustainability and engagement over empty gestures like divestment.
Beyond being ineffective, the costs of divestment are simply too high to bear. For the University of Denver, Dr. Chris Fiore, Senior Economist at Compass Lexecon, calculated a possible $250 million price tag over 20 years if DU were to divest. Current DU students like Scott Albertoni have objected to this type of reckless spending of the endowment, noting, “[T]hese efforts could have a significant financial impact on the entire student body. That is why I hope the task force will consider the larger student population when crafting their recommendation.”
Lastly, divestment is a hypocritical decision for the millions of individuals who rely on energy every day to live their lives. As Notre Dame University president Fr. John Jenkins describes, “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.”
DivestmentFacts highlighted these key issues over the past year at a number of events in Colorado, including in on campus meetings and at an energy forum focused on divestment this December. In September, DivestmentFacts’ own Simon Lomax spoke in front of the DU Board, accompanied by twenty-five energy workers and industry supporters who also opposed divestment. In an hour-long presentation, Lomax offered a look at the real costs of divestment for universities, the growing list of failures of 350.org’s anti-fossil fuels campaign, and the critical role of the energy sector and energy workers for Colorado’s economy.
In October, four of the state’s top energy trade groups – the Colorado Oil & Gas Association, the Colorado Petroleum Council, the Colorado Petroleum Association and the Western Energy Alliance – made a joint appeal to the DU task force to reject 350.org’s divestment push. “[W]e believe 350.org has taken advantage of this process – and of the students who requested it – to create a political platform for itself,” the energy groups warned in a letter to the task force. “Following the recent defeat of two anti-oil and gas ballot initiatives, 350.org needs a high-profile ‘win’ to remain relevant in Colorado, and successfully lobbying DU to divest from fossil fuels would provide the group such a victory.”
Energy groups also joined forces at an energy forum in Colorado in December, with officials from Colorado’s higher education and energy sectors all urging DU to reject divestment. At the event, Heidi Ganahl, recently elected to a statewide seat on the University of Colorado Board of Regents, highlighted why numerous colleges, including the University of Colorado, have rejected divestment:
“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.”
Today’s rejection decision from the University of Denver is just one more example of another school standing firm and saying no to divestment, a flawed policy for students and the environment.
Learn more from Divestment Facts on the divestment debate that has taken place at DU over the past several months:
As the University of Denver (DU) nears a decision on fossil-fuel divestment this month, one of Colorado’s top political commentators has urged the college to reject 350.org’s “shallow and misleading” case.
Vincent Carroll, a columnist who recently retired as the editorial page editor of The Denver Post, savaged the arguments of divestment activists with 350.org in a Jan. 7 column. Shunning investments with any connection to coal, oil and natural gas would be “hypocritical and divisive,” Carroll concluded after reviewing hours of testimony DU’s divestment task force. He continued:
“[Fossil-fuel divestment] would demonize an industry — and the people who work in it — that remains critical to civilization and whose byproducts are used every hour of every day by nearly every one of us. Fortunately, it’s likely the board of trustees’ three-member task force, which will report to the full board on Jan. 20, understands this after seven meetings over the summer and fall. Task force members Jim Griesemer, Catherine Shopneck, and Craig Harrison were unfailingly polite and respectful of all who appeared before them, but the shallow and misleading testimony by activists from 350.org, which is spearheading the divestment movement on college campuses, cannot have escaped their notice.
“The fatal conceit of divestment activists is their insistence that they have special insight into the future of energy companies that professional investment managers have missed. They argue that these companies will be stuck with huge reserves of ‘stranded assets’ as society accelerates the transition into clean energy, and that investors who dump these stocks now will be rewarded later. To buttress their case, they cherrypick statistics, misrepresent the political and technological obstacles to a full transition to carbon-free energy, and recite obvious investment risks as if they were a revelation.”
Carroll also cited the task force testimony of DU professor Frank Laird, a renewable energy advocate who has been sharply critical of fossil-fuel divestment. On divestment, Laird told the task force:
“[I]t’s not merely ineffective but I think it can have a negative effect on decarbonizing the energy system because frankly it’s a distraction from a set of large and complex tasks.”
