Denver University and other Institutions Should Consider Facts on Divestment

Since schools are back in session, interest groups have renewed their pressure on university board members to divest their funds from industries that allegedly disagree with their institutions’ values. In Colorado, the University of Denver (DU) is considering removing the school’s endowment from investments linked to oil or natural gas companies after environmental groups actively campaigned locally for divestment. During a comment submission, finance and accounting experts once again argued that divestment action would lead to unintended financial consequences that would cost the university millions of dollars.

As highlighted in The Daily Caller, analysts pointed out to the university the importance of energy in Colorado’s economy. The industry has added $29.6 billion to Colorado’s economy – equivalent to about 10 percent of the state’s economic activity – and supports 111,500 jobs. Showcasing the industry’s contribution to the state allowed analysts to highlight the continued strength of fossil fuel investments and the important role it plays the state’s economy.

In addition, some experts argued that the transactional costs associated with divestment are just as, if not more, detrimental to a university’s funds then divestment itself.

As The Daily Caller explains:

“Kristy LeGrande and Wendy Walker, of the investment advisory firm Cambridge Associates, told the task force that investment strategies for most endowments involve commingled funds, and explained that screening funds of oil assets is a service not typically offered by top-notch investment managers.”

The frictional costs that the LeGrande and Walker point to could cost an endowment fund as much as $7.4 billion over a 20 year period. That’s money that could be spent on scholarships, retaining reputable professors, research and developments, university budgets and daily business operations. For example, financial support towards research could be targeted towards clean energy research.

The repercussions of divestment extend far beyond the extraction of funds from an industry. It’s costly, time consuming, and leaves a wake of consequences behind it. The unfortunate victims would be the university’s students who would see the university’s opportunities and resources diminish because of a less profitable endowment. University board members need to carefully examine the facts before deciding on whether to divest or not.

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