Story of the Week: November 2020

A growing economic literature finds, by contrast, that fossil fuel divestment is little more than a political statement; it has little or no effect on the targeted companies while creating additional costs and lower risk-adjusted returns for investors.

“...divestment is little more than financial theater. Even at its best, it would have no meaningful effect on global emissions. What is worse, divestment misconstrues the climate problem and distracts from the market-based solutions that can actually make a difference.”

“For one, an endowment is not a general fund that Harvard can freely take money from. It is designed to be a long-term guarantee for the university via investment, with only small portions of it used to preserve its viability.”

“While the divestment groups have centered their most recent efforts on the abstract idea that “investments should reflect [Harvard’s] moral and political principles,” some of the campaigns have also argued that divestment will help change larger issues beyond the school. However, there is little evidence to support this claim. Research on the divestment movements’ impact on apartheid South Africa, one of the most public such campaigns in history, concluded that it had negligible impact on share prices themselves, though it may have contributed to the greater social pressure against the regime.”

“Fossil fuel divestment advocates are not unanimous with respect to identifying which assets should be divested, and there is no objective scorecard of which I am aware to determine this question. Further, as company policies and technologies evolve, the individual investments that comprise an appropriately divested portfolio will likely change. As a consequence, investment managers would need to undertake ongoing research and management costs to maintain compliance with divestment goals. This introduces a costly element of active management into endowment portfolios”.