The Scandal of Harvard's Bad Arguments

President Faust and the Harvard Corporation insist that investing Harvard’s endowment is work properly reserved exclusively to them and the experts they employ. They are, after all, not only the legal but the legitimate authorities. They are in charge because they are smart, rational, single-mindedly results-oriented. Their authority rests not only on assumptions of propriety but on evidentiary claims.

That is, the University leadership claims to know what the rest of Harvard’s stakeholders—faculty, students, alumni, and others—do not: how to maximize returns on $37.6 billion. Unlike moralists, they do not let extraneous concerns stand in their way. They know how the real world works; we do not. Not only our moral but our empirical arguments are misguided. Ignorant, we have no standing.

In the Corporation’s view, Divest Harvard’s do-gooders are, in the end, amateurs. Arguments to the effect that Harvard is directly and indirectly invested in activities that threaten civilization are nothing more than worthless, self-righteous gestures. Harvard’s campaign to divest from fossil fuel companies, however commendably intended, is the work of interlopers, moralists, and other childish miscreants who fail to grasp the grown-up world in which professional adults carry out their well-informed labors.

President Faust’s certitude that she knows how to address the unfolding climate change catastrophe extends to a program of action. Harvard should teach, research, and engage (i.e., talk things over with corporate leadership). Yet here too, the engagement part of Harvard’s program floats free of evidence. If the Corporation sincerely believes that “engagement” produces results, to paraphrase a notorious manifesto, do the University’s leaders not need to pay decent respect to the opinions of its stakeholders by declaring the causes which impel them to their policies?

The Corporation's claim to a monopoly of relevant expertise now crashes against hard numbers. As has been widely reported, during fiscal year 2015, the endowment grew 3.3 percent. In fiscal 2014, the investment return was 5.8 percent. Harvard’s returns lagged significantly behind those of Yale, Stanford, MIT, Bowdoin, and the University of Virginia. For years, Divest Harvard and other divestment campaigners have argued that fossil fuel investments not only gamble with the future of civilization but make less money than fossil-free portfolios. (One strong summary of such arguments can be found in this article written by former SEC commissioner Bevis Longstreth, who graduated from the Law School in 1961.)

A less generous way to put it: The Corporation’s professed expertise does not pass the laugh test.

So what test does it pass? How does their claim to knowledge and sound judgment fare? Where is their fiduciary responsibility hiding?

The Harvard Management Company’s filings with the SEC (the latest, from this August, can be found here) show that direct stockholding of fossil-fuel stocks is low. (In recent years, Harvard has sold most of its direct fossil-fuel investments. About indirect holdings we are in the dark.)

If the holdings that remain are bets that oil prices are going to rise again long-term, Harvard is betting that global efforts to hold down global warming to a more tolerable—or less intolerable—degree will fail; betting that the forthcoming Paris talks will fail; and that Mark Carney, the head of the Bank of England, is mistaken when he says that “investors face ‘potentially huge’ losses from climate change action that could make vast reserves of oil, coal and gas ‘literally unburnable.’”

But most of all, the Corporation is insisting on its prerogative to invest where they like wherever they like on the grounds that their judgments are sound and, since their purpose is good, it is also ethical.

When Divest Harvard got off the ground, just about all leading institutions in American society were in default. Corporations were merrily proceeding to spend some $674 billion a year to acquire far more fossil fuel reserves than can safely be burned. One of our major political parties was in the grip of climate ignoramuses soaking up millions of dollars in oily donations. The other, the Democrats, were stalled, wishing to roll back fossil fuel dependency but taking little action. The churches were pious but inactive. Universities looked to be the only core institutions in America who might be in some sense free to evolve.

Over the last two and a half years, President Obama has taken important (though not adequate) steps toward climate sanity. So has President Xi of China. Many (not nearly all) investment funds have taken responsibility. Major investment banks such as Goldman Sachs, Morgan Stanley, and Bank of America Merrill Lynch are launching sustainable investment funds with the conviction that (as Goldman Sachs partner and managing director Hugh Lawson says) President Faust’s claim that divestment from fossil fuels would “come at a substantial economic cost” is “not necessarily true.” Governments of the major nations are moving. Pope Francis has issued a stirring and brilliant clarion call toward climate sanity. Stanford, the University of California, Syracuse, have in greater or lesser degrees set their own courses toward divestment. Most self-described conservatives now accept that climate change is happening and has human causes.

The rest of the world is lurching toward reason, by fits and starts, and not adequately, but Harvard remains obdurate. The Corporation’s commitment to its own hauteur is apparently so intense as to crowd out what is supposed to be their strong suit, namely their knowledge of how to develop a comprehensive, long-term vision of fiduciary responsibility and to direct investment accordingly. They demonstrate neither veritas nor gravitas. This is scandalous. How long, Harvard?

Todd Gitlin '63 is a professor of journalism and sociology and chair of the Ph. D. program in communications at Columbia University. He is also a member of Divest Harvard Alumni.