Divestment Is Futile

Remember climate change?

Nearly five years ago, former Harvard University President Lawrence S. Bacow announced that Harvard would no longer invest in fossil fuels, a step taken after years of pressure from students and outside groups. One student group that led the charge, notably by disrupting the annual Harvard-Yale football game in 2019, hailed the move as “proof that activism works, plain and simple.” Hindsight casts some doubt.

In February, The Crimson reported on Harvard Management Company’s extensive cryptocurrency portfolio, valued in the hundreds of millions. While the case for cryptocurrencies as speculative investments or stores of value is widely debated, what’s clearer is their environmental impact — Bitcoin mining alone is estimated to use the same amount of electricity each year as the country of Poland.

In retrospect, the years-long campaign to divest from fossil fuels was pointless.

Mining is the process by which new cryptocurrency coins are obtained; under Bitcoin’s design, it effectively becomes a game of converting electricity into cryptocurrency. While figures vary, the energy needed to mine a single bitcoin is estimated in the hundreds of thousands of kilowatt-hours; by comparison, the average American household uses just over ten thousand kilowatt-hours of electricity in a year. That’s not exactly the epitome of sustainability.

The issue, however, isn’t that Harvard isn’t maintaining its sustainability standards or risking its endowment fund by investing in assets like Bitcoin. It’s the assumption that divestment from fossil fuels was ever something particularly productive, except to assuage activists’ guilty consciences. As many have argued before, divesting shares of companies, under an efficient market model, doesn’t have any real financial consequences for those firms — others will buy them, and life will go on.

The strongest argument in favor of divestment was that it would serve as signalling, showing other institutional investors the importance of factoring in environmental costs. One small problem: If sustainability rules are loose enough that Harvard can embrace cryptocurrency with impunity, how do our commitments act as any kind of effective signal?

Simply put, divestment is unwinnable for both the activists and the endowment they target. Even if the goalposts were constantly shifted to align with the climate impacts of particular financial assets, the sum total benefit to the environment would likely be minimal. Harvard’s endowment is significant for a university, but in a global investment market valued at roughly $200 trillion it’s a drop in the bucket.

Worse, the use of divestment activism as a political tool necessarily distracts from the endowment’s key priorities — to maximize risk-adjusted returns and keep the University funded.

It’s in everyone’s best interest for the endowment itself to be somewhat of a black box — or at least insulated from political minutiae. While the Harvard Management Corporation must keep in mind reputational risks from specific investments, it should be free to operate without politicized oversight.

Bitcoin itself isn’t amoral, and neither are fossil fuels, which, keep in mind, well over 90 percent of vehicles in this country use. Harvard’s endowment will never satisfy moral absolutism so long as it invests in, well, anything.

Rather than focusing on where the University puts its money, activists would be smart to debate where it should spend its money every year. A key point rarely acknowledged by divestment activists is that the University itself is one of the best places to solve climate issues — whether through cutting-edge research, policy work with industry and government, or simply building a foundation for students to pursue solutions after graduation.

Harvard, despite the common trope, is not a “hedge fund with a university attached.” It can have a much greater impact on climate change efforts through its spending than through its investments, which are a small part of the global economy. The University has an entire office dedicated to commercializing technologies developed here — including a fund specifically for startups focused on sustainability.

Our research, as well as the impacts our alumni make in policy and business, will define Harvard’s impact on addressing climate change — not the negligible effects of chasing moral purity in our investments.

As I’ve noted previously, it’s nearly impossible to raise vast sums of cash without political objections. This applies to managing the University’s finances as well. Under Harvard’s modern structure, in order to maintain its opportunities, depth of research, and status, it must keep raising funds, spending funds, and managing funds.

Political correctness is no way to decide the future of Harvard’s finances.

Tejas S. Billa ’28, a Crimson Editorial Editor, is a Statistics Concentrator in Pforzheimer House.