The Cost of Divestment for Endowments

Twenty-nine universities excised fossil fuels. What happened to their performance?

Illustration by II/Bloomberg Creative Photos

Illustration by II/Bloomberg Creative Photos

Divesting from fossil fuel stocks had no major impact on the values of university and college endowments that got rid of them, according to a new study.

Twenty-nine U.S. schools excised the industry from their portfolios between 2011 and 2018, including Stanford University, Syracuse University, and Pitzer College. Another six endowments partially divested, most of them in California.

Two researchers examined the burning question around dropping fossil fuels: What does it do endowment assets?

Not much, as far as CJ Ryan (Roger Williams University School of Law) and Christopher Marsicano (Vanderbilt University) could tell from their study, which they cautioned as a “first cut” for future researchers to improve on.

“Divestment does not clearly harm a university’s endowment assets,” the academics wrote. With the possible exception of Pitzer and Stanford, “divestment does not appear to limit endowment returns in any of the institutions for which we conducted the synthetic control analysis,” which attempts to project institutions’ results had they not sold off fossil fuels.


“Divestment, however, does not yield guaranteed positive gains in endowment value either,” they said in the paper.

[II Deep Dive: Inside Stanford’s Coal Divestment Decision]

Ryan and Marsicano argued that a provable outcome of ditching fossil fuel investments is one that’s by now familiar: Optics.

Students and faculty of many universities see oil, gas, and coal companies as the enemy. The paper pointed to student protestors delaying the annual Harvard-versus-Yale football game in 2019 over climate change concerns and the fact that those universities remain invested in fossil fuel stocks.

Divesting can placate these groups and stigmatize the companies, which in turn may change their behavior or be sanctioned by lawmakers, the authors argued.

“University endowments are remarkably underexposed to the fossil fuel sector already,” Ryan and Marsicano wrote, citing data that showed just 2 percent of the average endowment was invested in fossil fuels — lower than almost any other sector — in 2013.

As a result, “divestment campaigns undertaken by these institutional funds are unlikely to have direct effects on the valuation of the fossil fuel stocks they target for divestment. The more credible threat to the fossil fuel sector, then, is the stigmatization of investments in fossil fuel stocks.”

Universities and colleges can only make their targeted industry look bad, without much financial impact on either the schools or the companies. The ironic fact remains that these institutions can trumpet their refusal to invest in, say, ExxonMobil, but are big customers of its climate-changing products.

“The vast majority of American universities maintain their operations by at least some reliance on fossil fuels,” Ryan and Marsicano noted.