In a recent editorial, the Gazette endorsed Divest UMass’ campaign to have the UMass Foundation divest its sizable endowment from the fossil fuel industry. While you acknowledge in your editorial that divestment is a purely symbolic gesture against climate change, you do not discuss the real costs associated with this decision.
Last year I conducted an in-depth economic study to calculate how much fossil fuel divestment would cost five universities; while, admittedly, UMass was not one of the universities I looked at, my report found that in no instance did divestment have a positive impact on endowment performance. In fact, according to my research, Harvard, Yale, Columbia, MIT and NYU would rack up annual losses of $107.81 million, $51.90 million, $14.43 million, $17.75 million, and $4.16 million respectively if they pursued a divestment policy. These costs need to be an important part of any discussion around divestment.
Students and faculty also need to be keenly aware of the importance of their school endowments. These portfolios are usually linked to overall university spending and a major shortfall in performance could mean cost-cutting in areas such as research, student aid, and faculty size. These costs, the ineffectiveness of divestment in impacting climate change, and the lack of impact divestment actually has on targeted companies are all a part of why many universities have rejected divestment to date.
It is up to UMass leaders to decide if divestment is the right choice for its future, but this decision is far more than symbolic. There are better ways to combat carbon emissions, like cutting down our own consumption, than implementing a punitive investment strategy for the endowment.
Bradford Cornell
Pasadena, Calif.
Bradford Cornell is a visiting professor of financial economics at Caltech and a senior consultant at Compass Lexecon. The study referred to in this piece was commissioned by the Independent Petroleum Association of America.