March 11, 2014

Divestment from fossil fuels? Save your time.

When examining nuances, divestment movement becomes unfocused and unclear.

Let me start by saying that I’m a believer in preventing serious harm to our environment. I agree that the University can—and should—take proactive steps in that field. There are a lot of ideas about how it can go about doing this floating around, but not every idea is a good one. The divestment movement lacks clear goals and misses the point. Let me say this gently, as a friend: Divestment is a terrible idea.

The divestment movement is founded on the belief that owning stock in the Exxons of the world somehow magically affects them. This belief is wrong. Let’s start with the basics. Suppose you go on Scottrade and buy a stock, BP, for $40. When you buy a stock, you’re paying the entity that last owned it. Oil companies tend to be large, public companies. They sold their shares to the public long ago; the person you’re buying the stock from now is someone who wants to cash in on her retirement fund or a trader at an investment bank. Thus, BP does not benefit from this trade in any way. It doesn’t get a dime.

The nuances of investment and myriad of trade options open up questions about what divestment at this University would or would not include—none of which the divestment movement has clearly answered. For example, the University can technically be “invested in” oil companies without directly owning the stock; some investment companies like Vanguard allow you to pay them to pick stocks for you (called an ETF) that may, in part, involve energy companies. Should purchases of ETFs be forbidden? The divestment movement is silent. What about trading non-stock assets, like bonds? The divestment movement is silent. What about trading in oil futures, or profiting directly from oil? The divestment movement is silent. What about shorting oil stocks, that is, actually making money from oil companies failing? The divestment movement is silent. What is divestment’s end goal, and how will we judge whether we have reached it? The divestment movement is silent.

This isn’t the only evidence that the divestment movement simply hasn’t been thought out enough. But let’s say that we decide that we want to focus on a carbon footprint. Then it would make sense to divest from all carbon-intensive companies, whether they supply oil or burn it; after all, it takes two to pollute. So, to be environmentally friendly, the University should not be allowed to purchase shares in Google. You see, the Internet’s architecture actually has a very large carbon footprint, 300 million tons of carbon a year, and Google is responsible for anywhere between six to 30 percent of it. It seems Google, which has invested millions in solar power, is less clean than we imagine.

The divestment movement, if it succeeds, will be a huge waste of political capital. Even if, despite all the issues I’ve outlined above, by some miracle the divestment movement manages to affect share prices of these multi-hundred-billion companies, what are shareholders going to do? Demand that an oil company stop producing oil? This is not the same thing as moving business out of apartheid South Africa. Climate change is a serious issue that demands a serious response. Want to do something that directly impacts Shell’s bottom line? Reduce your use of its services. Institutions can directly control their energy usage and environmental impact even though they can’t put a dent in the share price of the world’s biggest companies. Addressing these kinds of issues will actually reduce these institutions’ environmental impact and provide cost savings in the long run. The latter may not be true of divestment, seeing as endowments are long-run-oriented and provide lots of important services to students.

I’ve explained why the divestment movement will have no actual impact on the world; all that’s left is a symbolic gesture. Energy stocks are understandably part of the endowment’s investment strategy for a lot of reasons—if it had to sell these investments, it’d probably end up in a riskier place. Sit down and ask yourself this: Is putting endowment-funded programs like student aid at risk worth nothing more than your warm glow from following a fad? Instead of wasting time and effort on a worthless symbol, spend time on actual policy changes.

Evan Zimmerman is a second-year in the College majoring in math, statistics, and economics.