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Petroleum industry says Harvard endownment would forgo $108 million annually if it divests from fossil fuels

Harvard University would forgo $108 million of investment returns annually if it divested from the largest oil, gas and coal companies, according to a study funded by the petroleum industry.

The research is the latest in a debate about the best course for investors in the face of concerns about climate change. Opponents of divestment point to losses when institutions reduce diversification in their portfolios. Others warn of potential costs of holding shares in energy companies contributing to global warming.

While dozens of schools have committed to stop buying fossil fuel company stocks, most wealthier institutions such as Harvard declined, saying it goes against their fiduciary duty to rule out such investments. They said they contribute to a better understanding of global warming through research and teaching while cutting the carbon footprints of their campuses.


"If climate change is a first order problem, divestment is a very bad idea," said Bradford Cornell, a visiting professor at California Institute of Technology who authored the report released Thursday. "This solution not only has a cost, it has no benefit."

He analyzed Harvard's existing portfolio using asset allocation information from the university's annual reports. He sought to replicate it by combining a number of different mutual funds as proxies for the $36.4 billion endowment, testing how those funds performed over 20 years if restricted from the publicly-traded energy companies targeted in the divestment campaign.

Based on his calculations, Harvard's loss of $108 million a year would equal about 7 percent of the $1.5 billion in endowment funds made available to the university's operating budget last year.

Paul Andrew, a spokesman for Harvard, declined to comment on the report.

The study used the same methodology to analyze four other prominent universities, finding that Yale would forgo $51.1 million a year in investment returns from divesting; Massachusetts Institute of Technology $17.8 million; Columbia $14.4 million; and New York University $4.2 million. None of those institutions have committed to divesting despite demands and campaigns by students and some faculty and alumni. Spokesmen for the four universities declined to comment on Cornell's analysis.


The paper builds on a study earlier this year by Daniel Fischel, former dean of the University of Chicago Law School and founder of economic consulting firm Compass Lexecon. Fischel also looked at performance over time, finding that the average portfolio would forego 0.5 percent in returns a year by ruling out oil, gas and coal companies that have the largest proven fuel reserves.

Both Fischel's and Cornell's papers were commissioned by the Independent Petroleum Association of America, which represents crude oil and natural gas explorers and producers. Cornell also works as a consultant at Compass Lexecon, a subsidiary of FTI Consulting.

The studies contrast with reports from groups such as the consulting firm Mercer that seek to measure the impact on portfolios under different global warming scenarios. Mercer found in June that fossil fuel companies will be the biggest losers in terms of market value, and encouraged investors to do a better job accounting and preparing for that risk.

Money managers such as NorthStar Asset Management and Aperio Group that specialize in sustainable investing have also done studies finding academics overstate the risk and costs. The academic debate over divesting dates back decades, following the anti-Apartheid campaigns in the 1970s and '80s that targeted companies doing business in South Africa.