The True Cost of Divestment

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.

Swarthmore, we need to talk about divestment. We’re not very good at talking about it, either. When I say that, I don’t mean we just never mention it—we have, in fact, seen whole volumes about divestment–it’s just largely been from one side. But a lot of students who oppose divestment won’t even talk about it, while Mountain Justice doesn’t really discuss divestment so much as it preaches it. It sometimes feels that most students have shut off and are ignoring the entire thing–and proponents of divestment often seem so set in their ways that discussing the issue with them seems, at times, futile. That needs to stop. We need to actually debate this thing—to weigh the pros and cons—because the fact of the matter is that divestment would have some downsides, and Mountain Justice doesn’t like admitting it. Divestment would likely cost the school quite a bit of money. It’s hard to get choked up about a slip in cash flow, but the truth is that this could mean putting valuable parts of Swarthmore—like low income students on financial aid—at risk.

For those of you unaware of what’s actually being proposed by Mountain Justice, Swarthmore has a $1.3 billion endowment that we have invested with a whole slew of reasonably safe financial firms. We get interest from these investments, some $59 million, which go into the operating costs of Swarthmore–professors, EVS, financial aid, Sharples cooks, you name it. For context on that number, financial aid at Swarthmore is about $30 million, faculty salaries total about $25 million, and our total operating budget amounts to $128 million.

Now, Mountain Justice wants to pull our money out of anything that’s invested in fossil fuels, with the reasoning that it’s immoral to be invested in companies that hurt the environment. This ignores the reality of how our endowment is invested: we don’t invest in those companies directly, but rather are invested in hedge funds, which, in turn, have invested some of our money into Ye Olde Evil Oil Corporation, and the rest in other companies. And Mountain Justice does have a point that this helps them: by putting our money out there to invest, we do lower the cost for that oil company to borrow. But the money actually invested in them is just a little bit of our money out of our larger pot. And to comply with MJ would essentially mean to yank all of our money out of places where it gets a good rate of return and go to investment firms that don’t give as good a rate. Divestment will cost us.

How much money would it cost us? Two years ago, the Board reported that the cost of divesting would be about $200 million across 10 years, or some 20 million dollars a year. This number has seem some doubt, and it is now often agreed that the cost would be lower than this. But divestment advocates repeatedly use the claim that divestment would incur “little or no” costs. They do this in articles, brochures, and when attempting to win over other students. I recently overheard some MJ activists recently claiming that it might make the school money.

Simple logic refutes this. We can reason out the costs of divestment pretty easily without knowing anything about our endowment: frankly, the college likes money. If divesting would turn the school a profit, the school would have done it already and enjoyed both increased profits and good environmentalist PR. But Swarthmore hasn’t—and indeed, this is not a point of laziness—the Board of Managers has actively fought MJ since divestment was proposed. Hence, we can reason that divestment would lose the school money.

Of course, MJ concerns aren’t over cost. They call it wrong to profit from the destruction of our ecosystem, and they say we could hurt fossil fuel companies by divesting. They are making a moral argument–that divesting is the right thing to do. This spirit is venerable: it’s an embodiment of the ideal that Swarthmore is supposed to stand for: that individuals can make a difference.

(An aside: it seems unlikely to me that Swarthmore’s divestment could really do meaningful harm to Big Oil. ExxonMobil had about $400 billion in revenue last year, which makes me unsure that us denying it a couple of millions in investment is even a noticeable act. But this is a question for minds greater than mine to answer.)

Here’s the thing: That moral argument that Mountain Justice is making is ignoring moral considerations right here at Swarthmore, and values activism over our fellow students. Here’s a moral question for all of us: if we divest, and the school does have less money on hand, what of financial aid and the students who depend on it?

Right now about half of us are on financial aid, totaling about $30 million a year. (There are another couple of million in scholarships, but let’s give MJ the benefit of the doubt and assume those won’t get hurt by divestment.) The school doesn’t give out aid trivially either—you have to need aid to get it, and even then a lot of people must turn to outside sources of funding—a lot of people, to loans.

Full disclosure: I’m one of these students. I receive a rather large amount of financial aid. I need every last dime. And it already isn’t quite enough. I apply for outside scholarships each year and take out loans. Sometimes that still isn’t quite enough: I myself was almost forced to leave school this semester due to my general state of impoverishment. This might be my life, but it’s the life of a huge number of Swatties, too—if you aren’t one of them, you’re friends with a bunch, whether you know it or not.

