The University of California system recently announced their decision to divest $150 million from traditional energy investments. While it is certainly a feel-good measure, this move will only hurt future students and do nothing to address the environmental footprint of the university system.
The actions of the UC system are largely symbolic, especially when compared to initiatives undertaken by other California institutions, like Stanford University. In 2016, Stanford’s Board of Trustees carefully examined whether divestment made sense, and concluded that they did not believe that a credible case could be made “for divesting from the fossil fuel industry until there are competitive and readily available alternatives.” However, Stanford did commit to creating new and innovative energy systems which eliminated, according to the university, 150,000 tons of carbon dioxide annually, the rough equivalent of taking 32,000 cars off the road. Thanks to the prudent actions of Stanford’s trustees, the endowment was shielded from becoming a political football, and instead, tangible changes were enacted.
The decision that Stanford University took reflects the fact that there is no consensus whether divestment is a truly effective way of promoting positive change. As Stanford’s statement rightly pointed out, billions of people around the world still depend on traditional energy, and many of the firms that become targets of divestment help promote alternative energies as well. Other California institutions, such as pension fund CalPERS, have stated emphatically that divestment is “ineffective strategy for achieving social or political goals.”
Aside from the complexity of the issue, the idea that an endowment can divest with no negative financial consequences is false. Dr. Bradford Cornell, a professor of financial economics at Caltech examined five endowments under threat of divestment and concluded that in no instance did his analysis find divestment to have a positive impact on endowments. Taken together, the five institutions that he examined (Harvard, NYU, MIT, Columbia, and Yale) would lose $195 million annually over a 50 year timeframe.
Endowments exist to help a university invest in itself and to create access to education for students across the socio-economic spectrum. As the cost of going to college increases year over year, it is important that endowments stay healthy and are governed by sound investment policies. The actions that the University of California system has undertaken not only threaten the mission of its endowments, but make no real contribution towards a more environmentally friendly future.