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The Truth About Stanford's Coal Divestment

Jeff Swensen/Getty Images

Social movements thrive on symbolic victories, and earlier this month the campaign against fossil fuels scored a humdinger. Stanford University, responding to pressure from student environmental activists, announced that its $18.7 billion endowment would sell its stock in coal-mining companies.

Anti-coal campaigners were gleeful. “Stanford, on the edge of Silicon Valley, is at the forefront of the 21st century economy; it’s very fitting, then, that they've chosen to cut their ties to the 18th century technology of digging up black rocks and burning them,” Bill McKibben, the outspoken founder of, a group pushing for fossil-fuel divestment, wrote on his group’s website. Stanford’s decision is “a huge, huge victory,” showing that “the coal industry and other fossil-fuel industries are quickly becoming relics of the past,” Maura Cowley, who heads Energy Action Coalition, a coalition of climate-activist groups, told The New York Times.

The decision by Stanford—where I work, though I had nothing to do with the divestment move—is indeed a noteworthy shot in the culture wars over climate change. But it’s at least as noteworthy for what it doesn’t do as for what it does. In a discussion with me this week, Stanford President John Hennessy explained why university officials were careful to structure it narrowly. Students initially had asked Stanford to divest shares it holds in any of 200 publicly traded fossil-fuel companies. But, Hennessy said, the university decided that doing so would hit the school’s coffers too hard and be “hypocritical,” since Stanford, like the world, runs mostly on fossil fuel. So Stanford divested only from companies that mine coal. That step was small enough, the university decided, that it wouldn’t hurt Stanford’s investment returns—and wouldn’t invite allegations of intellectual dishonesty, given that Stanford’s home state of California, unlike many other states, gets very little of its electricity from coal.

Why do the nuances of one elite university’s coal-divestment decision matter to the country? Because Stanford is a canary in the coal mine. It’s a massive, wealthy research institution putting a lot of thought and money into trying to shift society toward a cleaner energy system. If Stanford, with all its environmental aspirations, won't cross certain lines, the rest of American society is likely to be even more hesitant to do so.

Stanford policy says that, when the university believes “corporate policies or practices create substantial social injury,” it can factor that concern into its investment decisions. The school has a history of targeted divestment from stocks it finds objectionable on moral or social grounds. In response to concern about South African apartheid, Stanford divested not from all companies selling goods or services in the country—a category that would have included a good chunk of multinational firms—but from companies that were supplying the South African apartheid regime. “It was scoped to focus specifically on companies that were enabling the government to participate in apartheid,” Hennessy said. “You try to fine-tune things.”

Stanford similarly fine-tuned its coal divestment. Last year, a student group called Fossil Free Stanford, an affiliate of a nationwide campaign, served Stanford with a fossil-fuel-divestment petition. A university panel considered the idea, it recommended to a committee of Stanford’s board of trustees the narrower step of divesting from coal-mining companies, and the committee agreed. Earlier this month, in a telephone meeting—convened, Hennessy said, to get the issue resolved quickly, so the coal controversy wouldn’t cloud the university’s upcoming graduation ceremonies—the full Stanford board voted yes.

One environmental premise motivated the thinking, Hennessy said: “In the medium- to long-term, the United States doesn’t need to rely on coal, because the United States has ample reserves now of natural gas, in particular. We think it would be better for the country to move in that direction as quickly as possible.” That’s because burning coal to generate electricity emits more carbon dioxide and smog-causing pollutants than does burning other fossil fuels, such as natural gas.

But another principle also informed the university’s deliberations: There was no way Stanford could afford to dump all its fossil-fuel investments. “Divesting from that entire sector—all fossil-fuel energy—playing that over the long period of the endowment would have significant impacts” on the endowment’s financial returns, Hennessy said. Although Stanford doesn’t disclose its specific investments, Hennessy’s rough estimate is that somewhere between 1 percent and 10 percent of Stanford’s endowment is invested in fossil-fuel stocks. Fossil fuels have “some desirable properties” from an investment standpoint, notably that they tend to help hedge against inflation, he said.

Beyond the hit to Stanford’s pocketbook, the university figured that divesting from all fossil-fuel stocks would be seen, justifiably, as too ivory-tower. “It would have been viewed as hypocritical to say, `You should divest from fossil fuels,’ when everyone on this campus consumes fossil fuels,” Hennessy said. "There’s a hypocritical issue to it.” And what’s true for Stanford, he noted, is true for the globe. “You try to replace all fossil fuels? We are so far from that happening.”

But divesting just from coal-mining stocks should, financially, have “little or no endowment impact,” Hennessy said. The university, he said, can put the dollars it was investing into coal-mining companies into other energy sources—perhaps other fossil fuels—which, like coal stocks, help guard the endowment against the threat of inflation. Moreover, Stanford will remain invested in coal consumption. The divestment doesn’t apply to stocks of power companies that burn coal. And it doesn’t apply to shares in steel makers, Hennessy noted, for whom a fuel source other than coal isn’t readily apparent.

Stanford officials contend that divesting from coal-mining stocks comports with California’s energy mix. To be sure, California is hardly independent of coal: It gets less than 1 percent of its electricity from coal-fired power plants located in California, but it imports a larger amount of coal-fired electricity from other states. Still, according to state figures, 7.5 percent of the power California consumes comes from coal—less than half the percentage California gets from renewable power. The single biggest chunk of the state’s electricity comes from natural gas.

Many other states where activists are pushing for fossil-fuel divestment rely much more heavily on coal. Among them is Massachusetts, home of Harvard University, where a student group called Divest Harvard is calling on the school to begin divesting its $32 billion endowment from fossil fuels.

In the future, Hennessy said, it’s conceivable Stanford might approve additional “narrowly structured” fossil-fuel divestments—for instance, of stocks in companies that produce oil from tar sands, a particularly energy-intensive way to get petroleum out of the ground. “We might get a targeted divestment request around that,” he said. “That would be something that would have to be considered in the process.”

In the two weeks since Stanford made its coal-divestment decision, the move has drawn plenty of criticism. Some call it meaningless. They argue nothing Stanford does will much affect coal consumption, which, whatever happens in the U.S., is soaring in developing countries such as China and India. Hennessy said Stanford is under no illusions that its decision will affect coal consumption around the globe. “We don’t expect this to solve global warming or put coal out of business,” he said. “We’re not on a campaign to end it. We’re just on a campaign to prevent ourselves from being complicit in the continued use” of it.

Other critics say divestment is an ineffective strategy for social change. They contend the university should hold onto its stock in coal-mining companies and then use its leverage as a shareholder to agitate from the inside. Hennessy said he buys that argument in certain cases, notably with companies that produce natural gas. By holding onto gas stocks, Stanford can push gas producers to make operational changes that would reduce greenhouse-gas emissions from gas production, Hennessy said: “We would rather be at the shareholders’ table” in the case of gas. But he said Stanford officials don’t believe there will be an economically viable way anytime soon to slash greenhouse-gas emissions from coal.

That calculus could change. Scientists might figure out how to capture and store greenhouse-gas emissions from coal—a technology known as carbon sequestration—at an affordable price. “If we make the magic breakthrough on carbon sequestration and it’s at reasonable cost, then we would say, ‘That’s fine, coal meets an environmental standard that we would aspire to.’ And we’d be happy to reinvest,” Hennessy said. “The feeling was we’re a long way from that.”