Divesting means putting these already at-risk individuals further in the red. And while it’s easy to say that we should absorb the cost elsewhere, aid to low-income students is a considerable chunk of the pie. In many other places where it seems like we might cut costs, we can’t: for instance, the school has frozen faculty salaries before, in a time of emergency, but only as a temporary stopgap during the worst period of the recession. Divestment isn’t a one-time crisis: it would be a permanent reduction in revenue. We can’t stop hiring new staff, either: the course burden on our professors is at a record high for the school, and we are in desperate need of more tenure slots. At least some of the cost will have to come from aid.

Even if the overall financial aid budget only gets cut by a couple percent, that will still mean huge consequences for those of us most vulnerable. I speak from personal experience when I say that if I had to take more than a 7% cut to aid right now, there’s a decent chance I might have to leave school for a while, and I’m not even close to being the worst off person that I know of. This is the position that many Swatties get put in–the trade off between debt and an education.

Should we really be making that already absurd choice harder?

I’m not saying that Mountain Justice does not care about these concerns. But they have failed to address them. And those of us who don’t agree with divestment often fail to raise these concerns to them, so it’s a failing on our part, too. But it’s obvious to anyone who asks around that a significant section of Swatties don’t support divestment, or at least haven’t considered it. Many of us are often silent. We all have our reasons—some don’t want the drama of the debate that will ensue, and some are frustrated with being called anti-environment. I, for one, just suck at disagreeing to people’s faces. But we have to do a better job of weighing pros and cons and speaking up when something we value is at risk. It can be scary to disagree with our friends, but we have to do it.

22 thoughts on “The True Cost of Divestment

  • April 3, 2015 at 8:11 am

    Hi Andrew,

    MJ folks have addressed this a lot
    This article is also pretty good:
    This pamphlet by MJ also addresses it:

    To add my own three cents (thought inflation), the board is too conservative in its management of our endowment. This perspective mostly came from conversation with Professor Collings:
    and Professor Kuperberg: (

    MJ folks are correct that the college should cut financial aid last, not first (i.e. the threats against financial aid by certain members of the board are a scare tactic – I’ve been meaning to write to one of them to have lunch to talk about this, but haven’t so thanks for giving me a reminder/impetus). Professors Kuperberg and Collings are correct that the college has consistently spent below its target threshold and has made enough money that it could sustainably increase spending.

    Assuming you and G. Kemp are right that divestment could cost money, the amount lost would be very similar to the amount that the college has been underspending (see the Peter Collings op-eds) for the past 20 or so years (also that money has been continuously compounding, so actually there would be more of a buffer).

    Why is the board conservative? B/c the only way they win is by growing the endowment – its size is the metric for their success as board members. We should have conversation with them to push them outside of their collectivized self-interest, and realize that areas on the ground at school need more money (for example, the financial aid office). The problem is they only meet 4 times a year – they may be alums, but they are out of touch, man (can’t wait til someone says this about me as an alum… :/)

  • April 3, 2015 at 8:41 am

    It takes a lot of gall to denounce the divestment movement for refusing to engage in constructive dialogue without addressing or responding to their detailed plan for cost-neutral divestment.

    Agree with it or disagree with it, it’s disgraceful to dismiss it by expressing smug faith in perfectly rational economic actors.

    • April 3, 2015 at 3:40 pm

      You can totally ignore an economic plan drafted by undergrads without a finance background. It’s probably a good idea.

      • April 3, 2015 at 6:16 pm

        but it does seem to be based off real research. I was impressed when I read it and the Board hasn’t really rebutted this proposal: (their citations are linked in the top)

        • April 7, 2015 at 12:54 pm

          They have rebutted the proposal by refusing to do it. The board, exercising its financial judgment, has determined that the potential costs outweigh the benefits. For one, the precedential value of caving to economic ethics, rather than simply political ones (South Africa), is incredibly dangerous. For two, the board probably realizes, thankfully, that divestment is worthless. MJ cites that $100 billion has been divested from fossil fuels. Not only has every single stock divested been purchased by other investors, that figure is the less than the annual operation profit of Exxon Mobil, ONE oil corporation. Divestment isn’t a drop in the bucket, it’s a spit in the ocean. One that could have substantial costs for the spitter.

