‘A Black Hole of Information’: Experts Evaluate Harvard’s Net-Zero Emissions Pledge

As the Harvard Managment Company works toward achieving its pledge, climate and financial experts weighed in on the challenges the company faces, including difficulties obtaining data on and measuring the emissions of its partners.
By Dekyi T. Tsotsong and Eric Yan

The Harvard Management Company, which manages the University's endowment, is located in Boston.
The Harvard Management Company, which manages the University's endowment, is located in Boston. By Steve S. Li

On Sept. 9, 2021, Harvard announced it would allow its remaining holdings tied to the fossil fuel industry to expire, effectively divesting its endowment from the sector.

The announcement came after a decade of student activism, protests, and even legal complaints and marked a reversal in the stance of University President Lawrence S. Bacow and other administrators, who had long rejected calls for divestment.

Over a year earlier, the Harvard Corporation — the University’s highest governing body — directed Harvard Management Company, which oversees the endowment, to achieve net-zero greenhouse gas emissions by 2050. Since then, HMC has released annual climate reports detailing its progress toward the target.

In its latest report, HMC announced its internal operations will achieve net-zero emissions for fiscal year 2022 and that its investments in “climate solutions” are approaching one percent of the endowment.

The company’s emissions pledge is consistent with a growing trend in finance to consider environmental, social, and corporate governance — or ESG — factors in their investment and business practices.

As HMC continues to work toward achieving its pledge, climate and financial experts weighed in on the challenges the company faces, including difficulties obtaining data on and measuring the emissions of its partners.

Measuring an Endowment’s Footprint

The Greenhouse Gas Protocol, the most common international standard for emissions accounting, separates measurements of an organization’s greenhouse gas emissions into three categories: Scope 1, Scope 2, and Scope 3.

Scope 1 calculates a company’s direct greenhouse gas emissions from sources under its control, such as operational vehicles or furnaces. Purchased electricity, heat, and steam make up a company’s Scope 2 emissions, while all other indirect emissions sources — such as business travel and waste disposal — fall under Scope 3.

HMC committed to measuring and eliminating the Scope 1, 2, and 3 emissions of its internal operations beginning in fiscal year 2022. But it has not clarified which scope or scopes of emissions it uses to report and set targets for the endowment’s footprint.

Aaron S. Yoon, a professor of accounting at Northwestern University, said that in determining which emissions to account for, HMC should “be mindful” that companies in its portfolio could report smaller environmental footprints by “pushing their emissions down the supply chain.”

Galina Hale, an economics professor at the University of California, Santa Cruz, said for many companies, reporting Scope 3 emissions is “what matters most,” but added that such disclosures were “difficult” to estimate and “hard to verify.”

Patrick S. McKiernan, a spokesperson for HMC, wrote in an email that the company has ongoing efforts to clarify a process for measuring its emissions.

“HMC continues to work with our external managers and third-party experts to address the challenges of data access and develop a consensus methodology for calculating emissions,” he wrote.

New York University finance professor David L. Yermack ’85 said HMC’s statements on their efforts to obtain accurate emissions data are “not much of a promise.” He said HMC could be more proactive in ensuring its partnered asset managers provide data.

“They could be much more exclusionary and just say we won’t invest in any company that doesn’t have a robust set of audited numbers,” said Yermack, a former Crimson managing editor.

Yermack also said he was “skeptical” of the accuracy of emissions estimates from non-traditional investments such as private equity and venture capital, arguing that measuring climate emissions is “the last thing in the world” startup technology companies are concerned about.

“You’re talking about a big vacant space — a black hole of information — where the University wouldn’t know one way or the other because the companies themselves probably don't know,” Yermack said.

Yoon called for HMC to be “much more specific” in its annual climate reports and to provide “actual data” beyond simply case studies.

“It’s that sort of goal and clear disclosure that helps us understand as stakeholders of Harvard what they’re doing with our endowment money,” said Yoon, a Business School alum.

Offsetting and Cutting Emissions

Despite HMC’s pledge to achieve net-zero emissions tied to its endowment, it remains unclear whether the purchase of carbon offsets will play a role.

