Just when the pressures on university endowments seem to abate, another misguided attempt to use endowments as a political weapon falls on Harvard. According to The Harvard Crimson and an article by Bloomberg’s John Lauerman, Hollywood stars, current students, and other activists are demanding Harvard’s endowment divest its holdings of fossil fuel investments. Protesters assert divesting will cut the use of fossil fuels and increase the use of alternative energy. How that would actually work is where the logic gets fuzzy. It’s a shame such a highly regarded institution can produce graduates who support such a misguided stunt. The protest lacks any coherent reasoning, threatens the objectivity of the endowment's staff, and paralyzes the investment decision making necessary for long-term success. Divestments are endemic of a trend to use headline-grabbing exploits instead of engaging in real constructive change.

No real effects...

Divestment of energy related investments have no negative effects on the companies. Managements are not going to change their corporate strategy and mission. Energy companies have dealt with critics for decades! Divesting simply sells the stakes to some other buyer. In the end, there is no real change in any of these transactions. The companies don’t lose any funding! Buyers and sellers trade all day without the company caring. It’s simply a smokescreen to persuade the unsuspecting Harvard community that something is being done. If protestors want to change something, how about producing some real innovation in the energy space that can help shift away from fossil fuels? Divestment tactics are a distracting and meaningless attempt to convince the public that change is occurring.

Invert, always invert...

In fact, protestors actually have it backwards! If they want to induce change, they should advocate increasing the stakes in fossil fuel companies! Higher ownership stakes enables shareholders to voice their opinions through proxy voting in favor of better environmental policies. It allows shareholders to confront company management and engage in real, substantive dialogue. Divestment accomplishes the opposite. It removes any chance to enable change by passing that responsibility onto someone else. Of course, I doubt protesters actually want to put that much work into this; it’s much easier to organize a sit-in!

Dangerous precedent...

Endowments are already under tremendous pressure from university leadership, faculty, and students to deliver above average investment returns to fund the facilities, professors, and students that make Harvard so great. What endowments don’t need are another set of backhanded and dubious mandates that distract investment staff from their real jobs. Harvard’s investment staff has one goal: to ensure the continued growth of the endowment, not to become a pawn in a political and environmental campaign.

As a former portfolio manager at a pension fund, I can felt the challenges of navigating the financial markets before dealing with interference by outside protesters. Pet projects like divestments undermine the investment process that Harvard has successfully built over the previous decades. Investment staff now have to consider if investments made today will someday be examined under a microscope, leading to second guessing the real mission of the endowment. The real victim in this divestment push is not the actual companies; it’s the students and alumni of Harvard who will realize fewer benefits and be asked to shoulder a higher burden for the university.

If protesters want curb the use of fossil fuels, they should start supporting alternative energy projects or fund their own energy startup. Unfortunately, they might find that real change requires hard work and deep commitment, not occupying a university building.