Op-Ed: Let’s be Clear: Divestment and Financial Aid

Editor’s note: This article was initially published in The Daily Gazette, Swarthmore’s online, daily newspaper founded in Fall 1996. As of Fall 2018, the DG has merged with The Phoenix. See the about page to read more about the DG.

Op-Ed Submitted by Nathan Graf  ’16 and Zein Nakhoda ‘13, members of Swarthmore Mountain Justice

As we head into an exciting Weekend of Action for fossil fuel divestment May 2nd-4th, Swarthmore Mountain Justice wants to clear up some misinformation about fossil fuel divestment and financial aid, especially in light of the recent op-ed by the Swarthmore Conservative Society (SCS)—which, for all its appeal to “facts over passion,” was surprisingly devoid of any research itself.

First, it’s far from certain whether divesting from fossil fuels will threaten the endowment at all, prompting spending cuts of any kind. It is fairly standard practice for colleges to screen industries whose practices are inconsistent with the values of the investor – tobacco, firearms, gambling, military contractors, nuclear weapons manufacturers, etc. Empirical studies show that “socially responsible investing does not result in lower investment returns” necessarily.1

A recent study by the investment management firm Aperio Group suggests that even if a college endowment divested from the entire fossil fuel industry (as classified by Standard and Poor’s), it would only increase absolute portfolio risk by 0.01%, with a theoretical penalty to return of 0.0034%–a negligible amount by investment standards.Even our own Professor Mark Kuperburg from the Economics Department has stated on multiple occasions that he doesn’t expect fossil fuel divestment to significantly affect the endowment at Swarthmore, given the small fraction of domestic stocks we are asking to divest.3

But even if divestment were to cause a loss in returns, why would we assume financial aid to be the first thing on the chopping block? Let’s be clear, Swarthmore Mountain Justice will not accept any plan to divest from fossil fuels that would harm financial aid under any circumstances.

But why is that even an option? For an institution that makes financial aid such a high priority, reducing financial aid would be the last measure taken any time the college loses money for any reason. As Ben Wolcott noted in his February Gazette article on the failure of mainstream economics in comprehending the divestment strategy,4 Swarthmore is already adept at negotiating market fluctuations and variations in investment returns to the magnitude that divestment could affect. Despite these fluctuations in the past, the college has been able to manage its money without hurting financial aid. There is no reason why we shouldn’t expect the same for divestment unless the Board makes an active decision to cut financial aid, in which case they would hold sole responsibility for that outcome.

The college pays for roughly 40% of the operating budget using only the interest from the endowment, and there is often interest left over that is re-invested into the endowment. If there were a decrease in returns, the difference could be made up using this extra interest, or by borrowing a small amount from the ever-growing principle of the endowment.

We see the “threat to financial aid” argument as a scare tactic used to intimidate and divide students asking for structural change in the way we invest. The research is clear: fossil fuel divestment and robust financial aid are perfectly compatible.

Beyond financial aid, the SCS op-ed raised other important questions about the political value of divestment. In order to address these and other questions raised throughout our campaign in detail, we’re happy to share a new resource we recently published called “Fossil Fuel Divestment 101”—a one-stop document where much of our research and arguments are compiled.5

We address the proven failure of shareholder resolutions to affect the fossil fuel industry in the context of global warming, the industry’s overstated investment in green tech, the scientific need for fossil fuel reserves to remain in the ground against the industry’s market interests, the political rationale for divestment, and much more. We show that if anything is naive, it’s believing that fossil fuel companies—some of the most profitable and politically entrenched in the world—will change their behavior willingly in a play of “competitive market forces.”

Luckily, there is a growing international movement of campuses, cities, and places of worship working to outmaneuver the industry’s political and economic power through divestment and other means. And Swarthmore still has a chance to be a leader in this movement for climate justice.

We hope the campus will join us in calling on Swarthmore to be the fifth college in the US to divest from fossil fuels. On Thursday, May 2, we will be hosting anti-mountaintop removal activist Dustin White and screening the film Burning the Future to contextualize divestment in the struggle against fossil fuels taking place in Appalachia and around the world. On Friday, May 3, join us at 12:30 p.m. in Kohlberg Courtyard for a demonstration for divestment. The Weekend of Action will culminate on Saturday, May 4 at 11:00 a.m. in Sci 101 with an open meeting of the Board, where students will present a realistic timeline for Swarthmore to divest. See you there!

