The resolution by the Stanford Board of Trustees followed a recommendation from the university's Advisory Panel on Investment Responsibility and Licensing, which spent several months reviewing the social and environmental implications of investment in fossil-fuel companies.
"The university's review has concluded that coal is one of the most carbon-intensive methods of energy generation and that other sources can be readily substituted for it," Stanford President John Hennessy said in a statement issued by the university.
"Moving away from coal in the investment context is a small but constructive step while work continues, at Stanford and elsewhere, to develop broadly viable sustainable energy solutions for the future."
Board of Trustees Chairman Steven A. Denning said a student-led organization, Fossil Free Stanford, had "catalyzed an important discussion" on divestment, which the university followed up with a "careful, research-based evaluation of the issues.
"We believe this action provides leadership on a critical matter facing our world and is an appropriate application of the university's investment responsibility policy," Denning said.
Stanford is the first large university to decide to divest its coal-extraction holdings, university spokeswoman Lisa Lapin said. With an endowment balance last reported at $18.7 billion, it is the nation's third-largest-endowed university, behind only Harvard and Yale.
Pitzer College in southern California announced in April its plan to divest its fossil-fuel holdings by the end of the year. Hampshire College in Massachusetts and Unity College in Maine also have committed to selling their coal investments.
Stanford investment decisions are guided by the university's 43-year-old Statement on Investment Responsibility, which says trustees' primary obligation is to maximize financial return to support the university. But the policy also authorizes them to take into consideration cases in which "corporate policies or practices create substantial social injury."
In Tuesday's decision, trustees concurred with the advisory panel that coal divestment was consistent with that policy given current availability of alternatives with less harmful environmental impacts.
The decision means Stanford will not directly invest in approximately 100 publicly traded companies for which coal extraction is the primary business and will divest any current direct holdings in such companies. Stanford also will recommend to its external investment managers, who invest in wide rages of securities on behalf of the university, that they avoid investments in those public companies as well.
Fossil Free Stanford last year petitioned the university to divest from 200 fossil-fuel extraction companies.
"We are proud that our university is responding to student calls for action on climate by demonstrating leadership," Fossil Free Stanford said in a statement. "Stanford's commitment to coal divestment is a major victory for the climate movement and for our generation."