Should university endowments divest from fossil fuels? A public discussion of this question has seen some university presidents issuing statements that they would not divest—that investments should not be used for “political action.” Many universities hold large endowments that have significant positions in fossil fuel companies or funds that hold fossil fuel assets. Universities consume fossil fuels in most aspects of campus operations. But universities also support most of the research that has identified the existence, nature and consequences of climate change, and the principal purpose of the university is to educate, particularly the young adults who will live and work in the climate of the future.
Arguments for universities to divest from fossil fuels are frequently based on moral grounds. Ignoring the moral issue at the core of the climate challenge presents real peril to the reputation of universities and their standing in society. The costs of climate change stretch across generations due to the long atmospheric lifetimes of greenhouse gases and the inertia in the Earth’s climate system, posing the question of what the impacts of today’s societies are on the well-being of their children and grandchildren. The poor bear the brunt of the economic and health impacts of climate, a relationship that holds within every nation, and between rich and poor nations. Climate change requires development of the capacity to manage our collective impact on our environment, and universities have a duty to help foster this development. Universities cannot pretend they have no such responsibility without forsaking the role they have historically engendered as trustees of humanity’s capacities, values and understanding.
But the case for divestment is not limited to moral imperatives. Holding assets in fossil fuel companies, and in companies that are fossil fuel-intensive, poses a significant array of risks for universities that appear on multiple, simultaneous fronts. Fossil fuel companies will eventually experience a dramatic decline in demand for their products, producing so-called “stranded carbon.” Price volatility of fossil fuel assets is the norm, and it will be exacerbated by rising concerns about extractive practices and the forced internalization of external costs, shareholder advocacy, the elimination of generous subsidies, and intense competition from energy efficiency and fast-developing, low-carbon sources of energy. Taken as a whole, the financial, moral and reputational risks associated with holding assets in fossil fuel companies create a compelling case for divestment, even without considering the rising opportunity costs of not transferring investments to cleaner alternatives. Careful examination of the stated reasons for not divesting shows that they do not hold water.
Instead of viewing the choice as “business as usual” or “disinvest,” universities should engage with other universal owners—asset owners who recognize that their portfolios are diversified across multiple industries and asset classes—and learn how to invest responsibly. Aligning their financial interests with their commitments to sustainability will not be accomplished overnight, but that does not justify turning a blind eye to the fact that a healthy portfolio requires a healthy economy. Universities can first disinvest in the highest-polluting and irresponsible operations, and launch a process of learning where to reinvest in the cleaner opportunities of the future. Developing the capacity to identify good investments that make sense from both a moral and a financial standpoint, and doing that work will help inform the rest of us. Doing this work visibly fulfills the university’s role in society, and will attract high-quality students, faculty and donors. Once this work begins, the question of where the line is to be drawn recedes in importance.
These actions would provide the world with a lesson worthy of education institutions that really are concerned with the future. The actions would demonstrate that universities understand that money-management is not separate from moral and environmental consequences, and that the universities will not participate in the fiction that they are separate. That alone would have incalculable value because it would help convince others. Even the most cold-blooded investor will eventually have to acknowledge that these risks are growing, as is the value of industries that are not vulnerable to regulation, resistance and devaluation. University leaders should recognize how intelligently going down the road of divestment fulfills their role in society, and that failing to fulfill the university’s basic mission will eventually degrade its reputation and capacities.
Cutler J. Cleveland is a professor of Earth and Environment at Boston University. Richard Reibstein is a lecturer in the department. This piece is adapted from Energy in Context, a blog the authors started with two colleagues from the BU Department of Earth and Environment: professors Nathan Phillips and Robert K. Kaufmann. See the full report at The Path to Fossil Fuel Divestment for Universities: Climate Responsible Investment.