Author: Sam Henze | UC Berkeley School of Law | J.D. Candidate 2023 | Posted: November 9, 2021
Harvard University is a household name in the U.S.—it is the nation’s oldest institution of higher education, one of the prestigious Ivy League schools, the single greatest producer of U.S. presidents, and has the largest financial endowment of any university in the world. [1]. Thus, it is no surprise that the world is watching what Harvard does with its outsized investment pool. This was certainly true in early September when Harvard President, Lawrence Bacow, issued a message to the community announcing the final step in the endowment’s complete divestiture from fossil fuels. [2]
Since February, the Harvard Management Company (HMC), which operates the university’s $41.9 billion endowment, has been free of direct investments in fossil fuels. [3]. Harvard, however, continued to indirectly invest through its legacy investments in private equity funds with holdings in the industry. [4] Though the indirect investments constitute less than 2% of the endowment, they are symbolic. [5] In his recent statement, Bacow announced not only that HMC “does not intend” to make future direct investments in the fossil fuel industry, but also that HMC’s remaining indirect investments in private equity funds are in “runoff mode” and will be allowed to expire. [6] Bacow explained: “Given the need to decarbonize the economy and our responsibility as fiduciaries to make long-term investment decisions that support our teaching and research mission, we do not believe [fossil fuel] investments are prudent.” [7].
The announcement sparks several important questions, most notably: (1) why has it taken this long? (2) is this really a good thing for climate change? and (3) what does this mean for the future of divestment among academic endowments?
I will address each in turn.
In order to appreciate the magnitude and anticipation behind the announcement, it is important to understand the history of the push for divestment at Harvard. While HMC was the first endowment in the country to commit to achieving net-zero greenhouse gas emissions across the entire investment portfolio by 2050 [8], the recent announcement marks the result of a “decade-long saga” of student activists protesting for change against a series of University presidents who were steadfastly opposed to divestment. [9].
President Bacow, as well as his predecessors, have long held that the University’s endowment is not a proper tool for compelling social change. [10] Bacow also argued that working with fossil fuel companies, rather than withdrawing from the industry, is a “sounder and more effective approach” for Harvard to take, deeming divestment “impractical and ineffective.” [11] In response, Divest Harvard was founded in 2012 by a group of student activists to call on the University to divest from investments in the fossil fuel industry.
Since its founding, the group consistently protested, petitioned and politicked to urge HMC to change its divestment position, while the President maintained that he and the student activists “[sought] the same ends,” but “happen[ed] to have an honest difference of opinion” over the means. [12].
After nearly a decade, Divest Harvard finally won. The praise has been widespread, but the victorious sentiment is not unanimous among the climate activist community. There are two primary methods for pursuing decarbonization: divesting and engaging. While the two methods are not mutually exclusive, those who are committed to the latter strategy fear that divestment like that of Harvard’s endowment may exacerbate climate change.
Many believe that influence and ownership, which are lost in the shedding of investments, are the strongest levers for driving change. Anne Simpson, manager of sustainable investments at CalPers, summarized the concern: “If we sell our shares in oil and gas companies, we’re losing an opportunity to have an influence.” [13]. On the other hand, “with a financial stake in emitting companies,” activists have “leverage to demand decarbonization” through, for example, shareholder resolutions, voting power, and restrictive covenants. [14].
Whether proponents or opponents of Harvard’s decision, after the recent announcement, all are left wondering: will this mark the beginning of a divestment ripple effect among academic endowments around the country? As the nation’s oldest, richest, and arguably most prestigious university, Harvard has remarkable influence over the academic community at large.
Bacow addressed his letter to all alumni as well as students and staff, which “promoted a level of understanding that reaches into every segment of society, encouraging actions at all levels.” [15]. Further, he opened his letter by naming climate change “the most consequential threat facing humanity,” and urged “concerted action” to address this “dire situation.” [16]. By taking an “evangelical tone” in his announcement, Bacow appeared to be encouraging other academic endowments to follow his lead, indicating the potential for a ripple effect [17].
Time will tell whether Harvard’s announcement was “a large domino to fall” among academic endowments, but regardless of its direct effects, the President’s message was a clear indication of the power of activists’ persistence, and of the growing momentum of the fossil fuel divestment approach, which has transformed from a “fringe strategy” into a $14.5 trillion movement.” [18]
Bill McKibben, leading American environmentalist, famously said, “Money is the oxygen on which the fire of global warming burns,” and if that’s the case, then Harvard is finally committing to doing its part to stifle the flames. [19].
[1] Cain, Áine and Shayanne Gal. The 34 colleges that produced the most US presidents. Business Insider. (February 18, 2019). https://www.businessinsider.com/harvard-princeton-colleges-with-the-most-us-presidents-2018-6; Moody, Josh. 10 Universities With the Biggest Endowments. US News. (September 21, 2021). https://www.usnews.com/education/best-colleges/the-short-list-college/articles/10-universities-with-the-biggest-endowments.