Carroll’s column follows a similar call from the Denver Post’s editorial board, which recently concluded divestment is “unrealistic and unwise” for DU. As the board concluded:
“We’ve long been in favor of taking reasonable steps toward a greater reliance on energy sources — like wind and solar — that don’t contribute to a warmer planet. … [B]ut it’s completely unrealistic to think that our state, our nation or other others can immediately stop depending on the plentiful fossil fuels available to provide the power we need to live the lives to which we are accustomed. It would be cruel to poor and hardworking people in our country and impoverished nations beyond our borders to do so.”
Indeed, economists, students and academic leaders have repudiated this flawed thinking and highlighted the fact that fossil fuel divestment would do just the opposite of rewarding those who abandon these stocks. At a forum in Denver last year, Dr. Chris Fiore, Senior Economist at Compass Lexecon, calculated a possible $250 million price tag over 20 years if DU were to divest. Current DU students like Scott Albertoni have objected to this type of reckless spending of the endowment, noting:
“[T]hese efforts could have a significant financial impact on the entire student body. That is why I hope the task force will consider the larger student population when crafting their recommendation.”
Leaders of other Colorado academic institutions have also been vocal in their opposition to risking the endowment their students and faculty depend on. In an interview, Colorado College President Jill Tiefenthaler pointed out that the Board should focus on maximizing the endowment’s performance to support the college’s academic mission to “provide a scholarship for every student now through 100 years from now.” Similarly, Heidi Ganahl, a member of the University of Colorado (CU) Board of Regents, called divestment a “questionable investment strategy” that “is likely to reduce investment returns and is therefore not in agreement with [endowment managers’] fiduciary responsibility.” The CU board rejected divestment in 2015 in a 7-2 bipartisan vote.
As DU prepares to close the lid on fossil fuel divestment this month in an official decision, many are hoping activists can finally “drop the morality tale” and move on to pragmatic solutions that don’t threaten the health of the university endowment and those who depend on it.
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.
From Colorado College to the University of Denver, 350.org’s fossil-fuel divestment campaign has had a tough month in the Centennial State.
Colorado College’s divestment group has waved the white flag “due to lack of participation,” according to a Dec. 10 story in student newspaper The Catalyst. Faced with multiple rejections from university leaders over the years, the students have essentially given up. From the paper:
“’Throughout the years there have been a number of proposals to the Board of Trustees, and they have basically been shut down every time,’ said Scott Broadbent, a senior graduating in December. ‘And so I think a lot of kids grew tired… Basically it all fizzled out.’”
Throughout their campaign, outside activists attempted to use different arguments to sway the Board—their latest based on alleged financial benefits as opposed to the moral imperative for divesting. That argument has been debunked over and over again, however.
In fact, Colorado College President Jill Tiefenthaler expressed a polar opposite view on the financial argument for divesting. In a recent interview, President Tiefenthaler highlighted the importance of maximizing the endowment’s returns due to the vital role it plays in supporting the school’s operating budget, which accounts for 17 percent of annual spending. From the interview:
“…You need to earn about eight percent, and that’s about what the endowment has done over the last decades. Many of our board members are concerned that by limiting the options of investment or screening our managers will lead to a less diversified portfolio or one that does not generate as much return as others.”
President Tiefenthaler also expressed the Board’s concern that divesting from fossil fuels could open the door to future campaigns down the line, and reiterated the Board’s focus on maximizing the endowment’s performance to ensure proper support for the university.
“They worry that it may be fossil fuels now, it could be some other area later and then what are you left with in terms of divesting. I think they also wonder what real impact it has on the issue…[The endowment] not only provides a scholarship today but it’s invested so it can provide a scholarship for every student now through 100 years from now. That means that you have to do pretty good investment-wise to be able to raise that value.”
And despite research showing a possible 23 percent loss for a portfolio over 50 years, groups like 350.org continue to push for divestment.