[1] A study by Phillips, Hager & North Investment Management states that “the chief finding of this research is that socially responsible investing does not result in lower investment returns.” https://www.phn.com/portals/0/pdfs/Articles/20071012DoesSRIHurtInvestmentReturns.pdf

[2] http://www.aperiogroup.com/system/files/documents/building_a_carbon_free_portfolio.pdf

[3] “Focal Points: Divestment” by the Daily Gazette; https://vimeo.com/63042887


[5] http://swatmountainjustice.files.wordpress.com/2013/04/fossil-fuel-divestment-101_may-2013.pdf


  1. Thanks for making the Fossil Fuel Divestment 101 – it’s really clear and informative and I hope that everyone reads it!

  2. Another thing: Where is the analysis of the risk to investment funds of all kinds of the burst of the carbon bubble? What talk of the risk of the loss of 2/3 to 4/5 of the market capitalization of fossil fuel companies due to the need to keep this amount of their proven reserves in the ground? The OpEd mentions this, so it is on the radar of the divestment movement.

    Talking about the costs of divestment without recognizing the carbon bubble is like, well, the Canadian government singing the praises of the oil sands without a discussion of the costs to the climate of exploiting the “resource…”

    Wait – that’s exactly what the Canadian government is doing…

  3. Can someone from SMJ please consider the issue of precedence on modifying endowment portfolio for “political” or “moral” reasons? If SMJ is successful in modifying endowment portfolio for its view of what is “right”, then can another group do the same? Why? Indeed, if this slippery slope argument is trivial, then it ought to be simple to refute.

    How will SMJ deal with endowment givers who wish to give the college a fund in e.g. an oil ETF. Will SMJ force the college to reject it?

    • While the silppery slope argument is silly, and bringing it up again is also silly, you raise a good point.

      Could somebody from mountain justice elaborate on what happens if a donor donates an oil ETF?

  4. I really appreciate the Fossil Fuel Divestment 101 document… I’ve always been on the fence about this issue since I felt like many of those questions weren’t being answered (although perhaps I wasn’t listening). But the detail and well thought out research in both this article and that document are enough to convince me of the effects and benefits of your cause.

  5. Three comments about this paragraph:

    “The college pays for roughly 40% of the operating budget using only the interest from the endowment, and there is often interest left over that is re-invested into the endowment. If there were a decrease in returns, the difference could be made up using this extra interest, or by borrowing a small amount from the ever-growing principle of the endowment.”

    1) By saying that “the college pays 40% of the operating budget using only the interest from the endowment,” you are suggesting that we could be using more of the endowment. No, we can’t. The point of an endowment is to only use the interest. 2) The “left over interest that is reinvested into the endowment” accounts for inflation, so we should not use this left over interest to be our saving grace from divestment. 3) Borrowing from the principle is NEVER A GOOD IDEA. EVER.

    I’m not saying that divestment isn’t possible, but your explanation of the ways we can avoid decreasing our endowment (by not saving as much and from borrowing from the principal) actually do decrease our endowment.

    • Also, I meant to point out that I think you meant the endowment “principal” not “principle,” but, I actually used the wrong one, too.

  6. WOAH.

    Bottom line: MJ’s proposal is extremely radical (or at best imprecise). Their fourth point:

    “Institutionalize a collaborative process between students, faculty, the administration, and the Board of Managers … to work to make sure the endowment is invested in a socially responsible manner.”


    There is NO FLIPPING WAY MJ can expect people to accept this vague BS. Socially responsible can mean _anything_. So, it seems, as long as a proposal is “socially responsible”, then the change to endowment is amenable. What will Swatties think is “socially responsible” next?

    Moreover, MJ’s consideration of the economic impacts of divestment seem bunk. MJ tells us that divestment doesn’t _necessarily_ reduce endowment performance. No one claims this –– and so a logical fallacy. Instead, worrying is that it might or that it _can_. Kuperburg’s failure to expect change to endowment performance is insufficient too; Kuperburg doesn’t specialize in empirical asset pricing, and failure to expect is very different than running Monte Carlo simulations.

