Following is the text of the President’s response to an anonymous question presented during the March 21, 2024 meeting of the Academic Council.

Question: In light of the February 2024 ACIR report to the President recommending that DUMAC not be required to divest from fossil-fuel investments, will Duke at least commit to accounting for the carbon emissions associated with its fossil fuel-related investments in the context of its carbon-neutral-by-2024 pledge?

Well, thanks for the question, and I’d also like to thank Professor Emma Rasiel, who is here as chair of the Advisory Committee on Investment Responsibility, the ACIR, and her colleagues on the committee for their thoughtful February report and for the work more generally of that committee. 

As part of their work, of the ACIR, back in 2019, the committee suggested that we investigate the feasibility of creating a carbon tax on selected investments, and that recommendation was considered then and remains under consideration. However, it’s presently not practical for DUMAC to account for the carbon emissions in its portfolio, and that is for two primary reasons. 

The first reason is that data bearing on the allocation of carbon to selected investments are generally not reliable, and so the accounting itself is highly problematic. DUMAC has over 12,000 companies, private and public, represented in the portfolio. Data are not available for many of the private companies and in the case of the public companies, what data are available are generally incomplete or inaccurate.

The second reason is that while DUMAC could conceivably do their own accounting in house, for the sake of reliability, it would be incredibly labor intensive to do that work. Estimates are that it would require hiring considerable additional staff, more than 20, which would amount to almost doubling, frankly, DUMAC’s staff, to faithfully represent carbon emissions across the entire portfolio.

What is practical, and in keeping with our climate commitments, is what DUMAC has undertaken since 2019. First, DUMAC has invested in “positive impact” companies, those that are promoting UN Sustainable Development Goals, and does their own due diligence on this by using machine learning and artificial intelligence. At present, $2 billion in the portfolio are invested to have these “positive impacts.” It’s not a perfect accounting, I will tell you, but the attempt is made, and this represents about 15% of our long-term pool. So, by directing investments to these “positive impact” companies, there’s an attempt to make a positive difference in line with our climate commitments. 

This approach has been judged to be more feasible, and frankly more impactful, than deployment of an internal, investment carbon tax, which would also likely have a negative impact on our long-term returns. And as I noted in 2019, I and I’m sure my colleagues at DUMAC remain open if others are able to present DUMAC with a more developed and implementable version of a carbon tax recommendation.

Second, DUMAC has also divested from direct cash equity holdings, meaning that we have divested of the carbon 200 companies. And we do have exposure, though, in indirect holdings and derivative positions that are held for risk management purposes and those do not necessarily represent either direct or indirect investments in fossil fuel companies. It is very difficult to divest or extract ourselves from these just because of the embedded nature of energy and energy services companies associated with fossil fuels. 

Now, we could claim from our direct investment management that we have divested optically at least, but that would be disingenuous. A thorough-going, complete divestment of all investments connected to fossil fuels would limit discretion among the managers for investment choices without either the requisite confidence in the data or the confidence that we’re actually having the desired impact. Complete divestment would also significantly reduce the pool of available investments related to clean energy transition and production, since investment managers in the energy space are often invested across the spectrum of clean transitional and fossil fuel energy. And finally, such a complete divestment attempt would be a serious impediment to sound financial returns, and that is the primary charge for DUMAC.