Fossil fuel companies have outperformed the market as a whole, in terms of stock price, over the last 3 years, despite growing taxpayer subsidies for alternative energy. But New York University is divesting from fossil-fuel stocks, in response to demands for divestment from progressive activists. Campus Reform reports:
New York University recently announced that it will forego investments in any company primarily engaged in fossil fuel extraction or discovery.
William Berkley, chair of the school’s board of trustees, announced the decision in a letter to Sunrise NYU, the school’s chapter of an environmental activist group….
“New York University and Sunrise NYU both recognize climate change’s threat to our community and the world, and we recognize and appreciate that the combustion of fossil fuels is a significant contributor to climate change,” Berkley stated in his letter.
“New York University commits to avoid any direct investments in any company whose primary business is the exploration or extraction of fossil fuels, including all forms of coal, oil, and natural gas, and not to renew or seek out any dedicated private funds whose primary aim is to invest in the exploration or extraction of fossil fuels,” Berkley wrote….
Previously, $139 million of NYU’s $3.4 billion endowment was invested in fossil fuel companies, according to an NYU Fossil Fuel Divestment Working Group report. The move means reinvesting about 4% of the endowment….Sunrise NYU believes the decision to divest is demonstrative of the “power” of student organizations…“For years the university dragged its feet, refusing to commit to divestment. . . . We organized students, faculty, and staff, and through our collective power, drove NYU to be on the right side of history.”
NYU joins more than 200 educational institutions that have divested from the fossil fuel industry in recent years, including Brown, Columbia, Georgetown, and Yale…The decision to divest from fossil fuels reverses the board’s decision in 2016 to continue investing. Despite the NYU Senate passing a resolution in favor of ending fossil fuel investments, the Board of Trustees elected against divestment, according to a 2016 letter from Berkley and then-NYU President Andrew Hamilton.
The board did not consider investing in fossil fuels as “mutually exclusive” to “alternative energy technology,” the letter stated. It argued there were effective measures against climate change. Even more, it would be hypocritical to divest from fossil fuel companies while at the same time using their services to “power and heat our campus and to transport our students and faculty,” according to the letter.
The 2016 decision came after the 2015 report released by the Financial Affairs Committee of the University Senate, which also recommended against divestment. The committee did not believe divestment could be accomplished in a manner consistent with NYU’s financial obligations.
The committee also voiced concerns over academic freedom. Supporting a specific stance on an issue of public policy could have a “chilling effect” on the freedom of faculty with different points of view, according to the letter.
Recently, professors have been pressured into resigning from the boards of fossil-fuel companies, at universities such as Harvard.
Divesting from fossil-fuel companies can make your stock portfolio less diversified and result in a lower return. As economist Stephen Moore points out,
A recent analysis by Bloomberg found that last year, ESG funds severely underperformed the market — in some cases by well more than 10%. Many ESG funds were divested from oil and gas companies, even though Exxon, Conoco Phillips and others were among the highest-return stocks. In other words, if you bought the stocks that ESG funds sold, and sold the stocks that ESG funds bought, you’d have made a lot of money in recent years. And by the way, given that more than 70% of our energy now comes from fossil fuels, how does it advance our well-being as a nation by closing these energy sources down?
Another study by Boston College professors in retirement policy examined the performance of ESG funds and found “the average annualized return for those with a state ESG mandate would be 20 basis points lower than for those without a mandate.”
My estimate is that ESG has cost the public billions of dollars of reduced returns on their retirement nest eggs. This comes atop the $30,000 or so that people have lost on average in their 401(k) plans after Biden came into office, and the combination of high inflation and lousy stock market returns overall.
When fossil-fuel companies are about to rise in value due to things such as Middle Eastern oil embargoes or OPEC production cuts, pension fund managers should not get rid of their holdings in fossil-fuel companies, which could harm people who rely on those pensions. But Biden has blocked attempts to make fund managers act in the best interest of investors and pension beneficiaries. As Moore notes, in a March 2023 veto,
Biden rejected a bipartisan bill that would have required investment fund managers to take politics out of their investment decisions and to stay focused on providing the best return to their clients as much as possible….Biden was, in effect, saying it was permissible for fund managers, who have control of trillions of dollars in pension accounts, to take into consideration a company’s ESG score (related to how it stands on racial justice, climate change and LGBT issues).
