by Duncan Gromko
Swarthmore’s Board of Managers published an open letter on their decision not to divest from fossil fuels on Wednesday this week, which argued that divestment would have no measurable effect on halting climate change and would pose an unacceptable risk to the College's finances. For a little context on the divestment issue, see my earlier post. Students in Swarthmore Mountain Justice and other advocacy groups first raised this issue and I applaud their commitment to social justice. Interacting with them over the past several months has been inspiring.
The decision to divest is a serious one and I’m glad that the Board is not taking it lightly. They are responsible for ensuring the financial health of the school, which directly impacts the quality of education that students receive. However, the Board’s arguments are problematic for a number of reasons.
1. The Board argues that divestment is not an effective means of reducing greenhouse gas emissions: “Symbolic action is not our only option [for reducing greenhouse gas emissions], and we are convinced it is far from our best option for mobilizing public opinion as well as for having real impact on the fossil fuel industry. President Obama's recent initiative on climate is just the latest-though the most dramatic-illustration that government action to control greenhouse gas emissions is on the table. It seems the time is right to pursue legislative change aggressively.”
It is strange that the Board uses Obama’s climate initiative to argue that divestment is not an effective strategy because, when announcing his initiative, Obama himself called for divestment: “Push your own communities to adopt smarter practices. Invest. Divest.”
The potential impact of divestment is much greater than the effect that it would have on fossil fuel companies’ bottom line. The Board’s letter calls divestment “symbolic” in a dismissive way, but symbols matter in policy and politics. Policy is not made in a vacuum – real climate change legislation will only happen if there is some political calculus pushing politicians in that direction. Divestment would provide “social proof” that supporting climate change action is socially acceptable. Obama asked for this help: “What we need in this fight are citizens who will stand up and speak and compel us to do what this moment demands. Understand, this is not just a job for politicians.” I argue that Obama only made such a bold speech and policy initiative because green groups have put pressure on him, organizing in large part around “symbolic” issues like divestment and the Keystone XL Pipeline.
2. The Board dismisses the moral benefits of divestment: “Divestment's potential success as a moral response is limited-if not completely negated-so long as its advocates continue to turn on the lights, drive cars, and purchase manufactured goods, for it is these activities that constitute the true drivers of fossil fuel companies' economic viability-their profits.”
Ideally everyone would eliminate their use of fossil fuels, but it is nearly impossible to do so as an individual. Individuals are so constrained by our economic system that one cannot participate in society without using fossil fuels – I’m using carbon-derived fuel to write this response! Individuals changing their behavior would be a great step, but we need systematic change to address climate change in any real way.
Divestment would not constrain Swarthmore’s endowment in the same fundamental way that forgoing fossil fuels would constrain individuals. Swarthmore’s endowment can fulfill its purpose with or without investments in fossil fuel companies. Swarthmore Mountain Justice expressed the difference between individual consumption and endowment investment eloquently in their response to the Board: “Swarthmore is a relatively small consumer of fossil fuels, but, given its size, holds a disproportionately large amount of moral and financial capital as a prestigious and well-funded institution.”
Moreover, whether or not divestment advocates eliminate their personal carbon footprint has no bearing on the moral calculus of divestment. If the Board believes that profiting from fossil fuel production is immoral, it should divest regardless of what others do. “The moral man looks for injustice first of all in himself” – Bayard Rustin.
3. The decision to invest in managed hedge funds seems to preclude divestment from any company. Is there no company or sector that would induce the Board to consider divestment? Hypothetically, suppose we found that the College was investing in a company that produced chemical weapons? The Board’s investment strategy makes it impossible to affect the social impact of the investment. I’m not advocating that the endowment be transformed into a social impact fund, but surely the Board would like to have some control over its investments.
4. The best argument the Board has is the cost of divestment. Swarthmore invests a significant portion of its endowment in managed funds, which have historically provided the College with excellent returns. The Board is claiming that these funds would not want to manage Swarthmore’s money under the divestment restrictions, so the endowment would have to be invested in poorer performing funds. Reducing Swarthmore’s endowment and by extension, the services it is able to provide to its students, would be a huge loss. It is not lost on me that my education, for which I received substantial financial aid, enabled me to do the work I am today to combat climate change and environmental degradation in my job. However, the Board’s cost analysis does not consider a number of points.
First, the Board’s estimation of future returns from managed funds investments are based on past returns. Past performance is no indication of future results. Bloomberg recently published an article entitled “Hedge Funds Are for Suckers,” in which they wrote: “…hedge fund performance lagged the Standard & Poor’s 500-stock index by approximately 10 percentage points this year, although most fund managers still charged enormous fees in exchange for access to their brilliance.” Although this statistic is cherry-picked and probably exaggerates the recent failures of hedge funds, the increasing popularity of hedge funds has slowly squeezed their competitive advantage, reducing their ability to generate profit.
Second, the Board’s analysis does not fully consider alternative investment options. Articles by Forbes, the Wall Street Journal, and HIP highlight the growing number of responsible investment funds. Swarthmore’s significant financial muscle would strengthen these funds. It is also possible that, by taking the lead on this issue, Swarthmore could bring other like-minded colleges to the table.
Third, the Board fails to consider other costs and benefits of divestment. A divestment announcement would generate good publicity for the College, which would have a real monetary benefit. How many prospective students writing their “Why Swarthmore” applications would list a decision like divestment as a reason for attending? It would certainly reaffirm my decision. The Board also leaves out the impact that divestment would have on alumni giving. I’m not willing to give my money to a fund that invests in fossil fuels; I would start giving to the College again if it divested. Younger generations of Swarthmore alumni are not the largest donors to the College, but I believe that the divestment issue is alienating many current students and recent alums, diminishing future giving.
In rejecting divestment, the Board offers alternatives. I thank them for doing so as it demonstrates their desire to continue the dialogue on this issue. They have asked for other suggestions; I have a few:
· If divestment is a step too far, an intermediate option could be assessing the environmental footprint of the existing portfolio. MSCI has developed a portfolio analysis tool that evaluates investments based on their environmental and social impact. I also encourage the Board to review the growing number of responsible investment options I mentioned above and whether these might offer better returns than what the Board assumes in its cost of divestment analysis.
· Enable students to be effective political actors. The Board argues that now is the time to push for comprehensive climate change legislation; what better way to do so than through the power of students? I witnessed immense passion amongst Swarthmore Mountain Justice and other student groups in May. In its Peace and Conflict Studies and Environmental Studies programs, Swarthmore has a number of capable professors to lead these efforts. I’m sure that other schools in the region would be thrilled to participate in a Swarthmore-hosted conference on political activism.
· It seems that there is serious mistrust between students and the administration. Although I am focused on divestment, I am concerned by how alienated and hurt students feel regarding a number of other issues. The lack of support for victims of sexual assault and minorities are two issues that stick in my mind from the meeting with Board in May. I encourage the College to pursue greater transparency and student engagement in all of its decision-making – not just with divestment.
While I disagree with the Board’s decision, I respect the importance of protecting the financial health of the College. It is a difficult decision. However, the urgency of the situation demands a reconsideration of the divestment option. A decision to divest would send a powerful signal. The Board is correct that the College should support climate change action in other ways, but these two things are not mutually exclusive. The College can do both.
This letter was first published at the Daily Gazette; check it out here.