Report: Ending fossil fuel investment could hurt universities’ finances

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Universities’ endowments would likely shrink if officials stopped investing in fossil fuels, according to a new study.

The report follows a recent push from students across the country urging administrators to divest from the fossil fuel industry, which means removing those investments from a school’s endowment. The findings could also hurt a GW student-led movement calling for the University to remove all investments in fossil fuels.

The report, which came out last month and was financed by the Independent Petroleum Association of America, estimated that GW’s peer school New York University could lose more than one-tenth of a percent of its endowment if officials divested, a cost of about $4.2 million per year.

Harvard University, one of five schools in the study, could see a loss of more than $100 million each year from its endowment, which hovers at about $32.7 billion.

Bradford Cornell, the report’s author and a visiting professor of financial economics at the California Institute of Technology, said in an interview that the only way for a university to help slow climate change is to use fewer fossil fuels — not through divestment.

“No matter how concerned you are about climate change or energy, divestment is a horrible idea,” Cornell said.

To conduct the research, Cornell created proxy versions of the schools’ endowments and estimated how much investments would grow or decrease in value each year.

Over a 50-year time period, the value of a portfolio without fossil fuels would be worth about 23 percent less than a portfolio with those investments, according to another recent study.

GW does not publicly disclose how much of their $1.57 billion endowment is invested in fossil fuel.

Meghan Chapple, the director of the Office of Sustainability, said in June that University officials would provide more information about their stance on removing investments from fossil fuel companies this fall. That announcement follows a student-led push for a more transparent endowment portfolio.

Cornell said that divestment also creates a false sense of advocacy because it might not actually be helping to slow climate change.

“It makes people think that by divesting, they are in some way attacking the energy problem while they simultaneously in their personal lives tend to use energy to light their classrooms, warm them, cool them with carbon-based fuels,” he said.

Since the beginning of University President Steven Knapp’s administration in 2007, officials have focused on decreasing the University’s energy consumption. In 2012, officials introduced a long-reaching plan to cut greenhouse gas emissions by 40 percent before 2025 and by 80 percent before 2040.

Since then, 11 buildings on campus have met Leadership in Energy and Environmental Design standards. The University has also reduced its greenhouse gas emissions by 7 percent since 2010 and received a “gold” rating in March for its sustainability efforts from the Association for the Advancement of Sustainability in Higher Education.

Georgetown University, another peer institution, announced its divestment from the coal industry — which accounted for about 2 percent of its endowment — in June, according to the Georgetown Fossil Free website. That decision was in line with other universities’ moves toward coal divestment, including Stanford University and the University of Maine.

But those efforts, Cornell said, are just a “terrible sideshow that distracts us” from creating solutions to climate change.

“The movement away from carbon-based fuels is going to be long and difficult and require really thoughtful solutions, such as carbon gases,” Cornell said.

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