  • April 3, 2015 at 8:43 am

    I understand your concerns about financial aid, it’s a real concern a lot of students, including many MJ members, have to deal with. However I disagree with your assertion that divestment will hurt the endowment based solely on the Board of Managers’ not divesting already. Do you have any facts to back up your fears? I think this article does a great job of explaining why divestment is the financially right decision.

    As you asked to open up debate on this issue, I welcome any responses anyone might have. I too believe that dialogue is important in this issue, and even if students disagree, they should be able to make their decisions about such issues based on an informed knowledge of the topic. Likewise, just because a majority of students signed the divestment petition, that does not mean that the worries of a significant portion of the campus population should be ignored. So, while I disagree with many of the points in this article regarding divestment, I do hope the overall sentiment of creating dialogue on this issue carries over into reality.

  • April 3, 2015 at 9:27 am

    Thank you for writing this! I’m sick of hearing only one side of the story all the time.

  • April 3, 2015 at 10:37 am

    How many of the MJ are from the financially privileged white families?
    How many of the MJ are from the rest?

    MJ, you don’t know how life is for the majority of the people. Good, divestment is the right thing to do, but pursuing one’s own belief/dream/whatever without a concern for the others is simply naive, and rude.

  • April 3, 2015 at 10:42 am

    Total facial, LeFleur. Total facial.

    Honestly this is the article we needed. MJ needs to get off their high horse and stop pulling the victim card.

  • April 3, 2015 at 11:06 am

    Hey Andrew,

    I tend to agree with you, and you get at a core issue that is pretty ubiquitous across campus culture right now. It is difficult to speak out on certain issues with a view that may oppose that of the vocal minority. It’s hard to speak your mind, and I applaud you for doing so.

    With this post I don’t intend to undermine your argument, because I think you are right – if the college loses money from the dividends it receives through the endowment, things like fin. aid will probably be at risk. I’m curious to see how MJ responds to that.

    However, I do think you (and many others, including myself until I spoke with someone about it) misinterpret the ultimate goal of divestment. If a hedge fund buys a stock in Exxon, it hardly does anything for Exxon. Exxon does not make any money by having a shareholder. The way Exxon makes money is by selling oil – its $400 billion you mention doesn’t take a hit from people buying and selling stock (except from movements in the share price associated with the shares the company holds itself). The only time a company makes money from investors is when it issues new shares or does secondary offerings, or takes out a loan. In essence, a company only benefits from investors when it raises capital. In the case of Exxon, it raises capital for new oil wells, oil rigs, distribution channels, etc – whatever new projects it may want to consider, it’ll go to Goldman or Morgan Stanley and say, hey what’s the cheapest way for us to get $1 billion to do this?

    Anyways, the point of divestment as I have come to understand it is to essentially attack the ability of companies like Exxon to gain access to that capital. If it looks like investors are dropping out of Exxon, even for moral reasons, it is entirely possible that banks and investors themselves will respond when a company like Exxon tries to gain access to capital. Goldman will ask for a higher interest rate associated with what seems like higher risk.

    Long-term, this makes oil companies not a great investment. Short-term, however, they pay great dividends and allow us to have the things we like at Swat. Tradeoffs…

  • April 3, 2015 at 12:05 pm


    I am disappointed that your analysis does not at all mention that the college is not meeting its projections of endowment spending – underspending even their own projection of how much ought be spent. This problem has been well documented here and many other places:

    There is money that can be used to increase financial aid. There is money that could be used to offset the potential effects of divestment. However, this money is currently being put directly back into the endowment. If Swarthmore met its own spending average goal of 4.25% spending from the endowment, there would be roughly 10 million more dollars for financial aid, divestment, whatever when compared to its current average of 3.8%.

    What this says to me is that if Swarthmore College wanted to keep financial aid at its current level, it has the resources to with or without divestment. Even with the most dramatic cost estimate for divestment of $200 million over 10 years, the college could raise their spending to a point still below its alleged upper bound of 5% and pay for divestment without touching financial aid.

    As a student on financial aid I fully understand the fear, and for a long time, I firmly believed that this fear would come to fruition were divestment to happen. However, to me, it is pretty clear that Swarthmore has the money to withstand divestment. It’s just a matter of choice.

    • April 3, 2015 at 1:51 pm

      Hey Daniel!

