Says Divestment Would Put Endowment’s Performance “At Risk”
In what’s become an almost annual event, Swarthmore College (for the fourth time!) announced it would not divest its endowment from fossil fuels. The announcement came following passage of a non-binding referendum, spearheaded by a climate activism student group, that called for the school to divest and remove a clause from its investment guidelines that requires the endowment to be managed to “yield the best long-term financial results, rather than to pursue other social objectives.”
Salem Shuchman, chair of the Swarthmore’s board of managers, wrote in a letter to students and faculty:
“Any policy change that shifts the focus from attaining the best long-term financial results would then require fundamental changes in both the asset allocation and the investment managers who serve the College, and would place that performance at risk.”
The policy requiring mangers to focus on financial returns rather than social objectives was first enacted in 1991 and reaffirmed by the board in 2013 and 2015. Shuchman noted that there are more than 100 investment firms managing the endowment and that 99 of them have comingled funds. This means that divestment would be extremely complicated and impose substantial fees and transaction costs.
According to Schuman, Swarthmore’s $2 billion endowment “dwarfs all other income sources for the College, and there is no identifiable replacement for those funds… [the Board] must consider our broader mission in determining any action that would potentially limit the performance of the endowment on which we are increasingly reliant.”
Although the modern fossil fuel divestment movement started at Swarthmore in 2011, the Board has repeatedly rejected calls to divest. The school officially rejected divestment in 2013. As a part of Swarthmore’s analysis, the Board found that divestment would cost the school $200 million over ten years.
In its rejection, the Board also noted its skepticism that divestment would be an effective means of initiating change or helping the environment:
“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.”
In 2015, the school again rejected divestment citing financial concerns:
“It would be difficult, if not impossible, to replace our current investment managers with ones of similar quality, if we were only to invest in funds that were fossil fuel free. By having access to the best investment managers, the College has achieved excellent returns in a shifting landscape. If we were not able to work with these investment managers, it would cost the college between $10 and $20 million annually based on the past performance of our current managers. Our endowment is large but it is still finite. If returns were lower we would be facing difficult budget choices.”
Once again in 2017, Swarthmore President Valerie Smith and Board of Managers Chair Tom Spock reaffirmed that, despite student protests and a referendum, the school was upholding its decision not to divest:
“We appreciate the time and effort that went into developing this referendum. However, following three years of thoughtful and detailed study and analysis from 2013 to 2015, the Board stated in its Sustainability and Investment Policy that it had reached the decision ‘not to divest from fossil fuels, either on a full or partial basis.’”
Swarthmore College has been unwavering in its position over the years that divestment is a bad policy that would put vital funding at risk while doing little to improve the environment. Perhaps after four solid rejections, student activist groups will recognize it’s time to finally wave the white flag and move on from their pointless calls to divest.