The Advisory Committee on Investment Responsibility (ACIR) released a report mid-February recommending that Duke not divest its endowment from fossil fuels.
“While ACIR’s members individually recognize the impact of fossil fuels on climate change, from an academic perspective we do not find compelling evidence that [the Duke University Management Company (DUMAC)] divesting from fossil fuel companies would achieve the desired outcome,” the report reads.
The Chronicle broke down some of the biggest questions about the report, including what it says and why it matters.
What is ACIR?
ACIR — made up of five faculty members, four administrators, two undergraduates, two graduate students, one alumnus and one trustee — serves as the advisory body to President Vincent Price in his communications with DUMAC, the organization that controls how the University’s endowment is invested.
What else does the report say?
While the report recommends DUMAC against fossil fuel divestment, it advises that DUMAC provides greater transparency on “potential and ongoing investments that might include fossil fuel assets.”
The majority of the report consists of a review of the academic literature discussing divestment from fossil fuels as a strategy to mitigate climate change. The literature review centers around four main concerns: how divestment affects fossil fuel company stock prices, whether divestment leads to lower emissions, whether divestment increases a company’s cost of capital and thus incentivizes environmentally friendly action and if divestment is a better strategy than engagement.
Why now?
The statement is a response to a document titled the “2022 Divestment Proposal,” in which members of the Duke Climate Coalition and the Graduate & Professional Student Government Climate Crisis Committee urged ACIR to conduct a comprehensive review of the pros and cons of divesting the endowment from fossil fuels.
The new ACIR report is the third document released by the advisory body regarding fossil fuel divestment, following similar reports in November 2014 and May 2019. The previous statements made the same recommendation that DUMAC not divest.
“Until that academic research becomes conclusive in documenting the positive impact of fossil fuel divestment on climate change mitigation, ACIR does not support a further reexamination of this topic,” the February report reads.
What impact does ACIR say divestment has on stock prices?
ACIR argues that divestment from fossil fuel companies does not have a significant correlation with lower shareholder prices in the last 10 years, citing a 2023 study conducted by Aswath Damodoran, Kerschner family chair in finance education at New York University’s Leonard N. Stern School of Business.
The report explains that in order for an expectation of declining future profits to affect shareholder prices, this expectation must come as a surprise. However, shareholders already anticipate lower financial returns from fossil fuel companies in the future, so institutional investment would be anticipated and already priced into the market.
The report also notes that the literature about whether divestment as a symbolic gesture influences fossil fuel share prices is inconclusive.
Would lowering stock prices lead to lower GHG emissions?
If divestment does actually lower fossil fuel share prices, many have argued that this would reduce the amount of capital fossil fuel companies have access to and limit their ability to deploy “brown energy” assets, thus reducing their greenhouse gas emissions.
ACIR rebuts this claim, citing a 2021 study that simulates a mass movement to divest and finds that capital costs for fossil fuel companies would only be reduced negligibly. The report also refers to research showing that outdated technology already prevents many fossil fuel companies from pursuing cleaner options, so limiting fossil fuel companies' resources would only further hinder efforts to “go green.”
ACIR cites two studies arguing that any symbolic divestments by public institutions from fossil fuels would be offset by public institutions that exhibit less concern about environmental issues or private investors. The committee also presents evidence that divestment could incentivize fossil fuel companies to seek financing from other countries with less stringent environmental stances.
“[T]here appears to be evidence that divestment, whether for symbolic or policy reasons, simply leads to fossil fuel asset transfers, not writeoffs,” the report reads.
What does the report say about alternative strategies to divestment?
An alternative strategy to divestment is engagement, which entails leveraging one’s position as a shareholder to influence company policy. Evidence presented by ACIR found that engagement was more effective than divestment in influencing policy change because it would allow Duke to shape the environmental consideration standards of portfolio managers and incentivize companies to reduce their carbon emissions.
However, the report clarifies that an engagement strategy can only be implemented with companies for which the investor has “a seat at the table.” The majority of DUMAC’s investments are made through fund managers, meaning that the company is not a direct shareholder and thus is not able to provide input on company decisions. However, DUMAC could exert influence over their portfolio managers as the organization has a seat on many of their boards and is thus able to influence the decisions of these investment firms.
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Zoe Kolenovsky is a Trinity sophomore and news editor of The Chronicle's 120th volume.