20 Mar 2014: Point/Counterpoint

Should Universities Divest
From Fossil Fuel Companies?

Student and activist groups have been urging universities to take a stand against climate change by divesting from companies that produce oil, natural gas, or coal. In a Yale Environment 360 debate, activist Bob Massie makes the case for divestment as a necessary tool in pushing for action on climate, while economist Robert Stavins argues it would be merely symbolic and have little effect.

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While both are "right" to a certain extent, I have to say the ethical argument wins over the "no impact" argument. Markets are not just driven by the "bottom line" but also by emotion. And also, investments are not made in a vacuum, meaning for those that just care about ROI, and one investment has bad PR or ethical considerations, the tendency is pick the same ROI without the bad connotations. So as institution investors divest of their fossil investments, then individuals become the investors, who also have a myriad of other investment opportunities as well. The institutional investor is a bellwether for the future, and sending a signal to the market on what is acceptable or not is an important market tool. This strategy had impact on industries after WWII who collaborated in the holocaust and during Apartheid in South Africa. The same arguments were given that they would have "no impact", but as we found out later, they surely did.
Posted by Scott Sklar on 20 Mar 2014

It does not appear that either position is necessarily mutually exclusive.

What about another possible option for alumni contributions? Rather than giving money to the university directly, they can give to a third party instead that will hold the money in a competitive interest bearing account (that does socially responsible investing). Half of the individual's contribution will immediately go to the university once the institution divests, and the other half will be given to the university at a later date (5 to 10 years) to prevent backsliding. Every year, the financial organization can send a letter to the University stating it has $XYZ identified for the University that will be given to the University once it divests from whatever the individual alumni donor finds offensive.
Posted by Linus on 20 Mar 2014

I addressed this topic recently in the following blog post: http://www.luther.edu/marschja/blog/?story_id=538867

Here's the closing paragraph:

At the end of the day the most important factor driving greenhouse gas emissions is the price of fossil fuels. Until they more accurately reflect true social and ecological costs the consumption of fossil fuels will grow. In my view it would be better to redirect the passion and energy currently devoted to fossil fuel divestment and refocus it on developing political support for the regulation of greenhouse gases and some form of carbon pricing via cap and trade, cap and dividend, carbon taxes, etc. Pinning the tail on the evil fossil fuel companies is too easy.

Posted by James Martin-Schramm on 20 Mar 2014

Seems like one of the lies, I mean arguments, that the powers that be use to not divest is that they don't want to be political with the money, as if investment were not?

The road trip analogy is pretty much right on, we're all in that car, and our leaders are driving to the precipice like Dominic Toretto.
Posted by Aaron on 20 Mar 2014

Stavins's argument is so riddled by false assumptions and illogic that it's difficult to know where to begin. Here's as good a place as any: the supposed analogy between oil companies and student activists. "The oil company proceeded with its internal measures, which, as I anticipated, had trivial, if any, impacts on the environment — and they subsequently used the existence of their voluntary program as an argument against government attempts to put in place meaningful climate regulation they argued that they were already doing their part." If we follow his logic here, then we should not support the students' goal of divestment, because they will simply "use the existence of their program" to...to what? To avoid more effective climate change measures? Good lord! Professor Stavins — do you read this stuff before you publish it?
Posted by James Recht, MD on 20 Mar 2014

Mr. Stavins makes a major assumption in his arguments that he does not explain or support with any substantive basis, and that is that divestment will NOT have a substantial financial impact on fossil fuel corporations. Many universities have significant resources invested in their endowments, some with tens of billions of dollars. Withdrawing these investments from fossil fuel companies is like multiple mutual funds pulling out of those companies. This will cause stock prices to decrease and shareholders will pay attention. Cumulatively across the nation and throughout the world, this effect could be very large, with hundreds of billions of dollars divested if enough universities take action.
Posted by Ross G on 20 Mar 2014

Of course they should divest in fossil fuels. When invested in anything, you hope that entity will prosper. But that shouldn't be the case, we don't want fossil fuel companies to prosper. We want them to feel the pain of other energy sources breathing down their necks.
Posted by Joseph Zorzin on 22 Mar 2014

Universities can become a place of higher lying in much the same way that the laws can be a burden rather than a beacon.

Bob Massie's argument is far too small to accomplish anything in terms of a new economy or as a response to pollution.

The universities are a non-profit (more accurately described as 'non-taxed') that mislead, misguide, and set a very poor example of stewardship.

The call should be for a complete divestment from Wall Street, not of a particular set of stocks.

Unearned income is the bane of mankind, but if this is the example set by are highest thinkers, then can more be expected from the unwashed masses? Universities have institutionalized hypocrisy on a grand scale, and all the world is following them in an economic death spiral of inflation and debt.

There is a tragedy here in that the New Economics Coalition is not offering anything new, and the strategy somewhat legitimizes what the universities are doing with their immoral hoard. Much like straining on a gnat while swallowing the camel whole, NEC really misses the big picture.

Just to be clear: Unearned income is slavery. If you can make money without labor, then someone is laboring unpaid. Income inequality is not a mystery, except to those in denial.

It's not that both arguments are mutually exclusive, both arguments are wrong, both economically and environmentally.
Posted by Steve Consilvio on 22 Mar 2014

Divestment can be powerful for two more reasons.

First, it is self defense, because high carbon industries will not survive our climate response. The smart money goes elsewhere for better returns. And if by some misfortune we fail to respond to the climate, the resulting catastrophe will take those companies, their investors, and everyone else down anyway.

Companies with stranded carbon assets are fraudulent. They can put all kinds of fake assets like unburnable coal reserves on their balance sheet and hope to fool investors. That sort of thinking got the banks in big trouble in 2008. It is too soon to do it again with the oil and coal companies.

Smart investors don't wait for the bubble to burst. Divestment is no sacrifice.

Posted by Carl Page on 24 Mar 2014

Divestment is an effective economic weapon for positive change - starve the beast. With less invested, less capital, less investor confidence, a motive to change behavior. This will work if the divestment effort is widespread - i.e., the Ivy League and the ACC, the SEC, the Big 10, and so on. Someone has to take a major step.

An excellent post was recently placed at Salon.com - an excellent repost to the "opportunity cost" argument. It's time to move beyond such rigid notions we're much more than "rational actors" from the narrow perspective of the Chicago School. We are willing to pay more for what we want, which is something our "leaders," so called, are unwilling to accept - yet. Where is the bold action?


Posted by Kyle Gardner on 27 Mar 2014

Stavins has a point, but I think he is over-relying the opportunity cost argument. Harvard is a giant university with a large specialised staff. There is no reason why some professors and students couldn't pursue teaching, research, and outreach, while other staff and professors pursue other climate initiatives. Divesting would not reduce the university's ability to conduct research. And not everyone is interested in climate and energy research — for example, those in the humanities and social sciences may still care deeply about this issue and can work with facilities staff to pursue reductions in the university's carbon footprint. Smaller schools may indeed face real opportunity costs, but Harvard University has a vast amount of resources.
Posted by Jürgen on 02 Apr 2014

Why should not investing in fossil fuel be an either/or thing?

Yes, strong government action is needed to convert from fossil fuels, but every battle is fought on more than one front. Stop dropping care packages to the enemy in the private sector and the government sector.
Posted by Arthur D. Hall on 28 Jun 2014


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