Offsets, which are reductions in greenhouse gasses in one place to counter emissions elsewhere, allow an investment portfolio to appear neutral despite continuing to emit greenhouse gasses.

Bruce M. Usher, a professor at Columbia Business School, wrote that it is “nearly impossible” for a company to achieve net-zero emissions “without some use of offsets.”

Yoon said that HMC should put offsets “at the top of their agenda” in conversations with their asset managers. He called for HMC to be “aggressive” in asking whether companies in its portfolio are relying on offsets to achieve emissions targets and for information on the nature of the offsets used.

Hale also warned that related “social factors” need to be accounted for in measuring the integrity of offsets purchased.

“We can plant trees to sequester carbon from the atmosphere, but to plant the trees, you need the land,” Hale said. “An important social issue there is to make sure it does not result in expropriating land from the most disadvantaged populations.”

HMC’s latest climate report also indicated that engagement with asset managers and owners marks a vital step in the company’s plan for reaching its net-zero goal.

“Through our engagement efforts we seek to improve climate transparency and governance, promote real economy emissions reduction, and support a just transition,” the report reads.

The report pointed to an increase in shareholder engagement on climate issues, with the number of climate-related proposals submitted by shareholders jumping to 84 during the 2021 proxy season, up from 53 in 2020.

Laura Devenney, an analyst at asset management firm Boston Trust Walden, called the increase in shareholder concern regarding climate change “significant,” even though the proposals are not legally binding.

“If 60 or 80 percent of your shareholders are telling a company that you need to address a climate-related issue, it’s important the company take notice,” Devenney said.

Harvard’s Potential Impact

Connor P. Chung ’23, an organizer for Fossil Fuel Divest Harvard, said the University’s decision to allow its remaining investments tied to fossil fuels to run off aligned its endowment “with its moral, financial, and legal duties to act on climate.”

“Harvard has an immense opportunity to lead our environment, and investment practices are one key way in which we all hope this plays out,” he said.

But others believe that individual institutions have a limited ability to mitigate the effects of climate change.

Harvard geology professor Daniel P. Schrag — who served on former President Barack Obama’s Council of Advisors on Science and Technology — criticized the school’s focus on the size of its own carbon footprint, rather than the scale of global emissions.

“One of my frustrations has been that historically, Harvard has put more money into worrying about its own sustainability, which, to me, is mostly well-intentioned public relations,” he said.

Yermack said that attempts by shareholders to influence company practices are “mostly symbolic” and encouraging emissions reduction should be a governmental responsibility.

“The best thing to do would be to be pressing through the political system for tighter regulation of the industry,” he said.

Yermack also said he believes universities will be more influential on climate issues by conducting research, funding grants, and granting tenure to professors who teach about the environment.

“Harvard’s comparative advantage is doing research and getting smart people to work on important issues,” he said. “That kind of thing is gonna be much more effective than getting the endowment to make an open-ended pledge to do something by the year 2050.”

Schrag stated that Harvard’s current pledge is “not a very effective path.” Instead, he said, Harvard should focus its efforts toward educating students about climate change.

University spokesperson Jason A. Newton declined to comment.

Profits and Responsibility

Some experts argue HMC needs to weigh whether it would be willing to sacrifice profit to invest in climate change mitigation efforts.

Harvard economics professor Oliver D. Hart said investments that benefit the environment may not financially benefit HMC’s portfolio.

“It would defy the laws of gravity to say that all the things on each of the ESG dimensions — which many people think are desirable themselves — that all of them go together with more profit,” Hart said.

Hale disputed the claim that ESG investment practices may harm profits, but added that she believes Harvard has a duty to stakeholders — especially students — to accept slightly lower returns if necessary.

“The future of this planet is in the interest of this important and large group of stakeholders,” she said. “If you take into account the other interests of stakeholders, like lower warming and reaching the net-zero goals and better future better health, then I think it's still a sound investment.”

Addressing climate change through investment strategies nonetheless remains a contested strategy.

“It's a tiny fraction compared to the impact we have in our classrooms and our influence in the world through our expertise,” Schrag said.

—Staff writer Dekyi T. Tsotsong can be reached at dekyi.tsotsong@thecrimson.com

—Staff writer Eric Yan can be reached at eric.yan@thecrimson.com.

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