      This is a very good point, and it is one I’m aware of. (And a bit disgruntled about!). You are right – the board does undershoot its own withdrawal goal, which in turn is way under what other schools withdraw from their endowments.

      This isn’t an opinion, it’s an observable phenomenon.

      (I’m actually thinking about writing about it, more of an investigative piece, if you’re interested in working with me, I’d love to collaborate).

  • April 3, 2015 at 1:52 pm

    Please read this. It is straight out of the Divestment 101 handbook. You can read the rest here:
    Also, please read the analysis of the cost of divestment published by Greg Kats in the Daily Gazette a few months ago. He is the President of Capital E, which invests in cleantech firms and works with companies and public institutions to transition to a sustainable economy. He is a professional who was HIRED by the Board of Managers to assess the possible disadvantages of divesting. I would trust what he says.
    In case you were wondering, I too am only able to attend Swarthmore due to the generous financial aid. Without it I would not be here and I support divestment.

    “Won’t divestment hurt financial aid?”
    As stated above, it’s not likely that divesting from fossil fuels will significantly affect our returns. But in the chance that it did lower returns, some have asked if it would affect financial aid.
    To be completely clear, Swarthmore Mountain Justice will not accept any plan to divest from fossil fuels that would harm financial aid in any circumstances.
    For an institution that holds financial aid as such a high priority, reducing financial aid should be the last measure taken any time the college loses money for any reason. Due to the uncertainty of the market, the rate of return on the endowment has sometimes fluctuated widely from year to year. A decrease in returns has happened in the past, and 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 the responsibility for that outcome.
    Even if divestment causes a loss in returns, there are ways to make up the loss without touching financial aid. The college could manage the deficit by borrowing money from the endowment or interest accrued that year. The college pays for roughly 40% of the operating budget using only the interest from the endowment, and there is often interest leftover 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. Second, the college could deal with a potential decrease in returns, as it has in the past, by cutting other items in the budget other than financial aid.30 As Swarthmore has historically been successful at dealing with decreased returns without harming financial aid, we see threats to financial aid as a scare tactic used to intimidate students asking for structural change in the way we invest.

  • April 3, 2015 at 2:22 pm

    It’s not so much costs of divestment as much as it is about opportunity costs from the campaign.

    The divestment campaign has seen so many passionate supporters of the environment devoting so much time and energy to try and persuade 1) the college, 2) the oil companies to change their ways. The college firstly has an obligation to its students and the administration of the school, so it cannot afford to cut revenue by divesting. Secondly, the oil companies are only obliged to profit for their shareholders. They have no reason to listen to divestment campaigners. Once college endowments divest, there are plenty of other institutional source of funds like pension funds or sovereign wealth funds that have far less moral qualms about investing in fossil fuels. In the end the ownership of these fossil fuel companies will be further entrenched in amoral actors. If MJ actually wants control over what these oil companies are doing, it should campaign to buy up as many shares as possible so that they have a greater say in the comapnies’ operations.

    So what’s going to stop the oil companies? On one hand there’s government regulation. It’s a big surprise that the focus of MJ isn’t to lobby the government for more eco-friendly policies, like a carbon tax or cap-and-trade. At least the government is supposed to listen to its citizens. So on a marginal basis, it’s far better use of time to be lobbying congress to increase restrictions on carbon output.

    On the other hand, you can increase supply of green energy and make it cost-efficient enough to undercut the price of fossil fuels. This will require great innovation from companies like Tesla or massive investments into making the technology financially viable. Again, MJ is not concerned with innovation at all. It would be a better use of talent and energy to create a start-up, perform research or do whatever it takes to make green energy a more viable option.

    • April 3, 2015 at 7:59 pm

      A lot of the points you are raising about strategy and opportunity cost were answered here:

      Divestment is nor about convincing oil companies to change their ways and never has been. Divestment is about reinvesting some of the divested funds in alternative energies and always has been.

      Members of MJ absolutely do care about things like cap and trade and other regulatory policies. But traditional efforts like lobbying washinton have failed, as Bill McKibben pointed out, not because the science isn’t there, but because of power inequalities. Divestment is about building the political power to implement the kinds of things you are talking about. And while it is only one piece of a big puzzle in terms of how to fight climate change, I want to push back on the idea of it just being one piece of the puzzle as meaning that it’s not right or important.

      What you want to do to fight climate change IS was MJ wants to do to fight climate change. You can be for a social movement (like divestment), lobbying washington, innovating in the lab, and reducing consumption all at the same time.

