To invest or to divest: Is that the question?

Source: 'Go Fossil Free' campaign

It all began when the Students for a Just and Stable Future (SJSF) coalition from over 300 universities urged the Harvard Management Company to divest from 200 fossil fuel companies that operate most of the worlds’ reserves.

What exactly is divestment? It’s when institutions remove their investment from select companies to advance a social or political cause. A success story is that of the tobacco movement, which took years to gain momentum until Harvard, Johns Hopkins, and Columbia universities divested their shares, sparking the trend.
 

But Harvard denied SJSF’s plea. Let’s have a look at their argument: 

•  Harvard upholds that the endowment is an economic resource, not ‘an instrument to impel social/political change’. Fair enough. 

•  To further that claim, it states that 'significantly constraining investment options risks significantly constraining investment returns'. So the world's richest academic institution wants to get richer.

•  On a less subjective note, Harvard might be misled: according to the AP, a $1 billion endowment that excludes fossil fuel companies would’ve grown to $2.26 billion over the last ten years, while that which includes fossil fuel companies would have grown to $2.14 billion. $2.26 billion - $2.14 billion? That’s a whopping $120 million difference.

• ‘Universities own a very small fraction of the market capitalization of fossil fuel companies. If we and others were to sell our shares, those shares would no doubt find other willing buyers.’ Oxford’s Smith School also confirms that divestment would not cause substantial decline in share prices.

• However, as Jessie J would say, it's not about the money. The aim is not to create a financial impact, but to increase public awareness of climate change and energy policy. Harvard is a role model, and a role model must lead the way.

• Harvard also believes in using its voice to encourage targeted companies towards sustainability rather than pitting against them. Smith School agrees, promoting communication between company and client with carbon intensity audits, stress test portfolios etc. Basically, divestment is ‘the final, and most drastic, instrument’.

SJSF’s cause may sound too extreme: we still rely on energy produced by these 200 companies for everyday use. Therefore, does it actually make sense to boycott them?  

 Progress of the 'Go Fossil Free' Campaign

The question is, will divestment bring about sustainability? If so, is it more/less/equally as effective as other (often lower-cost) means? Is it worth it?

 Combined revenues of world's largest listed fossil fuel companies

Source: Smith School's 'Stranded Assets' 

At home: UCL currently has investments in Royal Dutch Shell, BG Group and other fossil fuel companies. As part of the ‘Go Fossil Free’ campaign, students have started urging the university to consider divestment. You can read about their policy here. 

References:

Ansar, Atif, Ben Caldecott, and James Tilbury. "Stranded assets and the fossil fuel divestment campaign: what does divestment mean for the valuation of fossil fuel assets?." Stranded Assets Programme. Smith School of Enterprise and the Environment, Jun 2013.

Faust, Drew. "Fossil Fuel Divestment Statement." Office of the President. Harvard University, 03 Oct 2013. 

Hendey, Eric. "Does Divestment Work?." Institute of Politics. Harvard University, 2013.