Divesting Colorado College’s endowment would be especially complicated because of its structure. About ten years ago, the Board of Trustees opted for a diversified investment strategy and now the fund currently has 20 managers who invest in 40 different funds. The strategy has served them well, but makes divesting 40 funds from an entire industry extremely complex and, in turn, expensive, due to the costs associated with actively managing dozens of accounts. Prof. Hendrik Bessembinder calculated these transaction and management fees and found they could rob an endowment of an astonishing 12 percent of its value over 20 years. For a school like Colorado College, which is so dependent on the endowment for its yearly budget, these costs would significantly hamper operations.
Colorado College isn’t the only university in the state facing pressure to divest. The University of Denver has experienced a 350.org-backed push to drop any investments that touch fossil fuels, but that campaign has met hard resistance. At a Divestment Facts-hosted event last week, several leaders from Colorado’s higher education and energy sectors made a public stand against DU’s divestment. Dr. Chris Fiore, Senior Economist at Compass Lexecon, presented his findings which calculated a possible $250 million price tag over 20 years if DU were to divest.
The Denver Post also published an editorial calling divestment “unrealistic and unwise” for DU. From the piece:
“One DU student involved in the 350.org effort said at a recent forum that the students’ goal isn’t to stigmatize fellow students who go on to fossil-fuel careers, but to persuade energy companies to switch to green energy. That sounds really great, but it’s completely unrealistic to think that our state, our nation or other others can immediately stop depending on the plentiful fossil fuels available to provide the power we need to live the lives to which we are accustomed. It would be cruel to poor and hardworking people in our country and impoverished nations beyond our borders to do so.” (emphasis added)
Unfortunately, and despite their recent claims to the contrary, stigmatizing energy companies and the people who go work for them is exactly the point of 350.org’s campaign. Just ask the 350.org activist who wrote this newspaper column: “Divestment is about stigmatizing fossil fuel companies.” Or ask The Seattle Times newspaper reporter who wrote about the early days of fossil-fuel divestment campaign: “[350.org] kicked off a national campaign … that seeks to demonize the oil and coal industries.”
Also speaking at the event was University of Colorado Regent-elect, Heidi Ganahl. In another blow to anti-fossil fuel activists, Ganahl was elected following a high-profile and hard-fought campaign where divestment became a front and center issue. Ganahl, who campaigned on an anti-divestment platform, will no doubt help put the brewing divestment battle to rest for the University of Colorado, a school that has already rejected selling off fossil fuels once before.
Though activists have made a concerted effort to target universities throughout the state of Colorado, they have not had any luck in achieving any sort of divestment at three of the state’s top schools. In fact, the only Colorado school to divest was Naropa University in Boulder, a tiny liberal arts college with less than 1,000 students, back in 2013. Colorado is not a unique case, as we’ve seen similar outcomes in New York and Massachusetts. It’s clear that universities nationwide are rejecting the empty gesture that is fossil fuel divestment.
Divestment Will Cost up to $250 Million Over 20 Years, Expert Warns
Watch the full Divestment Forum HERE
Officials from Colorado’s higher education and energy sectors are urging the University of Denver (DU) to reject a proposal to divest the university’s endowment from investments tied to oil, natural gas or coal. At an energy forum held yesterday in Denver, an expert in fossil-fuel divestment also warned that the cost of divestment at DU could reach $250 million over 20 years.
The forum was hosted by Divestment Facts, a project of the Independent Petroleum Association of America (IPAA). Speaking at the event were Heidi Ganahl, University of Colorado Regent-elect, Tracee Bentley, Executive Director of the Colorado Petroleum Council (CPC), DU student Scott Albertoni and Dr. Chris Fiore, Senior Economist, Compass Lexecon. They spoke to an audience of energy sector workers and industry supporters at the Colorado History Center.
Heidi Ganahl, recently elected to a statewide seat on the University of Colorado Board of Regents, a school that has rejected divestment, discussed the costs of removing energy holdings from an investment portfolio.
“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,” Ganahl said. “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.”
