“Why Divestment Fails”
Posted on May 16th, 2014 in Uncategorized | 4 Comments »
Writing in the New York Times, UCLA finance professor Ivo Welch, who co-authored a study on the impact of divestment upon South Africa, writes about the impact, or lack thereof, that divestment will have on the coal industry. The occasion for the op-ed, of course, is Stanford’s decision to divest from fossil fuel companies and pressure to do so at other campuses, such as Harvard.
…my co-authors and I found that the announcement of divestment from South Africa, not only by universities but also by state pension funds, had no discernible effect on the valuation of companies that were being divested, either short-term or long-term.
Granted, Welch writes, economic impact is not the only reason to divest from a country or industry. “Morals matter.”
Would I have divested from South Africa? Yes, but I would have had no illusion that doing so would have made a difference.
Welch concludes that if Stanford wanted to make a difference, it should actually buy more energy stocks, so that it would have greater leverage over how energy companies conduct their businesses…
4 Responses
5/16/2014 2:55 pm
Stanford did not divest, as you said, from fossil fuel companies. They only divested from coal and specifically said that “Replacing other fossil fuels with renewable energy sources also is a desirable goal, the APIRL said, but fewer alternatives are readily available for these other energy sources on the massive scale that will be required to replace them broadly in the global economy.”
Hypocritical personified.
Not only that, but if you look at the Board composition, you see that there are members who have major holdings on fossil fuel companies.
5/16/2014 2:55 pm
that should have been hypocrisy
5/16/2014 2:56 pm
Sorry, my mistake, Sam.
6/26/2014 7:59 am
Actually, Stanford is divesting only from directly-held coal stocks, not from commingled funds with such holdings, and it will only “encourage” its outside managers to divest. Therefore, it’s not any kind of exemplar of what a university could accomplish with a full and principled divestment.
No one prominent in the divestment movement is claiming that selling stocks is going to hurt stock values, at least as a direct outcome. The rationales are several. Fossil fuel companies are willfully proceeding on a profit-driven course which disregards what scientific consensus tells us are the crucial, transformative changes in energy usage and carbon emissions which will be necessary within the coming decades. Instead, they’re proceeding full throttle with exploration and development, and in many cases, they’re additionally contributing to disinformation campaigns and to the support of denialist politicians. They have business models which ultimately will result in tremendous suffering and societal disruption. They are not acting as responsible corporate partners in the maintenance and enhancement of sustainable civilization. No amount of engagement by shareholders of whatever clout is likely to change that approach; only governmental intervention and regulation will accomplish fundamental reorientation.
Higher education’s administrators and virtually all faculty with backgrounds in relevant sciences agree on the severity of the threat that we and subsequent generations face. Yet these institutions are not acting as thought leaders or whatsoever collaboratively to do everything which is inherent in these their capabilities to combat the progression of circumstances which, once fully in place, will persist with negative impacts to extended academic communities as well as campuses for the indefinite future. This is a failure as profound as anything to do with the endowment. Instead of taking any sort of action truly commensurate with the threat - which even Robert Rubin and Michael Bloomberg are characterizing as *the* existential threat of our time, endowments are continuing to profit from the proceeds of businesses which intend to proceed with a focus on exactly that which will maximally exacerbate negative impacts. Doing this, rather than coming out with strong statements that such mercenary obstinacy is unacceptable, makes our institutions complicit in a future disastrous for humanity.
The explanation from Harvard is that there would somehow be risk to the university’s independent, nonprofit status if it involves itself in such public-policy matters, and that returns and/or balancing of financial risk would be an issue with divestment. Let’s not be ridiculous. Derek Bok and even Pusey from long ago had concluded that that when social or environmental harms which outweigh any benefits are an inevitable result of a business activity, this is contrary to what an educational institution should be supporting by its investment participaton. Faust herself has advocated with legislators on issues of immigration and research funding. The Advisory Committee on Shareholder Responsibility has on many occasions supported resolutions on principle, aside from any consideration of profit implications.
If Harvard begins to engage with companies concerning these issues (as it has never yet done), that will no less be “political” in its intent. Many years’ worth of investor activism - including by the Investor Network on Climate Risk, representing trillions of dollars’ worth of holdings - have already demonstrated the ineffectuality of that approach. Fossil-fuel stocks have not even been performing that well, and in fact, if one looks at Harvard’s SEC filings from say six years ago compared to now, the revelation is that the majority of such holdings have already been unloaded, including in ExxonMobil, Chevron, and many others.
To say that everyone depends upon fossil-fuel energy at this point, and that therefore profiting from its production is fine, is - as Tim DeChristopher has pointed out - akin to making such a statement back in the days of slavery, when that practice was a critical “energy source” in the U.S. economy, asserting that to profit from it was therefore OK.
The purpose of divestment is to disconnect institutions, funds and governments from relying on these endeavors as a funding source, while in the course of announcing that decision, catalyzing dialogue which in a best-case ultimate scenario would progress to the point where public opinion could enable the necessary governmental action. Once policy changes have occurred, the “stranded assets” issue becomes a factor such that endowments had better not then still have fossil-fuel holdings.