[2] Bacow, Larry. Climate Change: Update on Harvard Action. Harvard.edu. (September 9, 2021). https://www.harvard.edu/president/news/2021/climate-change-update-on-harvard-action/.
[3] Financial Report FY2020. Harvard.edu. https://finance.harvard.edu/files/fad/files/fy20_harvard_financial_report.pdf; Climate Report. Harvard Management Company. (February 2021). http://www.hmc.harvard.edu/content/uploads/2021/02/2021-Climate-Report.pdf.
[4] Treisman, Rachel. Harvard University Will Stop Investing In Fossil Fuels After Years Of Public Pressure. NPR. (September 10, 2021). https://www.npr.org/2021/09/10/1035901596/harvard-university-end-investment-fossil-fuel-industry-climate-change-activism#:~:text=Short%20Wave-,Harvard%20University%20Moves%20To%20Divest%20From%20The%20Fossil%20Fuel%20Industry,to%20do%20so%20for%20years.
[5] Heacox, Kim. The climate is boiling. Why has Harvard still not fully divested from fossil fuels yet? The Guardian. (July 15, 2021). https://www.theguardian.com/commentisfree/2021/jul/15/harvard-represents-reason-and-science-so-why-hasnt-it-divested-from-fossil-fuels-yet.
[6] Goodman, Jasper G. and Kesley J. Griffin. Harvard Will Move to Divest its Endowment from Fossil Fuels. The Harvard Crimson. (September 10, 2021). https://www.thecrimson.com/article/2021/9/10/divest-declares-victory/.
[7] Bacow, Larry. Climate Change: Update on Harvard Action. Harvard.edu. (September 9, 2021). https://www.harvard.edu/president/news/2021/climate-change-update-on-harvard-action/.
[8] Id.
[9] Goodman, Jasper G. and Kesley J. Griffin. Harvard Will Move to Divest its Endowment from Fossil Fuels. The Harvard Crimson. (September 10, 2021). https://www.thecrimson.com/article/2021/9/10/divest-declares-victory/.
[10] Chaidex, Alexandra A. Harvard Presidents Have Long Opposed Fossil Fuel Divestment. Bacow Offers A New Reason Why. The Harvard Crimson. (December 14, 2018). https://www.thecrimson.com/article/2018/12/14/bacow-new-rationale-divestment/.
[11] Id.; Chaidex, Alexandra A. and Aidan F. Ryan. Bacow Says He ‘Respects’ Right to Protest, But Holds Firm on Divestment Position. The Harvard Crimson. (December 9, 2019). https://www.thecrimson.com/article/2019/12/9/bacow-respects-game-protesters/.
[12] Chaidex, Alexandra A. and Aidan F. Ryan. Bacow Says He ‘Respects’ Right to Protest, But Holds Firm on Divestment Position. The Harvard Crimson. (December 9, 2019). https://www.thecrimson.com/article/2019/12/9/bacow-respects-game-protesters/.
[13] McGreal, Chris. The climate advocates who say Harvard’s oil divestment is a mistake. The Guardian. (September 14, 2021). https://www.theguardian.com/environment/2021/sep/14/fossil-fuel-divestment-harvard-oil-exxon-shell.
[14] Carlin, David. The Case For Fossil Fuel Engagement. Forbes. (March 2, 2021). https://www.forbes.com/sites/davidcarlin/2021/03/02/the-case-for-fossil-fuel-engagement/?sh=32242fead726.
[15] Boghosian, Aram. After years of urging, Harvard reaches a divestment moment. Boston Globe. (September 15, 2021). https://www.bostonglobe.com/2021/09/15/opinion/after-years-urging-harvard-reaches-divestment-moment/.
[16] Bacow, Larry. Climate Change: Update on Harvard Action. Harvard.edu. (September 9, 2021). https://www.harvard.edu/president/news/2021/climate-change-update-on-harvard-action/.
[17] Hartocollis, Anemona. Harvard Says It Will Not Invest in Fossil Fuels. New York Times. (September 10, 2021). https://www.nytimes.com/2021/09/10/us/harvard-divestment-fossil-fuels.html.
[18] Id.; Carlin, David. The Case For Fossil Fuel Divestment. Forbes. (February 20, 2021). https://www.forbes.com/sites/davidcarlin/2021/02/20/the-case-for-fossil-fuel-divestment/?sh=47d3acb276d2.
[19] Heacox, Kim. The climate is boiling. Why has Harvard still not fully divested from fossil fuels yet? The Guardian. (July 15, 2021). https://www.theguardian.com/commentisfree/2021/jul/15/harvard-represents-reason-and-science-so-why-hasnt-it-divested-from-fossil-fuels-yet.