Three Reasons to Vote No on 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.

With today’s referendum on divestment, Mountain Justice is once again pushing for a change in college policy that will do nothing to help improve the Earth’s climate at best. At worst, divestment will deprive Swarthmore’s endowment of around $200 million over the next ten years. While we agree with Mountain Justice that a cleaner environment is a goal worth striving for, good intentions do not always lead to good policy outcomes.

The referendum pushed by Mountain Justice this year is unique. We found out about it just a few days ago when it was sprung on the school body with no warning. Since we’ve had little time to actually examine the proposal, it’s hard to say exactly what it would do for sure, but Mountain Justice is branding it as “partial divestment” rather than full divestment.

The new plan comes in three parts. It’s a bit complicated so I’ll quote them from The Phoenix:

“The first [part] is divestment from separately managed funds, which are essentially customizable funds, and makes divestment as simple as asking our managers to stop investing in the Carbon Underground list of the 200 largest coal, oil, and gas companies. […] The second part is asking commingled fund managers, under whom our investments are pooled with other institutions’ that already have fossil fuel free investment options to move our accounts to those divested funds. Since some of these managers do not have that option, our third request is that they move our investments to fossil fuel-free funds when they are available.”

While Mountain Justice has seemingly toned down their proposal’s rhetoric, it’s hard to know how different the outcome of the plan is than in years past. While the plan would dodge some of the costs of exiting out of commingled investment managers, it would still possibly incur high costs from switching between its current funds and green funds within the same investment manager. Without further information, which MJ has not provided to students, we can’t know for sure whether this is or isn’t divestment lite. We need to know more details about our commingled managers. Who are they? Do they have available green options? What percent of the endowment will be affected by this change? What are the returns on green funds versus normal funds? This proposal simply begs so many questions that we don’t yet have the ability to answer as of this writing. 

So why not vote for divestment?

1. This referendum is sketchy:

The language of “partial divestment” and what it entails is quite technical, yet Mountain Justices surprised us all with this referendum, giving little transparency or warning. To most of us, it is unclear what the referendum will do or how partial divestment will be implemented. If Mountain Justice and SGO wished to have a legitimate referendum they would have started advertising weeks ago. Instead, they have left no time for an opposition to organize or for their proposal to be scrutinized. Students should vote no simply on principle.

Remember: A vote for no this year does not preclude the possibility of a referendum next year, but it will give us a chance to actually have a conversation about minutiae of this important proposal.

2. Divestment measurably hurts the school:

The fact is, full divestment would cost the school around $200 million over the next ten years according to a study done by the Board of Managers. That’s around 10 percent of the school’s current endowment. Mountain Justice often claims that the scale of losses are exaggerated, but they seem to hold up when compared to the research put out by other colleges and universities. Wellesley College, which has a similarly sized endowment, estimated that annual loss from divestment over the next 10 years would average almost $21 million. Broader independent studies have concluded that over 20 years the cost of divestment is likely to reduce the potential size of an endowment by between 2 and 12 percent. While Mountain Justice has its own studies, most of them are put out by green investment firms which have a profit motive to minimize the perception of losses. It is true that Mountain Justice is now arguing for partial divestment, but how different that is from full divestment remains entirely unclear. Either way, there is certain to be at least some loss.

$200 million is a huge amount of money to lose and forgoing this growth will almost certainly affect services provided at Swarthmore. Mountain Justice argues that the school has a $1.9 billion endowment so it can easily eat the cost and still fully fund amenities. The problem is that the school is simply unlikely to do this. Even if the Board ends up divesting, it will be nearly impossible to convince them to use up a higher percentage of income from the endowment every year because of the massive compound effects of this loss that would come years down the line. When Pomona mulled divestment they came to a similar conclusion, estimating an annual $6.6 million decrease in possible salary and financial aid spending from divestment. Money we lose from divestment is also money we could spend on reducing our carbon footprint further, something that could have a much larger impact than divestment. Mountain Justice is wasting valuable time and effort pressuring the college to divest instead of campaigning to use profits earned from our investments to help reduce the use of fossil fuels.

We want to be absolutely clear, the cost of divestment is substantial even with partial divestment. It is unlikely that Mountain Justice’s new strategy will be able to shave all that much off the price tag of divestment.

3. Divestment has no real benefit:

When Mountain Justice makes its case for divestment one argument is usually missing from their pitch, that divestment will actually change the way fossil fuel companies do business. They basically admit that divestment is purely symbolic when they use the rhetoric of “sending a message.”

The simple truth is that divestment won’t change the amount of oil or coal coming out of the ground. The list of schools that have rejected divestment is ever growing and the list that have decided to divest remains minuscule. There is almost no chance that Swarthmore will be the meaningful tipping point that collapses the stock price of fossil fuel companies, we simply don’t have the economic or moral clout. However, even if we were successful and every college in the United States were to divest from fossil fuel, investors from abroad would happily jump in to buy up all of our stocks.

Even if Swarthmore somehow managed to change the way fossil fuel is extracted by the companies that it divests from, this would barely make a dent in global markets. Multinational corporations only make up a small fraction of the fossil fuel industry. For instance, the 13 largest energy companies on Earth, measured by the reserves they control, are now owned at least partially by governments. Collectively, the multinational corporations Mountain Justice wishes to target hold only 10% of global oil reserves. This statistic may change marginally in the next few years with the IPO of Saudi Aramco but the simple fact remains is that many of the earth’s biggest fossil fuel extractors are barely touchable even in a best case scenario.

In Conclusion:

The only real upside that we can say for sure we’ll get if we divest is the ability to say we have washed our hands of the fossil fuel industry. If we could divest with no cost we would happily join with Mountain Justice to endorse their proposal but unfortunately, this is not the case. There are substantial tangible costs to even partial divestment that far outweigh the benefit of a clean conscience.

Featured image by The Daily Gazette.

While Patrick Holland is the opinions editor of The Daily Gazette, his views do not necessarily represent those of the editorial board.