    • Actually, “Socially Responsible Investing” is a fairly standard practice with very logical and reasonable standards, and has been around for a while. There are many firms, investment professionals, and institutions that specialize in “SRI” and it’s not particularly out there to suggest that Swarthmore engage with it.

      Here is a study by Philips, Hager, and North Investment Management on how one of the top SRI funds in the world, Domini, compares with the S&P 500. Over a period of 10 years, the SRI fund performed comparably, if not better than standard funds.


      As for your last paragraph, if you’re worried that divestment MIGHT hurt financial aid, and not too sure that it will, you must be on the edge of your seat every time the Board makes investment decisions. Any given investment decision MIGHT hurt the endowment, as the market is not entirely predictable. Sounds like your nerves might benefit from some more investment transparency 😉

      • You are misrepresenting this study as a reflection of investment practices that Mountain Justice would like the college to adhere to. If you take a closer look at the Domini index that is a primary focus in this study, you will find that their holdings do not coincide with a fund free of fossil fuels. It is unfair to suggest that “SRI” as defined by the paper is consistent with “SRI” as defined by MJ. Therefore, you cannot suggest that MJ’s requests would result in returns in line (or better) than the broad market.

        Some equities present in Domini’s Social Equity Fund:

        APA – Explores for, develops, and produces natural gas, crude oil, and natural gas liquids.

        DVN – Independent energy company that is involved primarily in oil and gas exploration, development and production, the transportation of oil, gas, and NGLs and the processing of natural gas.

        ESV – International offshore drilling company.

        TL;DR – Still have yet to see a study of market performance that supports MJ’s position, while appropriately reflecting institutional investing.

        • I would add that Swarthmore’s endowment already employs a system of “SRI” consistent with Domini’s definition.

  7. I question the logic that swarthmore can lead a widespread divestment campaign to affect the asset prices various fossil fuel securities. Even if a divestment campaign could make a difference in asset prices, all that this will do is inspire other investors to invest in a now underpriced security, hence eliminating the goal of the divestment campaign

    • I agree that such a drop in value is not going to result from a widespread divestment campaign, but that’s not the goal here. We aim to revoke the fossil fuel industry’s social license to operate. As we explain in the Divestment 101:

      “Divestment isn’t primarily an economic strategy, but a
      moral and political one.12 Morally, it sends a clear
      message that if it’s wrong to wreck the planet, it’s also
      wrong to profit from that wreckage. Politically,
      divestment builds political power by forcing our nation’s
      most prominent institutions and individuals (many of
      whom sit on college boards) to choose which side of the
      issue they are on. Even if it doesn’t immediately impact
      the bottom line of companies, divestment sparks a big
      discussion and – as we’re already seeing in campaigns
      across the country – gets prominent media attention,
      moving the case for action forward. Hardly anyone
      pushing for divestment believes that divestment alone
      will solve the problem – rather it works to bolster and
      build political action on many fronts, including national
      legislation. This strategy parallels the South Africa
      divestment movement against apartheid, where
      divestment helped build a multi-tactic movement out of
      a period of public silence on a political issue.13
      At the same time, there are certain economic impacts.
      The top 500 or so College and University endowments
      hold nearly $400 billion. But that’s just colleges and
      universities. Add in big state pension funds, church,
      synagogue and mosque investments, and cities –
      already 11 cities, including San Francisco, Seattle,
      Sante Fe, and Boulder, have pledged to divest from
      fossil fuels! – and the financial impact becomes more

      12 http://daily.swarthmore.edu/2013/02/15/why-mainstreameconomists-should-take-a-step-back-from-the-divestmentconversation/
      13 Keynote Address by Ellen Dorsey of Wallace Global Fund,
      Power Up! Convergence;

      14 While sale of stock might not have an immediate impact on a
      fossil fuel company, especially one as gigantic as Exxon, what it
      does do is start to sow uncertainty about the viability of the fossil
      fuel industry’s business model. The industry’s 2,795 gigatons
      worth of reserves may be below ground physically, but they’re
      already above ground economically and factored into the share
      price of every fossil fuel company. Globally, the value of those
      reserves is around $20 trillion, money that will have to be written
      off if governments finally decide to regulate carbon dioxide as a
      pollutant. By divesting from fossil fuels, colleges and universities
      are not only building the case for that government action, they’re
      starting this important discussion about the fossil fuel industry’s
      “stranded assets” (Adapted from http://gofossilfree.org/faq/).”

