The University of Dayton has become the latest college to announce its plans to remove fossil fuels — but the popular “divestment” trend is hurting colleges’ investment portfolios while failing to make any impact on global warming.
Dayton announced on Monday that it will begin to divest from coal and fossil fuels, reportedly becoming the first Catholic university to do so.
The board of trustees unanimously approved the policy, which will first eliminate fossil-fuel holdings from the school’s domestic equity accounts and then move onto international holdings, according to an article on the university’s website. The school’s $670 million investment pool will be redirected to green technologies or holdings. Future investments in private-equity or hedge funds that support fossil-fuel holdings will be restricted.
“We applaud the University of Dayton for taking this step as perhaps the first U.S. Catholic university to divest from fossil fuels,” Michael Galligan-Stierle, president of the Association of Catholic Colleges and Universities, said. “This is a complex issue, but Catholic higher education was founded to examine culture and find ways to advance the common good. Here is one way to lead as a good steward of God’s creation.”
The homepage of GoFossilFree.org proclaims, “It’s wrong to profit from wrecking the climate.” Proponents of the movement say that divesting brings attention to the issue of climate change and sets a positive example. Unity College in Maine has already divested, and its president, Stephen Mulkey, told University Business, “This is making a strong statement to these companies about their social license to continue business as usual.”
But even supporters of broad policies to combat global-warming theory — including the president of Harvard — say the divestment strategy is ineffective, risky for university trust funds, and unsupported by the history of previous divestment campaigns.
Harvard University, which has the largest endowment of any university in the nation at $32 billion, has experienced a two-year battle over divestment from fossil fuels, but has not yet divested. The ”Divest Harvard” movement calls upon the University to immediately freeze any investments in fossil-fuel companies, divest direct holdings from the top 200 publicly traded fossil-fuel companies, and reinvest in “socially responsible funds.”
To kick off Divest Harvard’s Day of Action, students blockaded the entrances to the offices of the University’s top administrators, preventing Harvard president Drew Faust and other administrators from doing their jobs.
Faust asserted in a statement that although climate change is one of the world’s “most consequential challenges,” she does not believe that divestment from fossil fuels is “warranted or wise.”
The university should “be very wary of steps intended to instrumentalize our endowment in ways that would appear to position the University as a political actor rather than an academic institution,” she wrote. “Conceiving of the endowment not as an economic resource, but as a tool to inject the University into the political process or as a lever to exert economic pressure for social purposes, can entail serious risks to the independence of the academic enterprise. The endowment is a resource, not an instrument to impel social or political change.”
Faust said constraining investment options greatly risks investment returns, adding that divestment is “likely to have a negligible financial impact on the affected companies.”
Indeed, there is much evidence that divestment doesn’t actually hurt companies. Christine Wood, a Vassar College trustee who has 30 years’ experience in the investment-management field, told University Business, “By petulantly selling your shares, you have not hurt the company at all. You’ve just transferred ownership to some other party who cares much less about the issue than you do.”
The 1970s and 1980s movement to divest from companies that did business in South Africa in response to the apartheid regime also had dubious financial impact, according to a 1999 study by economists Ivo Welch and C. Paul Wazzan. They found: “Despite the prominence and publicity of the boycott and the multitude of divesting companies, the financial markets’ valuations of targeted companies or even the South African financial markets themselves were not easily visibly affected.”
Throughout her experience, Wood concluded: “The problem I have found in every instance, without exception, is that trying to use an investment portfolio to accomplish social or political causes comes up short in every way you can imagine.”
Critics of divestment also point out that the leaders of the movement refuse to acknowledge the enormous benefits that we receive from the fossil-fuel industry. According to Alex Epstein, founder of the Center for Industrial Progress, the industry produces 87 percent of world energy. The CIP wrote an open letter to American universities entitled “Don’t Divest, Educate” that called for a greater understanding of the energy industry.
In an interview with The Stanford Review, Epstein explained that the energy industry “powers every other industry and thus the more affordable, reliable energy you have, the better you can do the task of of any other industry, or indeed any category of task in life.” Those who support divestment “engage in complete, blind condemnation, and assert that they know where energy should come from,” he said. “Saying solar and wind can replace fossil fuels is like saying wood can replace steel.”
— Molly Wharton is an intern at National Review.