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.
Climate change has begun, with already disastrous effects in this country and throughout the world. To mitigate its further consequences, we need to take many steps, including extracting and burning less of the world’s remaining carbon, limiting further emissions of greenhouse gases from all sources including power plants, and developing alternative energy sources.
The fossil fuel industry, on the other hand, shows no sign of abating its drive to find and burn as much carbon as it can, as fast as it can. It has become a “rogue industry,” endangering the planet.
Swarthmore faces the issue of what to do about the endowment’s investments in the fossil fuel industry. The Board of Managers last fall announced its “decision not to divest.” By contrast, students organized as Swarthmore Mountain Justice some years ago initiated the campaign, now nationwide, to persuade colleges and universities to divest from fossil fuels. The Swarthmore Departments of Religion and of History have called on the College to divest. Alumni from Ken Hechler ’35 to Deborah Averill ’69 to Duncan Gromko ’07 have said publicly they will withhold donations pending progress by the College towards divestment.
Chair Gil Kemp ’72, in his “Open Letter” of September 11, 2013 on behalf of the Board of Managers, questioned whether “divestment would change the behavior of fossil fuel companies, or galvanize public officials … or reduce America’s reliance on fossil fuels.” This argument is less tenable now than it was even nine months ago. A recent University of Oxford study concludes that the “campaign to persuade investors to take their money out of the fossil fuel sector is growing faster than any previous divestment campaign.” Stanford’s recent decision to divest from coal-mining companies highlights this rapid expansion, which is reaching not only academic institutions but churches, major cities, foundations and other bodies. Divestment by Swarthmore would not be a drop in the bucket, but would swell a rising tide.
Such a movement, according to the Oxford study, has the potential to do “reputational damage” to fossil fuel companies that can “have major financial consequences”— the likeliest thing to influence the companies’ behavior.
Another argument the Board of Managers has made repeatedly is that divestment “would have a negative effect on our investment returns.” One problem with the Board’s approach is that it assumes the current investment environment is unalterable: because the endowment’s current account managers might “not all” “agree to invest with constraints” on fossil fuel holdings, it follows that there is nothing the College can do.But in fact, opportunities for fossil-fuel-free investment are rapidly developing. The Financial Times reports that the “global campaign against fossil fuels is entering the financial mainstream,” in an article detailing the founding (in collaboration with fund manager Blackrock) of a new set of FTSE indices excluding fossil fuel holdings. Bob Litterman, executive of the $2 billion hedge fund Kepos Capital, believes that with the Stanford divestment “we’re at a tipping point”; “There’s going to be a lot of focus in the next couple of years … we’re going to see more divestment.” Hedge fund managers are precisely one of the types of financial managers that Swarthmore’s “Cost of Divestment” document cites as being unreceptive to the possibility of divestment.
It is also likely that fossil fuel companies are actually becoming less attractive investments. “All the supermajor oil companies have negative moat trends,” in the jargon of Morningstar investments, meaning their returns are shrinking as fossil fuels get harder and more expensive to extract. Furthermore, Bob Litterman and many other financial authorities point out the increasing risk that the companies’ underground reserves will become unusable “stranded assets,” as the world faces up to the reality that using those reserves would have a calamitous impact.
* * * * *
No one suggests that the College should divest entirely by the end of next week. But precluding divestment means that, in the last analysis, the College sets limits on the extent to which it will oppose the forces that continue to bring on, in fact accelerate, climate change. We urge:
That the Board of Managers develop and implement a plan for substantial
divestment of the endowment from the fossil fuel sector over the next five years.
One possible model for how the Board might proceed is provided by Swarthmore Mountain Justice. They focus on a list of sixteen particularly egregious fossil fuel companies, including Chevron, Conoco Phillips and ExxonMobil. They call for the College to freeze new investments in these “Sordid Sixteen” immediately, divest existing direct holdings as rapidly as possible, but only over a period of two-five years divest holdings in commingled accounts.
Another model of feasible, gradual divestment is presented in “Institutional Pathways to Fossil-Free Investing,” by Joshua Humphrey of the Tellus Institute. The Board should develop a divestment plan that works best for Swarthmore.
* * * * *
The Board of Managers may well continue to resist divestment. Should this be the case, we should continue to work to change their minds.
For alumni who believe the College should divest, we call attention to the Swarthmore College Responsible Endowment Fund. This is a donor advised fund held by the Triskeles Foundation, a Pennsylvania public charity. The assets of the fund will be transferred to Swarthmore when the College “divests from all holdings that contain any of the fossil fuel companies in the Carbon Tracker 200, including the Sordid Sixteen,” and “reinvests at least 1 per cent of the endowment in community and renewable energy solutions.” Until Swarthmore divests, the Responsible Endowment Fund is to be invested “in projects on campus and to support community-based resiliency efforts in the greater Philadelphia area.
If the Board continues to resist divestment, there are still positive steps it could take.
The Board and former President Chopp have called attention to the fact that it engages with fossil fuel companies through instrumentalities like the Investor Network for Climate Risk, part of the Ceres organization. This is commendable, but the College might do more on these lines, such as signing on to Ceres’ Carbon Asset Risk Initiative. The Board and the President of the College should report regularly, at least annually, to the College community on (a) steps Swarthmore has taken to influence companies to mitigate negative impacts of their activities on the climate, and (b) any identifiable effect these steps have had.
In conjunction with this, the Board should reconsider the issue of divestment on a regular basis. No shareholder campaign can be effective if it is not backed up by at least the possibility of divestment. There may be other actions Swarthmore could take. In a comment on the recent New York Times article on divestment and Swarthmore, alumna Connie Moffit suggests: “Why not move to do SOME divestment of coal stocks? Move the bar, then strive to move the bar further.” Duncan Gromko ’07 has suggested, among other steps, “assessing the environmental footprint of the existing portfolio” and exploring “the growing number of responsible investment funds.”
* * * * *
Climate change is a threat that has already overtaken us and that we have barely begun to address. Divestment, responsibly carried out, would be the greatest contribution Swarthmore could make. If the College of today fails to face the challenge, it risks losing the meaning that Swarthmore has had for so many of us for so many years.