Tracee Bentley with the CPC highlighted how the DU divestment campaign has been organized by the same national activist group – 350.org – that was behind a series of anti-oil and gas ballot initiatives in Colorado.
“Energy development is a pillar of Colorado’s economy,” said Tracee Bentley. “And unfortunately, the divestment campaign is little more than an effort to demonize thousands of Coloradans who work in the energy industry and the significant investments they have made in Colorado. That is why it is no surprise to see that this campaign is driven by the same fringe activist group that for years has been trying to shut down Colorado’s energy industry, and the jobs and economic benefits that come along with it.”
Scott Albertoni, a current DU student expressed his hope that the task force will consider the voices of the greater student body, as opposed to just those represented by Divest DU.
“The fact is that most students I know on campus have never heard of Divest DU, or 350.org’s national campaign to lobby colleges and universities across the nation to divest their endowments of fossil fuel investments,” Albertoni said. “Yet these efforts could have a significant financial impact on the entire student body. That is why I hope the task force will consider the larger student population when crafting their recommendation.”
Chris Fiore, Ph.D. – who has worked on a series of divestment research papers commissioned by the IPAA – cautioned that divestment could impose serious costs on DU.
“My research has shown that divestment could come at an astounding cost for DU, somewhere between $68 and $250 million over the next 20 years,” Fiore said. “Simply put, divesting from oil, natural gas, or coal stocks results in lower investment returns and an increase in fees. Given that divestment is unlikely to impact climate change, institutional investors such as endowments must carefully consider whether a purely symbolic move is worth the steep cost.”
The forum came a day after Divestment Facts announced the launch of a new social media campaign aimed at raising awareness among college students of the risks and costs associated with fossil fuel divestment on college campuses.
In response to lobbying from 350.org, DU established a special task force to study the fossil fuel divestment issue earlier this year. The task force is expected to make its recommendation to full university board early next year.
Online Campaign Launched to Raise Awareness of Costs and Risks of Divestment on College Campuses
More info on the Denver event here.
DENVER – Ahead of a forum today on why fossil-fuel divestment is bad for the University of Denver (DU) and other Colorado universities, Divestment Facts, a project of the Independent Petroleum Association of America (IPAA), is launching a new social media campaign aimed at raising awareness of the risks and costs associated with fossil-fuel divestment on college campuses.
The campaign will launch in Denver with plans to expand to the Boston and New York City regions. The Denver launch comes as the issue is drawing increased attention in the area with a DU task force expected to announce a recommendationon whether the school should divest early next year. Along with the campaign launch, the Thursday, December 15 forum at the History Colorado Center will bring together elected officials, academics, students and Coloradans employed in the state’s energy industry to make the case against fossil-fuel divestment.
“One thing we have learned regarding the divestment campaign by anti-fossil fuel activists is that a large majority of students have very little awareness of the actual issue,” said Jeff Eshelman, Senior Vice President of Operations and Public Affairs for the IPAA. “This video explains why divestment is all cost for students and no benefit for the climate.”
“With the divestment campaign flailing, now is the right time to reach out directly to a broader student population and show them why divestment simply doesn’t work,” said Eshelman.
“The costs of divestment will ultimately be passed on to the student body in the form of increased tuition and fewer scholarship and financial aid opportunities. It is vital students know the facts so they can make informed decisions about divestment on their campus.”
Today’s divestment panel discussion will take place this at the History Colorado Center in the MDC/Richmond Terrace Room (4th floor). The event will run from 1:30 PM – 3:00 PM MST and is free and open to the public. Please click here to register.
Note: Sign Up To Attend Here.
A forum at the Colorado History museum on Thursday, December 15, 2016, will bring together elected officials, academics, students and Coloradans employed in the state’s energy industry to share their reasons for why fossil fuel divestment is bad choice for the University of Denver (DU) and other Colorado intuitions of higher learning.
Hosted by Divestment Facts, a project of the Independent Petroleum Association of America (IPAA), the forum comes ahead of a forthcoming announcement by a subcommittee of the University of Denver Board of Trustees on their recommendation as to whether the Board should divest the schools endowment from investments tied to oil, natural gas or coal.
