Will students’ legal action pressure Duke University to divest from fossil fuels?
A Duke University student group hopes a complaint filed last week with the N.C. Attorney General’s Office spurs the school to sell any holdings its nearly $13 billion endowment has invested in fossil fuel companies.
The Duke Climate Coalition, an undergraduate student organization, filed the complaint with the assistance of the nonprofit Climate Defense Project and support from dozens of students, faculty, scientists and civic groups. The move is the latest effort in a decade-long push to convince Duke leaders to shift any part of the school’s endowment that is invested in fossil fuels.
When fossil fuels like coal, petroleum and natural gas are burned they release compounds like carbon dioxide and methane that warm the atmosphere, contributing to climate change.
Students argue that investing any part of the university’s endowment in companies whose primary earnings come from fossil fuels poses a financial risk while also representing a violation of the state law that requires nonprofit organizations to invest funds in a way that is consistent with their charitable purposes.
The Duke students are part of a nationwide wave of student activism that is moving from campus committees and protests to the pursuit of legal action to pressure universities to divest from fossil fuels. The tactic is still relatively unproven, but it marks a shift from a strictly moral argument to a financial and legal one. The Climate Defense Project has helped file similar complaints at 12 other schools across the country.
Duke’s goal is to be carbon-neutral by 2024 and be “stewards of environmentalism within the academic space,” said Abby Saks, a freshman student in the Duke Climate Coalition.
“We wanted to show with this legal complaint that that’s not possible when we have a lot of money in these industries,” she said.
A ‘glaring contradiction’
Brennan McDonald, the Duke Climate Coalition’s treasurer, said if Duke wants to become one of the nation’s foremost institutions in the battle against climate change, it needs to seek the low-carbon route in all efforts.
“A notable omission is that they are still investing in fossil fuel companies — the very companies that are responsible for causing the climate crisis in the first place,” he said. “That’s just a glaring contradiction.”
Limiting global warming to two degrees Celsius would mean not burning “a substantial amount of fossil fuels” and stranding “considerable fossil fuel infrastructure,” according to a United Nations climate science report released last week. The report also found that limiting warming to two degrees Celsius — a level at which heat waves would threaten agriculture and human health — would require “rapid and deep” cuts in greenhouse gas emissions.
Duke’s divesting would largely be a symbolic gesture that signals the university no longer supports fossil fuel companies, said McDonald, a second-year biology student. But the coalition is hopeful that it also could trigger other schools with large endowments to move their funds.
Universities across the country have recently committed to full divestment from fossil fuels, including the University of California and Harvard, Cornell and Brown universities. In North Carolina, UNC Asheville divested from fossil fuel investments in 2019. Brevard College and Warren Wilson College both committed to divesting in 2015.
The Duke Climate Coalition estimates that about $250 million of Duke’s $12.7 billion investment could be linked with fossil fuel companies. That figure is based on research from 2013 that indicates on average, U.S. university endowments have about 2% of their assets “committed to investable fossil fuel public equities.”
Duke would not provide a dollar amount or estimate of how much of its endowment is invested in fossil fuel stocks.
The university declined to comment on the letter to the attorney general through Mike Schoenfeld, Duke’s chief communications officer and vice president for public affairs and government relations.
“Duke has a longstanding and broad commitment to sustainability and action on climate issues that includes research and education, promoting energy efficiency across the campus, and meeting our target of achieving climate neutrality by 2024 through the use of alternative energy (like solar), offsets and collective action on the part of the Duke community,” Schoenfeld wrote in a statement.
In their complaint, Duke students and faculty say the fossil fuel investments by Duke’s Board of Trustees, through Duke’s investment management company, DUMAC Inc., are “damaging the world’s natural systems, disproportionately harming youth, low-income people, and communities of color and imperiling the university’s financial and physical condition.”
Saks, who is double majoring in environmental science and biology, said it’s hypocritical of Duke to have programs for climate neutrality and environmental sustainability while actively investing money in fossil fuels.
“I’m paying tuition and I just hate the idea that I have money that’s going into an industry that has done so much harm to our planet,” she said.
Along with the complaint, Saks helped organize a campus protest last week where dozens of students showed up with megaphones and hand-painted signs advocating for Duke to divest.
Other Duke students supported the effort when a referendum was added to the ballot in the student government election ballot in March. About 2,500 of 2,700 students voted “yes” when asked if they were “in favor of calling on Duke to permanently end all direct and indirect investments in companies that explore for or develop fossil fuels; and reinvest in sustainable businesses, industries, and funds.”
The N.C. Attorney General’s Office is reviewing the complaint, according to spokesperson Nazneen Ahmed.
Why Duke has opposed divestment
This isn’t the first time Duke students have pushed for fossil fuel divestment. But previous efforts, made through administrative channels, have come up short.
