This Thursday, as the University of Denver (DU) Divestment Task Force holds its sixth hearing on fossil fuel divestment, we have to believe the presentation from divestment supporters will go far better than it did last time.
In the process of trying to explain the merits of fossil fuel divestment to the task force at the last hearing two weeks ago, a divestment activist demolished her own campaign’s rationale and talking points in real time. Without even realizing it, “Political Liaison and Narrative Strategy Consultant for Divestment Student Network” and 350 Action organizer Michaela Mujica-Steiner demonstrated just how political and pointless the divestment campaign really is, and how, at the end of the day, it amounts to nothing more than symbolic nonsense.
Are Fossil Fuel Investments Risky? 350.org Says Yes and No.
From the very beginning, 350.org has argued that its divestment campaign is a moral initiative that also makes financial sense. Fossil fuel companies are “very risky investments,” 350.org has explained, as “energy markets [are] particularly volatile, and therefore risky.” One of the slides in Mujica-Steiner’s presentation is titled, “The Fossil Fuel Industry is a Risky Business.” Because of this riskiness, “[d]ivestment can make good financial sense for your portfolio,” and “[d]ivestment now could protect your assets in the future,” argues Green America, a group that works with 350.org on divestment.
But when given the opportunity to explain how the fossil fuel industry was riskier and more cyclical than other industries – and therefore warranted divestment while other sectors did not – Mujica-Steiner just couldn’t. In fact, she said the fossil fuel industry was just like other sectors, and perhaps the entire economy: In her words, the fossil fuel industry “might be,” and “probably is,” marked by the “same cycle” when compared to other resources and other markets, and “maybe it’s almost the nature of our economy to be a boom and bust cycle”:
“It may not be that different from some other industries and I’ll admit I don’t know as much about other industries so I can’t really speak as much to how other industries function in cycles. … So it might be the same cycle in terms of other resources. I would imagine and speculate that it probably is. And maybe it’s almost the nature of our economy to be a boom and bust cycle. I’m not, I’m not sure because it seems like that would probably happen in other markets as well, but I would say that especially when you’re considering, you’re taking renewables into consideration and taking these other factors with the market and the policy regulations, you may see maybe the boom and bust cycle more … highlighted.”
There goes 350.org’s financial rationale for divestment. But this kind of fumbling financial illiteracy is only to be expected, given that 350.org activists have admitted on their Frequently Asked Questions page that they didn’t really know much about the subject matter, aside from “a few tips” from financial experts:
“Divestment sounds complicated. Do I have to be an expert to start a divestment campaign? Nope — none of us at 350.org are experts on financial markets, but we’ve talked to a lot of divestment experts and they’ve given us a few tips.”
Financial Experts, Analysts, Universities Reject Divestment
Well, actual financial experts have spoken out against the divestment campaign, arguing that divestment would contradict a school’s fiduciary responsibility to maximize the value of its portfolio in order to advance its academic mission. At the DU Divestment Task Force’s third hearing, Wendy Dominguez of Denver-based investment consultancy Innovest Porfolio Solutions explained that divestment would entail increased portfolio risk, underperformance, and a threat to endowment-funded educational programs. At the task force’s fourth hearing, Kristy LeGrande and Wendy Walker of investment advisory firm Cambridge Associates laid out the challenges of divestment from an investment perspective, including how investment strategies for most endowments involve commingled funds, that screened funds are not typically offered by the most high quality investment managers, and that the track record for the “handful” of hedge fund strategies that are explicitly “fossil fuel free” is very limited.
Economic studies commissioned by Divestment Facts, as well as internal evaluations by universities like Swarthmore College and Wellesley College, have drawn the same conclusion: Fossil fuel divestment would be extraordinarily costly. For example, a study by University of Chicago Prof. Daniel Fischel found that divestment would cost university endowments almost $3.2 billion every year. In addition, another study by Prof. Hendrik Bessembinder of Arizona State University’s Carey School of Business concluded that the transaction and management costs related to divestment could potentially rob endowment funds of as much as 12 percent of their total value over a 20-year timeframe.
It is precisely because divestment would be detrimental to a school’s education mission that universities have overwhelmingly rejected divestment, outnumbering those that have pledged full divestment by a ratio of 111:1. It’s why schools like Harvard University, 350.org co-founder Bill McKibben’s alma mater, and Middlebury College, where McKibben is a scholar in residence, have both refused to divest. Even the three schools that top Sierra Club’s list of America’s Greenest Colleges – schools that are “dedicated to greening every level of their operation” – have rejected divestment: University of California, Irvine, American University and Dickinson College.
350.org: Divestment Is About “Changing the Story” Rather Than “Material Changes”
Given the divestment campaign’s string of failures, what, if any, are its contributions? “Changing the story,” Mujica-Steiner told the DU task force, “rather than … material changes,” in order to “restrict the social license of the fossil fuel industry” and “to stigmatize the fossil fuel industry”:
“From my perspective, fossil fuel divestment, while there’s been a large amount of commitment and even that moving, the moving of investments, and divestment, really I would say the purpose is to restrict the social license of the fossil fuel industry, meaning to stigmatize the fossil fuel industry as more a part of social change rather than these material changes. And that’s actually why I didn’t, in terms of what I think are really putting fossil fuel investments at risk, I didn’t really highlight the fossil fuel divestment movement, because I don’t think it…has been detrimental to the market or detrimental to impacting demand. I think what it’s been really successful in doing has been changing the story, so around the fossil fuel industry, and brought to light…and kind of brought some of these issues more into the public policy arena. … In general its focus has been more social than materially impacting demands.”
350.org’s “changing the story” might as well mean distracting universities from pursuing solutions to energy problems in all their complexity, as DU Associate Dean for Academic Affairs Dr. Frank Laird has said:
“[Divestment] is not really ineffective, but I think it can have a negative effect on de-carbonizing the energy systems because, frankly, it’s a distraction from the large and complex task we need to face.”
To recap, 350.org activists have replaced students in what was purportedly a student-led college campaign, attempted to deprive universities of billions of dollars used for financial aid, faculty salaries and academic programs, distracted schools from advancing their education mission, and completely failed to provide a coherent case for their own campaign. What, then, is left for these activists? The moral high ground, according to 350.org operate Brett Fleishman, who has also testified before the DU task force: “[T]his is a moral campaign at its core.” But, in the words of University of Colorado Denver instructor Lisa Hamil, “is it moral or ethical to sacrifice the quality of a student’s education just to make a political statement?” The answer is an obvious no.