November 11, 2015

Divestment: A Real Solution, Or A Political Crusade?

The National Association of Scholars (NAS) recently released an in-depth analysis about divestment, its mission and its overall effectiveness.

NAS set out to find the real outcomes of divesting—assessing the impact on the environment, universities and fossil fuel companies.  For proponents of the movement, the results are less than flattering.

The report itself is very comprehensive and deserves a full read, available here.

Divestment Facts highlighted some of the key takeaways below.

First of all, while environmental groups wish to convince the general public that divestment is a growing movement, it turns out that the reality is quite the opposite.  As the NAS report points out, a total of 44 colleges and universities have actually divested (to varying degrees) representing about 0.24% of the world’s institutions.  Twenty-nine of the schools are located in the U.S., representing 0.62% of American universities.

So, as much as reports like this one from Arabella would like to make it seem that the push to divest is growing at a pace of 50 times that of last year, the NAS report rightly points out that claims like these greatly over exaggerate the actual scope of the movement.

Financially speaking, the push for divestment barely moves the needle.  Though Arabella and others point to “trillions” of dollars of assets being divested, NAS estimates that, in reality, only about $27 million has been divested by colleges and universities.  When discussing endowments with assets worth billions of dollars, these numbers are not so impressive.

Therefore, NAS concluded that divestment itself is a symbolic act—and at this point, even proponents of the movement will concede that fact.  What started as a push to help the environment or hit energy companies financially has become a full-fledged political movement.  The point is to polarize the campus, demonizing those not willing to accept their full demands—as well as turning the public against the fossil fuel industry through stigmatization and claims of “immorality.”

“Essentially the entirety of the divestment campaign for the past two years has been one collective pledge to ‘escalate’ into increasingly shrill demands. The movement relies on scare tactics, threats of ruckus, and contrived confrontation. Board members bend over backwards to listen to student demands, then get labeled ‘oppressors’ and ‘climate change deniers.’ They aren’t by any reasonable definition, but that’s part of the escalation. Anything besides full agreement counts as immorality.” NAS Report

As NAS President Peter Wood explained, the movement as it exists today puts greater emphasis on shutting down opposing views and obstructing open debate in order to make divestment the mainstream.

“The movement pretends to change the way we generate energy, but its actual aim is to generate resentment, which is fuel for political demagoguery.  The ultimate beneficiaries are rich people whose investments in ‘green energy’ will prosper only if they can trick the public to strand our reserves of coal, oil, and gas underground. They favor high-priced, inefficient technologies that happen to require massive government subsidies coupled with sweeping new government powers.  Students drawn by ‘save the world’ rhetoric and prevented from ever hearing arguments on the other side have become willing pawns for a movement that, rightly understood, is profoundly anti-democratic and that will also consign much of humanity to perpetual poverty.”

NAS also deftly shows how some of the activists’ key claims lack substance and are manipulated to fit a certain narrative.  Even those schools heralded for their “divesting” haven’t accomplished much of anything—deemed “DINOs” and “runner-up DINOs” (divestments in name only) by NAS. Falling into that category are institutions like Stanford, Georgetown and Syracuse—all of whom have been praised by environmental groups like 350.org for their decisions to divest.  However, once one analyzes these schools’ actions, it’s clear that the extent of their divestment is more of the PR variety.

So what does divesting mean?  Depends on who you ask.

According to a group like 350.org, divesting means:

• Immediately freezing any new investment in fossil fuel companies;
• Divesting from direct ownership and any commingled funds that include fossil fuel public equities and corporate bonds within 5 years.

Now take Stanford.  Possibly the highest profile university to join the divesting movement.

The school’s May 2014 announcement was deemed a “groundbreaking victory” by activists, but the ultimate outcome didn’t come close to meeting environmentalists’ demands.  Stanford announced it would divest direct investments in coal, but would not make any changes with co-mingled funds or oil and gas holdings.  In an era where coal prices have plummeted due to market forces and the rise of the American shale gas industry, it is no surprise that an endowment would want to sell its investments in coal.  Hardly the “groundbreaking” victory as it was touted.

Stanford, it turns out, is not alone. The NAS report found that on average, divestment decisions ultimately leave 50 percent of fossil fuel investments in place.

There is a clear, financial reason for this.  The NAS report cites studies by both Prof. Daniel Fischel and Prof. Bradford Cornell that show steep financial penalties for schools that completely divest from fossil fuels.  They come from compliance costs and a loss of portfolio diversification—as displayed by Prof. Fischel’s report, and also come in lower returns (to the tune of millions of dollars)—as shown by Prof. Cornell’s study.

The latest analysis by NAS further proves how divesting is a fruitless strategy.  Though its proponents try to manipulate numbers and facts in their favor, the results have not been very successful, neither from a financial nor environmental standpoint. As many of the world’s most prestigious universities, like Harvard and MIT, have recently done, institutions should reject divestment and focus on more productive and inclusive ways of affecting positive change.