Confirmed speakers at the event include:
The DU subcommittee has hosted a series of hearings over the course of the last year at the behest of calls from Divest DU. And while the group, a campus arm of 350.org, claims to be a student-led movement, the hearings have revealed the extent to which the campaign is being driven by of out-of-state activists who are using the hearings as an opportunity to advance their campaign to drive energy development out of the state.
Yet earlier this summer, when the opportunity arose for the state’s energy workers to address the task force, twenty five of the state’s energy workers and industry supporters attended the hearing in a sharp contrast to previous presentations from out-of-state activists supporting divestment.
The task force also heard from Simon Lomax with Divestment Facts, whose hour-long presentation offered a look at the real costs of divestment for universities, the growing list of failures of 350.org’s anti-fossil fuel campaign, and the critical role of the energy sector in Colorado’s economy. Lomax informed the task force about the divestment campaign’s singular focus on demonizing energy companies and energy workers, as well as the involvement of 350.org in a series of anti-fracking ballot measures that have been met with broad, bipartisan opposition in Colorado. Lomax also showed the task force that even climate advocates – such as Robert Stavins of Harvard and Roger Pielke Jr. of the University of Colorado – have sharply criticized the divestment campaign and the tactics of 350.org.
Now, with a decision from the school expected sometime in early 2017, the state’s energy industry and supporters are coming together again to discuss in even greater detail how divestment is the wrong move for DU. An article in the Denver Business Journal yesterday provides more background on the event:
After months of studying the issue, the University of Denver’s board of trustees in January is expected to take up the question of whether the private university should rid its $607 million endowment of fossil-fuel stocks. The DU board, which has 28 voting members, earlier this year set up a three-person task force which held seven hearings between July and October. The task forces’s report is expected to be delivered to the board at its January meeting, which hasn’t been scheduled yet, according to a university spokeswoman.
…Students at universities across the country, including the University of Colorado and Colorado College, have urged academic institutions to divest from fossil fuel stocks out of concerns over climate change. CU regents rejected the request in April 2015 after months of study. At the time, CU had about $2.7 billion in its endowment, of which 3 percent to 4 percent was invested in fossil fuel stocks. Colorado College officials said in 2013 that the private college in Colorado Springs would not divest from the sector. Boulder’s Naropa University in 2013 went the other direction, announcing that the small school had“fully divested” from companies identified by 350.org, one of the main groups backing the divestment push, as having the highest potential greenhouse gas emissions.
…Matt Dempsey, a Denver-based spokesman for the Independent Petroleum Association of America’s “Divestment Facts” project, called divestment efforts “a moral campaign that comes with a hefty price tag” due to the cost of untangling fossil fuel-related stocks from large endowments. Such endowments are usually invested in funds that include a wide range of individual stocks. “So to divest, you have to sell a greater portion of your investment and then buy back individual stocks, and there are fees associated with that become very high,” Dempsey said. Dempsey also noted that even if a school divests from a stock, that means someone else has bought the stocks.“It doesn’t hurt the company,” he said. “This is about trying to demonize the industry and in doing so demonizing everyone in that community: oil and gas workers, or coal workers,” Dempsey said. According to Divestment Facts’ Sept. 1 presentation to the DU task force, about 75 U.S. universities have taking a look at divesting their portfolios, which collectively represent investments of about $265 billion. Of those, universities with endowments of about $233 billion have rejected the requests, according to Divestment Facts. Universities collectively holding about $2 billion worth of investments have agreed to divest from fossil fuels, and other universities, representing investments of about $29.4 billion, have agreed to partially divest, according to Divestment Facts.
The event will take place this Thursday, Dec. 15 in the MDC/Richmond Terrace Room (4th floor) of the Colorado History Center. The event will run from 1:30 PM – 3:00 PM MST and is free and open to the public. Please click here to sign up to attend.
All quotes featured by professors and school leaders on this website are public statements made by individuals and are not necessarily representative of the institution of which they are associated. Said schools and universities are also not affiliated with IPAA or DivestmentFacts.com.
