Universities that decide to shed their investments in fossil fuel stocks could hurt the value of their endowments, according to a new report.
“The economic evidence demonstrates that fossil fuel divestment is a bad idea,” the report says.
The study created a series of stock indexes, compared their returns and found that funds without energy-sector stocks underperformed those with them — by as much as 0.7 percent, according to the analysis.
Adding in transaction costs and reduced diversification, “the costs to investors of fossil fuel divestiture are highly likely and substantial, while the potential benefits — to the extent there are any — are ill-defined and uncertain at best,” wrote the lead author of the study, Daniel R. Fischel, who is president and chairman of an economic consulting company, Compass Lexecon.
The estimated cost to the roughly $456 billion in university endowments would be more than $3 billion a year.
As the divestment movement gains momentum, the report is likely to be cited in debates over divestment’s merits. An essay on the research by Mr. Fischel, who is also a professor emeritus and a...