Duke has heavily researched and considered divestment in fossil fuels and decided against it multiple times.
Most recently, a 2019 report from Duke’s Advisory Committee on Investment Responsibility recommended that the Duke Board of Trustees not require DUMAC to divest from fossil-fuel-related investments.
The committee of students, faculty and administrators explained that divestment by Duke would not be large enough to affect stock prices, have no financial impact on the companies involved and be merely a hollow symbolic gesture.
“Even if academic institutions have divested, they didn’t take their capital out of the system, they simply sold it to very eager and willing buyers,” committee chair Lawrence Baxter told The News & Observer.
He also challenged the $250 million saying that number is a “figment of their imagination.” DUMAC has “minimal holdings” in companies that heavily extract fossil fuels. The actual investment is a small fraction of that amount, he said.
Baxter is the David T. Zhang Professor of the Practice of Law at Duke University where he also directs the Global Financial Markets Center.
He’s met with with the Duke Climate Coalition several times over the years. Those conversations inspired him to buy an electric vehicle as well as create and teach a “climate change and financial markets” course.
Baxter agrees that climate change is an urgent problem, but argues that Duke’s primary contribution should be through research and teaching. Professors and students start and work for companies that produce energy in carbon-neutral ways.
Founded by three Harvard Law graduates, the Climate Defense Project earned a high-profile win in September 2021 when Harvard announced that it would sell all of its direct holdings in fossil fuel companies and gradually phase out indirect investments. Cornell has taken similar action, agreeing to sell all of its direct investments and not buy any more fossil fuel holdings, while also pledging to invest funds in renewable energy companies.
Hamilton argues that investing in companies that earn money by exploring for and selling fossil fuels amounts to a bet against action that would curb the worst impacts of global warming. Even if investments in those companies remained profitable, he said, they would violate state nonprofit laws.
“If those investments are directly harming your constituency, your community, running contrary to your charitable purposes, that’s still a problem and you still need to pull out of those investments,” Hamilton said. “That has always been the case.”
The Climate Defense Fund has discussed the complaints with attorneys general in Massachusetts and New Mexico, Hamilton said, but those offices have not taken direct action to spur divestment.
Baxter argues that Americans’ lives are dependent on fossil fuels and that parts of the developing world need access to fossil fuels in order to make progress. Making the kind of statement that Harvard and other universities have is hypocritical, he said, and “utterly ineffective.”
“Getting straight off fossil fuel is not the way to go when trying to deal with climate change,” Baxter said. “It’s such superficial morality.”
Furthermore, he added, Duke’s management company would be violating its fiduciary duties by investing in something that it believes to be morally right that causes the endowment to suffer losses.
Hamilton of the Climate Defense Fund disagrees, noting that index funds excluding fossil fuel stocks have typically outperformed their parent indexes that include fossil fuel holdings.
Over the last decade, financial firm MSCI’s world index that excludes fossil fuel stocks has grown 13.43%, compared to 12.73% growth for the standard world index fund. The fund without fossil fuel stocks has performed better in eight of the last 10 years, but the standard fund grew more in 2021.
Returning to the recent United Nations report, Hamilton also noted the disconnect between climate science and the energy companies’ business models, calling the companies “pervasive and universal” and saying that policy needs to move beyond relying on fossil fuels during the transition to renewable energy.
“If any sort of push to meet any type of warming goal is going to be met, those assets have to stay in the ground which means these companies are going to tank at some point,” Hamilton said.
How Duke is working towards sustainability
After reviewing the recommendations in the 2019 report, Duke President Vincent Price agreed to have the university and DUMAC manage the voting of proxies to “encourage companies to reduce their reliance on fossil fuels and the production of greenhouse gasses.”
The development office would better educate donors on the option to give directly to Duke’s ESG or sustainable investing fund and consider adding a “green” fund. Price also provided $100,000 in seed funding for the student Duke Impact Investing Group, which supports “green” entrepreneurship.
In 2020, the Duke Board of Trustees adopted a statement on climate change and investment that has guided DUMAC in making decisions in line with Duke’s “commitment to an environmentally sustainable future.” DUMAC also gives the board routine reports so it can “monitor the exercise of sound environmental stewardship.”
The university continues work toward sustainability goals through the board’s Climate Change and Sustainability Task Force and projects like building solar farms to reduce its carbon emissions.
Fossil fuel divestment is a critical issue and the subject of ongoing review and deliberation with Duke stakeholders, Schoenfeld said.
While the action is not on the table for Duke at the moment, Baxter said the Advisory Committee on Investment Responsibility, which meets Wednesday, is receptive to discussing the issue.
This story was originally published April 13, 2022 at 12:58 PM.
