As a reaction to the recent divestment movement that is pushing for public pensions and universities to divest certain stocks that are not socially acceptable, the University System of Maryland Foundation (USMF) announced on June 30th that they would stop investing in fossil fuel companies. But the reality of this statement is quite different than it looks. In a recent guest column in The University of Maryland’s Independent Student Newspaper¸ The Diamondback, Josh Wilson took a deeper dive into what it means for USMF and other institutions to divest from stable investments.
First off, in his column, Wilson points out that the subject of divestment has been debated on in multiple columns in The Diamondback, but he warns, “don’t’ be fooled,” because “the decision to ‘divest’ is simply an empty gesture.” In reality, USMF has no direct investments in fossil fuel companies and therefore the act to ‘divest’ is actually just a simple empty gesture that is, in fact, no action at all.
After this discovery, Wilson begins to question whether divestment is actually a reasonable action for pension funds and university endowments to take if they wish to grow their fund. Here’s the kicker – it’s not. According to Wilson, “study after study has shown that divestment actually causes more harm than good.” These studies include a recent report by Professor Hendrik Bessembinder of Arizona State University who concluded that the transaction and management costs related to divestment would actually cost millions of lost dollars on divested portfolios. In addition, two separate studies conducted in 2015 by University of Chicago Law Professor Daniel Fischel and Caltech Professor Dr. Bradford Cornell, also found similar results in their conclusion – a loss of assets for university endowments and pension funds up to hundreds of millions of dollars, even billions in some cases.
The fact remains that divestment is not an action that should be taken by funds that are relied upon by civil servants, retirees, professors, and students to have a future. Instead, smart and diversified investments that have proven results should be taken by these institutions. As Wilson highlights, these foundations, including USMF, have a responsibility to continue to grow and sustain their institutions – something that divestment fails to accomplish.