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.
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