  • April 3, 2015 at 3:35 pm

    Here are some updates on some of the links mentioned by Paul:
    Divestment and the Endowment
    More about how fossil fuel investments will hurt the endowment in the long run

    Also just wanted to respond to your confusion about MJ members claiming divestment will actually help the endowment:
    Fossil fuel shares have actually underperformed the market average over the last 10 years according to analysis by Standard and Poors and Bloomberg. Fossil fuel investments are looking like increasingly poor investments; if the world takes the necessary action on climate, the investment bank HSBC says that fossil fuel shares could be devalued by 40-60%. UN Climate Chief, and Swarthmore alumna, Christina Figures calls continued investments in fossil fuels a “breach of fiduciary duty.” Bevis Longstreth, SEC Commissioner under Reagan, advocates for divestment and says endowment fiduciaries could divest based on the logic carbon bubble alone; because of it, he agrues “fiduciaries have a compelling reason on financial grounds alone to divest these holdings before the inevitable correction occurs. I’m certain any reputable investment manager, if directed by an endowment to accept [the] assumption [of the carbon bubble, would agree with this conclusion.”

    If you have any questions feel free to stop by the sit-in! MJ members are always happy to talk to you.

    • April 3, 2015 at 3:45 pm

      Yes, because the financial experts at Mountain Justice are certainly well placed to answer important financial questions. “If the world takes the necessary action on climate” Hahahaha. Good luck with that. The “world’s” track record isn’t really that great. And betting on it is ludicrous.

  • April 3, 2015 at 3:57 pm

    Even though the college is not spending all its endowments, I still do not support MJ.
    Because, I’m not the President, I’m not on the board of managers.

    Frankly, I don’t care “whether the board is using all its endowments or not”! Why should I care? I am just a student, the current learning environment at Swarthmore satisfies me (though it’s not totally perfect). Can I really push the college to spend more money? Stop being so naive! They are not spending so much, there must be a STRONG reason, and a small group of students’ protest won’t do anything useful.

    Divestment will cause extra spending. MJ says adding up the extra spending the college will still be below its endowment. Even if this is correct, does it mean the college will not cut its FinAid? No! It’s totally at their discretion, and if the reason for staying below endowment is STRONG, then the college will cut FinAid, and still being below endowment.

    Things work this way, MJ.

    You say something is feasible, but it doesn’t mean everyone will do it that way. I am just a student, I don’t want to risk my financial status for any potential (and likely) financial aid cut. I don’t want to make a change, and I cannot make a change. This is reality.

    • April 7, 2015 at 6:50 am

      The endowment takeout rate funds the college budget, which in turn allocates money for financial aid. Therefore the board not taking out enough is something you should be worried about if you’re worried about financial aid. Professor Kuperberg did the math on the history of the endowment and suggested we could be a tuition free school in perpetuity – assuming no revolutions, giant-attacks, etc. – anyway, for a long time. The endowment takeout rate effects you, so you should be concerned about it. Fact is the college has enough money to divest. However, if you think divestment is not worth spending on in principle that’s your call. You need the board to spend more money, though, if you’re worried about your aid package.

  • April 7, 2015 at 10:56 am

    I believe that MJ opponents are largely quiet because MJ is a club with very little institutional memory. Every year they’ll grab a bunch of wide-eyed freshman (most likely a caucasian girl from Vermont or Maine) who rehash the same arguments that were critiqued years earlier.

    And then they droll on about how they’ve been fighting the good fight for years and how their voices have gone unheard.. blah blah blah.

    Look at the comments section of DG articles from years ago where vast majority of the Swarthmore community clearly showed MJ the flaws in their arguments. I mean, should I just copy and paste the same arguments from 2 years ago?

    MJ, you pretty much got OWNED.

    I guarantee you that they’ll be back in 2017 with their BPA free nalgene bottles, northface jackets and woe-is-me drivel.

  • April 15, 2015 at 6:33 pm

    Interesting discussion …

    As an alumnus, I am distressed by the tone of Alum ’12. That sort of argument smacks of the worst on the web.

    But I am terrified by the attitude of ‘ak’ which reflects a mindset that would allow demagoguery to thrive.

    • April 16, 2015 at 1:57 pm

      If you’re afraid of demagoguery, you should be far more opposed to MJ than AK.


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