Industry-Financed Study Projects Divestment Losses

September 8, 2015

A new study -- financed by an industry group -- predicts significant losses for universities with large endowments if they sell holdings in fossil fuel companies, as many student and environmental groups are urging. The study was released by the Social Science Research Network and was based on investment models for Columbia, Harvard, New York and Yale Universities, and the Massachusetts Institute of Technology. A key limitation is that the universities don't release enough detail on their endowments to know exactly where they are invested today, so the study is based on proxies using mutual funds. Harvard would lose $100 million a year from divestment, the study says.

A controversial assumption of the study is that it is based on the last 20 years of data for the performance of the oil, gas and coal industries. As the study notes, some believe that these industries will face serious economic challenges due to shifting consumer patterns and government regulation, so historical earnings levels may not in fact be repeated.

The author of the study is Bradford Cornell, formerly a professor of finance at the University of California at Los Angeles and currently a visiting professor at the California Institute of Technology. The study was commissioned and financed by the Independent Petroleum Association of America.

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