Fossil fuel divestment: A misguided cause

By Stefan Herlitz

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Flickr/Terence Wright

The dangers of climate change are a well-known part of our national agenda. Advocacy groups across the nation are currently leading initiatives in clean energy, recycling and pollution regulation in an attempt to slow, and hopefully even stop, the process of global warming that many scientists predict will be disastrous to the future ecology of Earth. In the name of this cause, there are groups across the nation, 350.org to name one, that advocate for colleges to divest their endowments’ investments from fossil fuel companies (read: remove and replace these investments with sustainable ones).

This cause sounds nice. At first glance, it seems no different from many other initiatives; it is meant to be a symbol to the world that we need to get serious about lowering our dependence on fossil fuels. It seems like any other social push, and is often likened to the student-led pushes that led campuses to divest from companies that complied with South Africa’s Apartheid regime and were involved with the genocide in Darfur. Some also describe it as a “growing movement,” as Hampshire College, Unity College and Sterling College have already divested.

However, this is not the case. Not only will divestment from fossil fuel companies do absolutely nothing to lower dependency on fossil fuels or hurt those companies in any significant way, but, in the process of trying in vain to evoke change, it would hurt the very students who approve of it.

College endowments finance many aspects of college education, including attracting faculty, granting financial aid, and campus construction. An institution like the University of Massachusetts Amherst, which has an endowment of approximately $210 million, can expect to have anywhere from $7-10 million in fossil fuel stocks alone, according to GoFossilFree.org, which does not even count investments in hedge funds and other funds that invest in fossil fuels.

Total divestment could severely impact students’ financial aid and in general the finances of an institution. The only reason college endowments have investments in fossil fuels is that these investments make them money; that’s what investing is for. The students and administration should not attempt to impede the financial decisions of the experts they hire to manage their college’s endowment.

In addition, divestment will have an extremely small effect, if any at all, upon fossil fuel companies. According to The New York Times, all college endowments in the United States add up to approximately $400 billion; the total market capitalization of fossil fuel companies is about $3.6 trillion. This means that, even if all college endowments were invested exclusively in fossil fuels (which is obviously not the case), total divestment would result in only about an 11 percent loss for the industry.

 

To compare, Apple lost about 12 percent of its stock value in a single day on January 24 2013, according to The Huffington Post, and it’s still one of the world’s most valuable and profitable companies.

Total divestment of all of the United States’ colleges’ endowments’ investments in fossil fuels, which amount to about $15 billion, according to GoFossilFree.org, or about .4 percent of all investment in fossil fuel companies, would achieve absolutely nothing. Investors from all other angles would just leap at the chance to buy up slightly devalued investments, and the entire process would barely register as a blip on Wall Street’s radar.

 

The actions of Hampshire College, Unity College and Sterling College, which have already divested, should not be taken into serious consideration by major universities like UMass Amherst, primarily because their endowments are chump change in comparison to ours. Their combined endowments (Hampshire’s $39 million, Unity’s $18 million, $10 million of which was given as a gift by a donor the same year they divested from fossil fuels and Sterling’s $1 million) combined total just over a fourth of UMass’s $210 million endowment, and less than a ninth of the entire UMass system’s $527 million endowment. The decision to divest from fossil fuels was much easier for these colleges to make, since they had considerably less to lose in doing so. Sterling had almost no money to begin with and Unity more than doubled its endowment that year with a single donation from a wealthy donor.

Divestment from fossil fuels is different from actions in response to Apartheid and the Darfur genocide because companies could quite simply make the policy change to no longer deal with Sudan or segregate facilities South Africa, and thus regain the investors’ favor, fossil fuel companies can’t just stop producing and selling fossil fuels. The movement to divest from fossil fuels is an ideological movement against the companies’ very existence, not a protest against certain policies, so the companies will just ignore the movement entirely.

So long as there is demand for oil, coal and natural gas, there will be companies that produce and sell them. That’s how the market works. One cannot reduce dependency on fossil fuels by trying to attack companies for responding to market demand. The very reason that the companies are so incredibly wealthy and powerful is that the entire world desperately needs their products to keep the current economy running, not because people invest in them.

Instead of wasting countless hours trying to enact sweeping divestment policies that no administrator of a large college endowment will ever take seriously, pro-environment groups should focus more on recycling and promoting research in clean energy. The only way to wean America off fossil fuels is to make renewable energy more attractive and efficient, not to make a futile protest against how our market economy works.

Stefan Herlitz is a Collegian columnist. He can be reached at [email protected]