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In our opinion: Stanford decides not to divest its interests in fossil fuels

Stanford University Campus in Northern California with Hoover Tower in Background
Stanford University Campus in Northern California with Hoover Tower in Background
Adobe stock photo

The recent decision by Stanford University’s board of trustees to not divest from the fossil-fuel industry has sparked controversy among students, faculty and the greater divestment movement.

In recent years the debate about climate change and global warming has escalated to include a vigorous and highly visible “divestment” movement. This movement’s primary focus is to persuade organizations to sell their financial interests in fossil-fuel stocks. The thinking is that if enough investors sell their fossil-fuel stocks, the economic effect will motivate these companies to move away from fossil fuels toward cleaner and more renewable energy sources.

The divestment movement gained momentum over a decade ago as the concerns about climate change and global warming met with enormous resistance to change from both political and economic interests. On university campuses where environmentally concerned students were looking for ways to improve the world around them, the prospect of social change, fueled by social media, created a perfect opportunity for social mobilization.

The results have been impressive, so much so that related models of divestment and boycotts have been used to promote a variety of social change initiatives. So Stanford University’s decision stands in stark contrast to the seemingly unstoppable momentum of the divestment movement.

Like many colleges and universities, Stanford’s administration responded directly to the divestment movement. Unlike schools that tried to institutionalize resistance to divestment, or that tended to rubber-stamp all divestment initiatives, Stanford created a thoughtful process where a range of initiatives could be given a fair and considered review.

This process was engaged when the student-organized group Fossil Free Stanford (FFS) submitted a divestment request to the school leadership. By all indications, there was a thorough review of the request. The board stressed that in considering the request, the social injury must outweigh the social benefit to justify divestment. The board concluded that the review process “could not evaluate whether the social injury caused by the fossil-fuel industry outweighs the social benefit it provides.” Therefore the request for divestment was declined.

This of course does not suggest that fossil fuels are not harmful to the environment or that the search for alternative clean energy sources is not worthwhile. It simply suggested that a thoughtful and considered review by a highly reputable organization could not conclude that the harms of the industry exceed the benefits.

Other voices both at universities and in industry are raising the same question. Divestment has a number of costs associated with its implementation that can be detrimental to the mission of an institution. Higher-education institutions depend heavily on endowments for the quality of their ongoing operations, instruction, scholarships and student services. Divestment diminishes the return on these invested funds by increasing the costs as well as reducing the financial return. The administrative fees for “green” portfolios are often higher than for traditional portfolios, and the returns on these portfolios often lag behind the returns of traditional portfolios. And of course ongoing compliance incurs costs that are not incurred with traditional portfolios. These factors combine over time to reduce the funds available in pursuit of the mission of the institution and thus can factor into a harm vs. benefit decision on divestment.

In the early stages of the divestment movement the assumption was that the social harms of the fossil-fuel industry clearly outweighed the social benefits. As both the harms and the benefits have come under increased scrutiny, that assumption is no longer a given — as the Stanford decision indicated.

Proponents of divestment have long maintained that divestment is a tactic rather than an objective. While protecting the environment should be a concern for everyone, the divestment movement as a tactic for policy change may be running into some strong headwinds.