Harvard University: Endowments Shouldn't be Ruled by Climate Change

You don’t have to look very hard to find the accolades Harvard University has received for its ecological focus and accomplishments. Its faculty was the 2009 recipient of the Ecological Society of America’s Cooper Award for a historical resurvey of New England woodland; it maintains the lush Harvard Forest, which the university calls its 350-acre laboratory and research station and has been acknowledged across the globe for ecological studies; it's known for its research into bio-engineered fuels that one day could replace gasoline, and it maintains an already long list of alternative- and renewable-powered facilities on its own campus.

But Harvard is also recognized for its ongoing research into controversial energy topics like oil shale exploration. It is home to authors, researchers and instructors who have delved into oil and gas production from just about every side of the issue.

So it isn’t really a surprise that the largest university endowment fund in the country is funded, at least in part, by investments in oil and gas production. Nor is it a surprise that these investments have rankled environmentalists who believe that Harvard should exemplify sound environmental choices as well as fiscal leadership.

And if the university’s president, Drew Faust, felt that the best tack was being upfront with the reasons the board said no, the answers didn’t sit well with climate change activists either. The divestment campaign has enjoyed fair support recently both on campus and off, and includes backing from Harvard graduates like Bill McKibben, founder of 350.org.

In a letter released October 3, Faust outlined her reasons that she didn’t feel divestment was a good idea.

The bottom line

According to Faust, Harvard University endowments were benefiting from this type of energy investment. Divesting could risk upsetting the endowment’s substantial return, which currently sits at more than $30 billion.

“We should also be clear-sighted about the risks that divestment could pose to the endowment’s capacity to propel our important research and teaching mission,” said Faust. Significantly constraining investment options risks significantly constraining investment returns.

However, research conducted concurrently by several different firms, including the Associated Press, suggests that while Harvard might have benefited well from its oil and gas investments in the past, the marketplace, with the world’s increased focus on climate issues, was changing. “Fossil fuel free” investments now stand to earn more.

The endowment isn’t a tool for advocating change

Banks and other institutions that rely on customer funds have changed their own investment strategies to reflect contemporary perspectives. Organizations such as the Carnegie Corporation and the Rockefeller Foundation have been assisting educational institutions for years in similar investment issues. A July 2012 paper published with partial support of Harvard School faculty reflects this.

As does Harvard’s own investment history. In 2005, in response to increasing pressure from student and human rights groups, the university announced it would be divesting from overseas companies like PetroChina and Sinopec that allegedly had ties with Sudan. However, two years later, the student-run paper, Harvard Crimson, reported that the university still maintained investments in those overseas companies.

According to the above July 2012 report, the Occupy Movement also had a role in shaping Harvard’s views toward its endowment funds, at least as far as the university announced at the time.

Divestment is likely to have a negligible effect

The issue that will ultimately determine whether projects like TransCanada's Keystone XL Pipeline get built will be investment from wealthy sources and the existence of a viable market. Companies do listen to potential investors, especially when they know that their market does as well. The car industry has retooled how it makes cars because it knows its customer investments are what counts for its survival. One has only to look at the success Tesla Motors has experienced recently, and the subsequent efforts by California and local communities to meet that industry’s needs, to know that investment approaches do count.

We shouldn’t smack the hand we rely upon

“I also find a troubling inconsistency in the notion that, as an investor, we should boycott a whole class of companies at the same time that, as individuals and as a community, we are extensively relying on those companies’ products and services for so much of what we do every day.”

OK, Faust has a point. The assurance that companies will stay in business is reliant upon customers providing that business. But influencing change by gradually changing your own investment policies over months or years is a tool that universities, banks and governments have used for ages, and used successfully. The U.S. government does it all the time when it puts grants on hold, as it did with its funds earmarked for Egypt during that country’s recent political changes. Call it strong-arming, but investment strategies are one of the most effective ways to affect social and technological change.

And Harvard’s promotion of its use of renewable energy on campus suggests that it knows that change doesn’t occur without a visible public statement.

What President Faust's letter didn’t address was the relationship between investment and reputation. Harvard’s reputation is shaped by what it invests in, not just in what it teaches or promotes in research. So is its brand as an impartial, but forward-thinking institution that doesn’t want to be perceived as a “political actor.” But climate change is altering not only how we harness energy but how we view the political landscape. As a poet once told me, “everything is political.” It’s how we deal with that landscape and the choices we make that shapes how others view us.

Image of Harvard University President Drew Faust courtesy of Art Polanzer

Image of Harvard Forest research courtesy of Daniel Spiess