This Thursday, April 30, 2015, the University Senate of New York University (NYU) will discuss, and likely vote on, whether NYU’s endowment should be divested from fossil fuel investments. This is the result of a pressuring campaign from a national organization that aims to “stigmatize” oil, gas and coal companies. Many leading institutions of higher education have recently considered, and ultimately rejected, the divestment campaign. NYU should join prominent schools like Harvard, Yale, and the University of California in choosing fiscal responsibility over a political cause that would have no impact.
As an NYU Student Senator-Elect and, more importantly, an advocate for fiscal responsibility, I’m keenly interested in the result of the vote. Just recently, on Washington Square News’ Op-Ed Live, I participated in a debate with an organizer of NYU Divest about the financial consequences of this dangerous movement. Washington Square News is one of NYU’s foremost, student-run news organizations, so I was glad to have the opportunity to tell the truth about divestment to a broad audience.
In short: divestment is a political statement that is a financially injudicious move for a university that needs to be monetarily frugal. NYU understands this. On March 26, 2015, NYU’s Senate Financial Affairs Committee Divestment Working Group released a report concluding that divestment was not in the best interest of the school and recommending against divestment for the university. As the report notes, in the past, the university has made political statements in the case of dire humanitarian crises. NYU came out in opposition against Rwandan genocide and South African apartheid. These issues, which transcended partisan politics, were appropriate forums for an institution of higher learning to take a stand. To call climate change a “humanitarian crisis” similar to that of genocide and apartheid, which NYU Divest members have done (including the individual against whom I debated), is insulting to the victims of the aforementioned human rights violations.
Divestment would not be an efficacious measure anyway.
In an op-ed in the Wall Street Journal, Professor Daniel A. Fischel, a Professor Emeritus at the University of Chicago School of Law, noted the following: “Every bit of economic and quantitative evidence available to us today shows that the only entities punished under a fossil-fuel divestment regime are the schools actually doing the divesting—with virtually no discernible impact on the targeted companies.”
Ted Nordhaus and Michael Shellenberger of the Breakthrough Institute furthered the argument, writing the following in the New York Times: “There is absolutely no reason to think that convincing investors to sell their interest in Exxon will have any significant impact on either the physics or politics of climate change.”
Focusing money and efforts on disinvesting from funds that include fossil fuel companies distracts decision makers from making a real difference and bringing about climate solutions. Harvard professor Robert N. Stavins, a strong supporter of climate actions, wrote that “having universities divest from fossil fuels is a feel-good measure that would do nothing to address the problem of global climate change. Instead, we should be focusing on efforts to push for strong government action.”
The bottom line is that divestment is all cost for students and universities for no tangible climate gain. In terms of economics, the argument against divestment is even more clear-cut. “In order to eliminate the $139 million in fossil fuel investments, NYU would have to liquidate relationships with 39 funds that together account for 38% of the endowment, or $1.3 billion,” the memorandum that the working group sent to the university community stated. This is due to the fact that the funds are comingled with other investors. The proposal is, of course, not financially prudent.
Professor Fischel released a report, “Fossil Fuel Divestment: A Costly and Ineffective Investment Strategy,” which examined the impact of fossil fuel divestment on university endowments. Tracking two investment portfolios over a 50-year period, the report found that the one that included energy stocks delivered returns that were 0.7 percentage points higher than the one that didn’t. Applying the Fischel model to NYU’s endowment of roughly $3 billion, it translates that if NYU were to divest from fossil fuels, it would forego roughly $20,598,067 in total revenue and $1.4 million of spending on scholarship and facilities alone, per year.
As a student at NYU, as I watch tuition prices continue to rise and certain clubs on campus plead for more funding, I worry about whether or not the university will honor its fiduciary duty to my classmates and me as the issue of divestment reaches a vote. A recent petition to “Lower the tuition and 2015 attendance cost” garnered over 5,100 signatures. When current and future students are desperately calling for financial prudence from the university, the consideration of costly fiscal missteps should not even have to come to a vote.
When current and future students are desperately calling for financial prudence from the university, the possibility of foregoing over $20 million in total revenue is frightening. When current and future students are desperately calling for financial prudence from the university, it is to be hoped that these concerned voices drown out those who compare climate change to genocide and endeavor to make feel-good political statements of negligible impact with money our university does not have.
Eli Nachmany is a New York University ’17 Bachelor of Science Candidate in Sports Management/Sports Law (School of Professional Studies).
