The Question of Divestment

One way that campus administrators and trustees can further sustainability objectives is through divesting institutional endowments from industries that detract from sustainability, and re-investing in socially responsible companies or funds.  Endowments consist of donations that are held in perpetuity, and are invested to create income for colleges and universities. The average and median endowment for all US and Canadian institutions were approximately 650,000 USD and 115,828 USD, respectively, but nearly 100 institutions have endowments over 1 billion USD [i].  The earnings from these endowments can represent a large portion of operating funds and the global investment market.

The basic argument for divestment is that ethically-driven institutions such as colleges and universities should not hold market positions that undermine the very values of that institution. The main objective is to send a signal to the market to slow cash flow into companies such as those in the fossil fuel industry by stigmatizing them.   Such divestment is seen as a moral imperative, and given the overall size of endowments could be quite effective in furthering sustainability. In the past, divestment proved to be successful when a large proportion of colleges and universities divested from South African companies in the late 1970’s to end Apartheid, and from Darfur in response to the genocide occurring there in the 2000’s.

Today, there is a movement for educational institutions to divest their endowments from fossil fuel and related companies.  This campus divestment movement is typically initiated by students. This has led to the emergence of more than 400 student-driven fossil fuel divestment campaigns on US campuses. In 2011, Unity College became the first to divest. Today, according to the organization, 40 US institutions of higher education out of a global total 124 committed to either full or partial divestment from fossil fuels.  The UK has the highest number of divesters [ii].  For an updated list of divestment commitments click <here>.  Many of these divestment decisions are based on recommendations by the Carbon Underground.  

Though there have been some early movers on divestment of institutional endowment from fossil fuels, it remains controversial.   A number of colleges and universities have been reluctant to shift their endowments away from fossil fuels to more sustainable investments in spite of student demand and the moral imperative to do so.  The arguments against doing this have included the perception that divesting the endowment could diminish returns, and that there would be substantial transaction costs given the size of these investments.  Another problem is that individual investments in fossil fuel companies are typically embedded in multiple, more diverse funds adding to the complexity of divestment.  Also, as long as there are “unethical” investors in the market, those divested shares could be quickly purchased at a discount and sold for a profit.  As a result the market price would essentially stay the same, and the company would lose no money and perhaps not even notice a difference.  Still others suggest that that some fossil fuel companies are also heavily invested in the development of renewables so divestment could hurt that transition [iii].   Despite these concerns, for many institutions and their stakeholders divestment is an important statement about the ethics of fossil fuel companies and their responsibility for climate change, and for this reason the divestment movement continues to grow.

Another issue of concern is that limiting the divestment of institutional endowments to the fossil fuel industry neglects other businesses that violate sustainability principles.  These businesses include those in industrial agricultural that are responsible for substantial GHG emissions, the private prison industry that promote mass incarceration, or other businesses that might include exploitation of workers or the environment.  An alternative approach to divestment from a specific business or class of businesses that could address this would be to move endowments into social impact investment portfolios.  One such class of investments includes those businesses that are highly ranked in environmental, social and governance (ESG) criteria.

Many of those institutions that are not divesting from fossil fuels or moving funds into social impact investment portfolios make the case that their large financial commitments to sustainability through operations, and the support of sustainability related research and academic programs are more effective in furthering sustainability than divestment. They argue that if the amount potentially lost through transaction fees and perceived reduced returns were invested in actual sustainability initiatives the positive impact towards carbon emissions reductions would be greater than through divestment.

[i] NACUBO: Public NCSE Tables. (n.d.). Retrieved October 3, 2017, from

[ii] Commitments. (n.d.). Retrieved October 18, 2017, from

[iii] National Association of Scholars. 2015.  Inside Divestment: The Illiberal Movement to Turn a Generation Against Fossil Fuels.  Retrieved October 3, 2017, from