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January 31, 2019

McKibben Celebrates False Divestment Win at Middlebury College

Environmental activist Bill McKibben recently took to the pages of The Guardian to boast about Middlebury College’s pledge to “divest” from fossil fuels, claiming it a change in the divestment tide. As far as we can tell, that tide is still waiting to come in.

As both a professor at Middlebury and the leader of the divestment movement, we understand why McKibben would be eager to share this news with the world. Only problem is that it’s not entirely true, and his use of it as an example of the success of the movement leaves more questions than answers.

Here’s a closer look at some of McKibben’s most outlandish recent claims:

Claim: “Vermont’s Middlebury College announced on Wednesday that it was divesting its holdings in fossil fuel companies.”

Fact: Despite McKibben’s rhetoric, Middlebury did not fully divest, and their announcement is not the “victory against big oil” that McKibben would have you believe.  What Middlebury College actually announced is known as fake divestment – a plan to make it look like they are fully divesting, but in reality, they are only taking small steps that will have a limited impact.

According to the announced plan, the college will not directly invest in new fossil fuel assets and they will begin a phased, 15-year elimination of fossil fuel investments.  However, the college said that this will only be applied to “direct investments” in fossil fuels, which “equal about 4 percent of the endowments value.” Not included in the divestment pledge are general equity funds and broad-based market index funds that include fossil fuel investments.

So out Middlebury’s $1 billion endowment, only $40 million will be impacted by this so-called divestment pledge.

Claim: “…Middlebury was one of the first to reverse course. Six years ago the college flatly rejected divestment…”

Fact: It’s true that Middlebury has long rejected divestment – first doing so in 2013 and again just last year. This is because the ultimate goal of the board of trustees and investment managers has always been to maximize returns.  As the former Middlebury President Ron Liebowitz noted:

“Given its fiduciary responsibilities, the board cannot look past the lack of proven alternative investment models, the difficult and material costs of withdrawing from a complex portfolio of investments, and the uncertainties and risks that divestment could create.”

In fact, according to a study by Arizona State University Professor Hendrik Bessembinder, divestment could cost endowments similar in size to Middlebury’s up to $298 million over 20 years. That translates into fewer scholarships and less financial aid for Middlebury students.

The negative costs associated with divestment are why Middlebury did NOT reverse course, but rather make a fake divestment announcement in order to appease divestment activists, like McKibben.

Claim: “…more than a thousand institutions with endowments totaling more than $8tn have made similar pledges.”

Fact: Divestment Facts has debunked this claim numerous times, but it hasn’t stop McKibben from repeating it.

Divestment activists count the total amount of assets a fund has as “divested” assets, even if the number of fossil fuel-related shares sold amounts to less than a percentage point of that total.

A more accurate estimate can be found in a report from the Political Economy Research Institute (PERI) at UMass Amherst, which found that divestment pledges “as of March 2018 amount to $36.1 billion.” Not quite the $8 trillion that McKibben continues to claim.

Claim: “Where once the coal and oil companies could argue that they were the best hope for leading the developing world out of energy poverty, it’s now clear that Africa and Asia will electrify mostly on the back of sun and wind.”

Fact: While there have been increased investments in renewable energy sources, the International Energy Agency (IEA) notes that global demand for coal and oil will continue to remain stable in the near future, largely due to increased demands in Asia.

But more importantly, and what McKibben fails to realize, is that fossil fuels and renewables can work hand in hand. Natural gas provides back up power for many intermittent renewable sources and has helped to significantly lower carbon emissions. Meanwhile, large oil and natural gas companies are increasing investments in new technology and renewable energy.

Claim: “…the fossil fuel sector has underperformed the rest of a surging stock market. By this point, endowments that divested early on have made out like bandits, and those that resisted have felt the drag of low returns. New York state’s pension fund, for instance, would be richer to the tune of $19,000 per retiree if its bosses had paid attention to divestment activists.”

Fact: Numerous academic studies have shown that divestment is a costly option. Whether it’s an educational endowment or a public pension fund, divestment will lead to lower returns and increased costs and fees. For example, a recent study of New York State’s pension fund found that full divestment would cost up to $198 million annually and up to $1 trillion over 50 years. That’s why the New York State Comptroller has repeatedly rejected divestment.

Claim: “But given the size of the climate crisis, institutions can’t worry simply about their carbon footprint. They have to look to every opportunity to lead – and divestment, as students never stopped pointing out, was the single most important step Middlebury (birthplace of 350.org) could take.”

Fact: We hate to break it to the students at Middlebury who think they are saving the planet by pushing for divestment, but the truth is that divestment is simply a symbolic gesture that will not help the environment. Divestment has no direct impacts on emissions, public policy, or corporate behavior. It is merely the transfer of stocks from one holder to another.  The Chairman of the New York Public Employee Conference, Peter Meringolo, recently made this point:

“We understand that climate change is real but what is lost in this debate is that there have been no studies proving that fossil fuel divestment would make any significant progress towards addressing climate change.”

As McKibben notes, Middlebury College is the birthplace of 350.org and it’s surely been embarrassing for him that his place of employment has rejected divestment for the past six years. McKibben can try to make himself feel better by taking a public victory lap, but the rest of us realize that this fake divestment announcement doesn’t actually amount to much.