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Harvard and Yale students protested during halftime of the college football game at the Yale Bowl on Nov. 23, demanding the universities divest from fossil fuels.

Nic Antaya for The Boston Globe via Getty Images

Last month, climate change protesters stormed the field at the annual football game between Harvard and Yale Universities, delaying play for nearly an hour.

Fossil fuel divestment groups urging the two universities to stop investing in companies producing fuels like coal, oil and natural gas organized the protest. They forced the game to be finished in darkening conditions, because the Yale Bowl has no stadium lights.

The protest received national attention. It also illuminated a financial and governance issue: calls for divestment are forcing colleges and universities to navigate a difficult space between students' concerns and administrators' fiduciary duty to prudently manage endowments.

It's a difficult spot because no firm consensus exists about whether fossil fuel divestment hurts endowment returns in higher education. One 2015 paper commissioned and funded by the Independent Petroleum Association of America estimated fossil fuel divestment could cost Harvard more than $100 million per year. On the other hand, a 2018 paper in the journal Ecological Economics examining divestment more broadly found fossil fuel stocks don’t outperform other stocks and don’t provide many benefits from a diversification standpoint.

A new working paper being presented today for discussion at the Association of American Law Schools annual meeting seeks to fill in some of the gaps. It looks at hundreds of college and university endowments in order to compare the performance of those that did not divest from fossil fuels with those that did.

The main takeaway is that college leaders worried that divesting from fossil fuels will hurt their endowment returns might want to hold off on reaching a final verdict. Authors Christopher J. Ryan Jr. and Christopher R. Marsicano weren’t able to conclude divestment has a discernible effect on endowment returns.

“That doesn’t mean that there isn’t one, that just means we couldn’t find one using the methods we used,” said Marsicano, a visiting assistant professor of educational studies at Davidson College in North Carolina. “But that’s a pretty stark indictment of the idea that divestment could hurt an endowment financially.”

Marsicano and Ryan, an associate professor of law at Roger Williams University in Rhode Island, attempted to look at college and university experiences after fully or partially divesting from fossil fuels. They used two modeling techniques known as difference-in-differences and synthetic control.

Ryan and Marsicano combined data from the federal government’s Integrated Postsecondary Education Data System with data they received from the National Association of College and University Business Officers for the period from the 2000 to 2017 fiscal years. A total of 527 institutions were in the data sets.

Full divestment and partial divestment from fossil fuels caused negative consequences for university endowments’ fair-market values, according to the difference-in-differences analysis. On the other hand, the synthetic control analysis suggested there is no negative effect for midsize and large endowments that divest and that negative divestment effects might be overstated in the near term.

The authors are quick to reiterate that the paper is in the preliminary stages and hasn’t been peer reviewed. They’re seeking feedback and want to perform future robustness checks on their findings.

Challenges include the fact that colleges and universities generally offer little visibility into their endowment holdings. The authors are taking institutions at their word when they say they divest. It’s also possible that the colleges and universities saying they are divesting have already divested at some point in the past, which could skew findings. Or those colleges may have had very few fossil fuel-related holdings in their endowments in the first place.

Also, a relatively small number of colleges divested during the time period studied, making it harder to draw widespread conclusions. The authors counted 16 U.S. colleges and universities fully divesting between 2011 and 2015, plus another six partially divesting from fossil fuels. Then 13 more institutions divested between 2016 and 2018. The authors performed the synthetic control analysis on four institutions.

“This is our best shot,” Ryan said. “We think this is a good start at addressing a really timely issue. There are important caveats. We don’t have the perfect data set. I don’t know if we ever will, but we are really trying to get at the heart of this question about the effect of divestment.”

An outside expert who reviewed the working paper raised some questions.

“It will be difficult to pick up the effect of divestment at this level of analysis without more details on the size of divestment in each portfolio,” Brad M. Barber, chair in finance at the University of California, Davis, Graduate School of Management, wrote in an email. It’s more informative to simulate how an investor’s risk-return portfolio would change if that investor invested in the market portfolio versus a market portfolio lacking fossil fuels, he said.

A group linked to the Independent Petroleum Association of America, which has labeled fossil fuel divestment as costly for institutions, criticized the working paper as having several holes.

“Of the few schools the authors characterize as having fully divested, many never had investments to begin with, or merely sold off their direct holdings without addressing commingled funds,” Matt Dempsey of Divestment Facts, which is an IPAA project, wrote in an email. “The few that carried out a limited divestment plan typically did so on a five-to-15-year time horizon, so the negative impacts of divestment would not be immediately detected. The paper certainly doesn’t account for transaction fees and active management costs which an endowment would incur if it were to be truly fossil-free. Simply put, our initial review shows this paper is lacking and fails to do the deeper dive other papers have done to date.”

The paper’s authors nonetheless hope they’re contributing to the conversation about higher education endowments and how institutions can weigh different factors when picking investments. Environmental, social and governance factors, or ESG factors, are drawing interest from many different types of investors.

ESG factors are also actively being discussed in fiduciary law, Ryan said.

Where scientists might point to consensus on climate change, no consensus exists about what institutions’ fiduciary responsibility is when it comes to divesting from fossil fuels.

“What factors should they be considering in making their decisions?” Ryan said. “Should it be total return based on investing -- the modern portfolio theory model? Or should it be something like total returns with a conscience?”

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