If Yale were to divest its endowment from fossil fuels, it would lose an estimated $51 million per year, according to a new study released last month.
The report, commissioned by the Independent Petroleum Association of America, calculated the projected impacts of fossil fuel divestiture on five universities’ endowments, concluding that collectively, the schools — Harvard, Columbia, MIT, NYU and Yale — could lose more than $195 million per year. For Yale specifically, author of the report Bradford Cornell, a visiting professor of financial economics at the California Institute of Technology, found that the University’s portfolio would experience a risk-adjusted loss of 0.21 percent, which over 50 years, would result in a 11.27 percent loss in value. Still, following the publication of the research, pro-divestment activists have raised questions about the objectivity of the study’s funding and have criticized the methodology behind its conclusions.
“My bottom line is that divestment is something that is costly to Yale and has absolutely no real benefit to solving any of the energy problems, energy shortages, climate change,” Cornell told the News. “The reason is that … if you take the ability to diversify as fully as possible out of the hands of the endowment managers, it is going to be detrimental to the expected performance.”
In order to model the performance of the different endowments, Cornell and his team of researchers utilized publicly available data and created thousands of “proxy portfolios,” approximations of each of the school’s investment funds. Using these compositions of assets, the study then compared the performance of the two portfolios — both divested and non-divested — over a 20-year period.
Still, because the exact holdings of Yale’s investments are not released publicly, Cornell conceded that the study is an approximation of the costs to the University.
“This is the first study that has been done that actually seeks to reverse engineer the endowment allocation and composition and try to put a real number on it,” Christopher Tucker, an IPAA spokesman, said. “The broader point here is there is a lot of stuff that could be done with climate change and needs to be done with climate change, but divesting doesn’t remove a single molecule of [carbon dioxide] gas from the atmosphere — there is a significant cost attached to it.”
Though the projected $51.09 million loss per year is only 0.2 percent of Yale’s current endowment, which stands at roughly $24 billion, Cornell argued that this cost is not insignificant for the University, which relies upon returns on the endowment to fund operations.
According to the 2014 Yale Endowment Report, spending from the endowment was projected to be $1.1 billion in the 2015 fiscal year, providing roughly one-third of Yale’s operating income, supporting such things as professorships, scholarship, campus maintenance and books.
“So $51 million is a big number for most people, but it is not big compared to Yale’s endowment,” Cornell said. “Nonetheless, Yale has huge operating expenses, and $51 million would fund a professorship for a finance guy and many other things, so it is what it is.”
Still, some remain unconvinced that the findings of the study should be taken at face value.
Brett Fleishman, senior analyst from the pro-divestment group 350.org, argued that because the research was commissioned directly by a pro-fossil fuel interest group, there are important questions to be raised regarding conflicts of interests. The IPAA represents independent oil and natural gas producers across the United States.
“The big questionable takeaway from this report is that it is an industry-funded report, and [the industry] profits and benefits from the conclusion that this professor is taking,” Fleishman said. “Where is our academic faith? … All other professors should be outraged that one of their colleagues is willing to be paid to do something like this — that is barring and setting aside the actual content.”
On a more substantive level, Fleishman took issue with the study’s reliance on past performance to predict future gains, which he said is particularly inapplicable to the discussion of the energy sector given how much things have changed in policy making, the economy and the environment over the past 10 years.
Representatives from Fossil Free Yale, the student group advocating divestment, were similarly skeptical of the conclusions reached by the study.
“The study and the IPAA and their press team are an extension of the misinformation and [public relations] apparatus that the fossil fuel industry uses to mislead the public and misdirect policy-makers,” FFY member Tristan Glowa ’18 said.
He argued that rather than seeing this type of research as harmful to the divestment movement, it confirms that activists are “chipping away” at the fossil fuel industry, which is now “intensifying their efforts” to maintain power.
Cornell flatly denied any accusation that his research was influenced by the group funding his study, claiming that he never spoke directly with members of the IPAA and has publicly opposed the group on other climate-related issues, such as implementing a carbon tax.
“Even if I were a complete oil industry whore, the ultimate question is, is the stuff that I had written accurate?” Cornell said. “Ultimately, what I have done should be weighed on the basis of what’s in the report.”
The Yale Corporation voted against divestment in August 2014.