New Report: Fossil-Fuel Divestment Could Rob Endowments of Billions Annually

WASHINGTON, Feb. 10, 2015 /PRNewswire-USNewswire/ -- As opponents of oil-and-gas continue to petition schools to divest their endowments of fossil-fuel related stocks, new research commissioned by the Independent Petroleum Association of America (IPAA) suggests the costs associated with divestment are likely to be enormous, resulting in the displacement of billions annually from school endowments.

Led by Prof. Daniel R. Fischel, professor emeritus of law and business at the Univ. of Chicago Law School, the study team tracked the performance of two investment portfolios over a 50-year period: one that included energy-related stocks, and another that did not.

Based on those models, Prof. Fischel and his team found optimal portfolios that included energy stocks generated average, absolute returns 0.7 percentage points greater than portfolios that excluded them -- meaning the "divested" portfolio lost roughly 70 basis points relative to the optimal scenario for each and every year over the 50-year period in which the portfolios were active.

Applying that figure to the roughly $456 billion that constitutes total U.S. university endowment assets, and the impact of divestment on school endowment and investment funds has the potential to approach $3.2 billion per year – and that's before even accounting for the hundreds of millions of dollars in additional management fees that schools will be required to pay in order to comply with divestment policies.  

"Every bit of economic evidence available to us today demonstrates that fossil-fuel divestment is a bad idea," said Prof. Fischel, who previously served as dean of the Univ. of Chicago Law School. "The costs of divestment are clearly substantial and stand to have real financial impacts on the returns generated by endowment funds."

"For those who argue that divestment is just a harmless, symbolic act, with no ability to impact either a company's stock price or a school's endowment performance, it turns out they were only half right," said Barry Russell, president and CEO of IPAA. "In fact, what this first-of-its-kind study confirms is that the costs associated with divestment are real and enormous, all while having no discernable effect on the companies actually being targeted by the policy."

The Fischel study is available on DivestmentFacts.com.

SOURCE Independent Petroleum Association of America