It is the 12th US University to step away from coal but the most prestigious to do so.

“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,” Stanford president John Hennessy said in a statement.

The coal industry will miss out on a hefty sum. As of August 31, 2013, the uni’s endowment was worth $US18.7 billion ($A20 billion).

Stanford’s decision comes after high profile protests last week by climate advocates and other universities.

Seven students were arrested at Washington University in St Louis after demanding that the Peabody Energy CEO Greg Boyce resign from its board of trustees.

Another student was arrested at Harvard University for forming a blockade, with half a dozen other students, of Harvard president Drew Faust’s office in a bid to get the university to divest from coal.

However, Stanford’s decision was likely pressed from within.

Its board of trustees includes Tom Steyer, a former hedge fund head who devotes himself to promoting policies that may slow climate change.

A student-led group known as Fossil Free Stanford petitioned the university last year to divest from 200 fossil fuel extraction companies as part of the nationwide divestment campaign.

A statement released by Stanford said the university would cease to invest in approximately 100 publicly traded companies for which coal extraction is its primary business.

It said it would encourage external investment managers to avoid investments in these companies as well.