  8. You use a study done by Aperio Group to suggest that the impact to returns and risk is minimal, but I don’t believe their study is necessarily relevant to the way the endowment is composed. Aperio looks at an index fund, then compares it to the index fund that eliminates fossil fuel entities. Swarthmore’s endowment is quite diverse, they invest in stocks, fixed income bonds, index funds and portfolio managers. While you can make this claim about their ability to divest from their fossil fuel equities and initiating positions in index funds sans oil companies, the same cannot be said about the portfolio managers we use. Further, I would contest that a lot of our over performance of the endowment (without having seen the numbers) likely stems from the endowment’s ability to use mutual/hedge funds as a means of investment(because you can’t outperform the market if you invest in the broad market). If we were to divest from fossil fuels, we would have to change the way we use alternative investments or the way those portfolio managers expose our cash. Here are the two implications I mentioned in a previous article comment section. One of these two things would need to occur or both:

    1) Individual managers that have fossil fuels in their portfolios would have to create separately a managed fund that exclude these equities. In most cases when an entity requests a separately managed fund, it increases management and performance fees. Net returns would be reduced. Also, a fund manager that may have previously used fossil fuels to explicitly hedge risk, may not give you a similar risk/return profile in the newly created fund as they may have in their broad fund.
    2) The college would be required to pick a different set of Portfolio managers that do not have any exposure to fossil fuels. The college may have to go down the scale of quality of risk and return profiles by changing allocations to new portfolio managers.

    TL;DR – The Aperio Study doesn’t appropriately simulate the composition of our endowment and to use it as a basis for your argument is incomplete at best.

  9. While I agree that we have a ton of endowment, this is a bad argument for divesting. It acknowledges that divesting will cause a decrease in the endowment (a fact this Op-Ed tries to disprove). Our large endowment makes Swarthmore an amazing academic institution. I would not risk the quality of our institution to be on par with our “peer institutions.”

    Also, the issue is not about the actual principal of our endowment, but the interest we gain on it. We need to focus on ensuring that the interest rate on our principal does not fall below the sum of the operating budget we want the interest to pay (currently ~40%), the interest we need to increase the principal to hold up to inflation and any other amount needed for “special projects” (construction, etc.).

    While the article makes very good points about how divestment will not affect the interest rate, as Swarthmore 20X points out, the Aperio Group study does not reflect how an individual institution would perform if divesting completely in fossil fuels. Instead, we would need to find portfolio managers that can assure us a good return for a modest fee on a fossil fuel free investment strategy. This may be possible if we can get enough institutions to join us in order to reduce risk and divide costs.

  10. On Thursday, May 2, we will be hosting anti-mountaintop removal activist Dustin White.

    On Friday, May 3, join us at 12:30 p.m. in Kohlberg Courtyard for a demonstration for divestment.

    On Saturday, May 4 at 11:00 a.m. in Sci 101, there will be an open meeting of the Board.

    On Sunday May 5th at 10:00 a.m. MARGARITAVILLE!!!!!!!

  11. there are economies of scale involved (or lack thereof due to swarthmores small size) so its not entirely fair to compare our endowment to larger schools

    • Actually, it is often easier to identify “smaller” sized investments which yield out-sized returns (i.e. above market) than to invest larger amounts of money and achieve above average results. Thus, “economies of scale” don’t necessarily apply to larger funds.

  12. “our own Professor Mark Kuperburg from the Economics Department has stated on multiple occasions that he doesn’t expect fossil fuel divestment to significantly affect the endowment at Swarthmore, given the small fraction of domestic stocks we are asking to divest.”

    What is the small fraction of domestic stocks you are asking to divest? If it is already small, then why is it a big deal?

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