The Path to Fossil Fuel Divestment for Universities: Climate Responsible Investment

60 Pages Posted: 18 Feb 2015

See all articles by Cutler J. Cleveland

Cutler J. Cleveland

Boston University - Department of Earth and Environment

Richard Reibstein

Boston University

Date Written: February 12, 2015


Should university endowments divest from fossil fuels? A public discussion of this question has included some university presidents issuing statements that they would not, that investments should not be used for “political action.” Many universities hold large endowments that have significant positions in fossil fuel companies and/or funds that hold fossil fuel assets. Universities consume fossil fuels in most aspects of campus operations. But universities also support most of the research that has identified the existence, nature, and consequences of climate change, and the principal purpose of the university is to educate, particularly the young adults who will live and work in the climate of the future.

Arguments for divestment by universities from fossil fuels are frequently based on moral grounds. Ignoring the moral issue at the core of the climate challenge presents real peril to the reputation of universities and their standing in society. The costs of climate change stretch across generations due to the long atmospheric lifetimes of greenhouse gases (GHGs) and the inertia in the Earth’s climate system, posing the question of what the impacts of today’s societies are on the well being of their children and grandchildren. The poor bear the brunt of the economic and health impacts of climate, a relationship that holds within every nation, and between rich and poor nations. Climate change requires development of the capacity to manage our collective impact on our environment, and universities have a duty to help foster this development. Universities cannot pretend they have no such responsibility without forsaking the role they have historically engendered as trustees of humanity’s capacities, values, and understanding.

But the case for divestment is not limited to moral imperatives. Holding assets in fossil fuel companies, and in companies that are fossil fuel-intensive, poses a significant array of risks for universities that appear on multiple, simultaneous fronts. Fossil fuel companies will eventually experience a dramatic decline in demand for their products, producing so-called “stranded carbon.” Price volatility of fossil fuel assets is the norm, and it will be exacerbated by rising concerns about extractive practices and the forced internalization of external costs, shareholder advocacy, the elimination of generous subsidies, and intense competition from energy efficiency and fast-developing, low-carbon sources of energy. Taken as a whole, the financial, moral, and reputational risks associated with holding assets in fossil fuel companies create a compelling case for divestment, even without considering the rising opportunity costs of not transferring investments to cleaner alternatives. Careful examination of the stated reasons for not divesting shows that they do not hold water.

Instead of viewing the choice as “business as usual” or “disinvest,” universities should engage with other universal owners and learn how to invest responsibly. Aligning their financial interests with their commitments to sustainability will not be accomplished overnight, but that does not justify turning a blind eye to the fact that a healthy portfolio requires a healthy economy. Universities can first disinvest in the highest polluting and irresponsible operations, and launch a process of learning where to reinvest in the cleaner opportunities of the future. Developing the capacity to identify good investments that make sense from both a moral and a financial standpoint, and doing that work will help inform the rest of us. Doing this work visibly fulfills the university’s role in society, and will attract high quality students, faculty, and donors. Once this work is commenced, the question concerning where the line is to be drawn recedes in importance.

These actions would provide the world with a lesson worthy of educational institutions that really are concerned with the future. These actions would demonstrate that universities understand that money management is not separate from its moral and environmental consequences, and that they will not participate in the fiction that holds that they are separate. That alone would have incalculable value because it would help convince others. Even the most cold-blooded investor will eventually have to acknowledge that these risks are growing, as is the value of industries that are not vulnerable to regulation, resistance, and devaluation. University leaders should recognize how intelligently going down the road of divestment fulfills their role in society, and that failing to fulfill the university’s basic mission will eventually degrade its reputation and capacities.

Keywords: divestment, stranded carbon, carbon bubble, fossil-free, socially responsible investing

JEL Classification: Q3, Q4

Suggested Citation

Cleveland, Cutler J. and Reibstein, Richard, The Path to Fossil Fuel Divestment for Universities: Climate Responsible Investment (February 12, 2015). Available at SSRN: or

Cutler J. Cleveland (Contact Author)

Boston University - Department of Earth and Environment ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States


Richard Reibstein

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

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