A Rebuttal to ‘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.

This morning, an op-ed was published in the Daily Gazette, titled “Three Reasons to Vote No on Divestment.” The op-ed criticized the lack of prior notice about the referendum, as well as the language of partial divestment. Additionally, this article asserted that divestment would measurably hurt Swarthmore while proving to be of no real benefit to the environment.

While these concerns are valid and there is always a welcome place for criticism in any movement, these arguments fail to take into consideration the unique nature of this referendum, particularly with respect to the process of actually initiating and passing a referendum, as well as the specific requests that Mountain Justice (MJ) is making of the Board in this instance. These arguments also fail to address the actual goals of the fossil fuel divestment movement, and are largely based on outdated and incomplete information. MJ seeks to ensure that every member of our student body feels adequately educated to weigh in on this extremely important issue. We would therefore like to respond point-by-point to the questions raised in this morning’s op-ed.


Objection 1) The referendum is sketchy

The referendum process, which is outlined in SGO’s constitution, prevented us from advertising any earlier. First, 10 percent of the student body must petition SGO to hold a referendum. The referendum must be held within 2 weeks of this petition being submitted. Before MJ publicized the referendum, we wanted to ensure that we knew all of the details — most importantly when it would be and how to vote.

We know that this creates a short time frame in which to learn about the referendum, which is why we are trying to hold as many conversations as possible about it. In addition to our op-ed in the Phoenix, we held an ‘Ask Us Anything’ this weekend with the Daily Gazette. The student body had several questions similar to those posed in the article “Three Reasons Not To Divest,” and we responded to them in depth. The ‘Ask Us Anything’ is still open here. We will also be hosting two informational events while voting remains open:

  • Monday, February 20th: Coffee, Cupcakes, & Climate Chat with MJ and SGO, 9-10 p.m. in Shane Lounge
    • Come grab some snacks and talk to us about divestment, your questions, and your reservations!
  • Tuesday, February 21st: Dogs for Divestment, 3-5 p.m. on Parrish Beach
    • Come play with some dogs, eat homemade baked goods, ask us any questions, and vote!

We know that not everyone will be able to make it to these events, but MJ representatives will also be tabling in Sharples and Essie’s, and can answer a few questions or direct you to other people and resources that can provide more information. If none of the options above work, feel free to email us (swarthmoremj@gmail.com) or reach out to individual members of MJ.

Waiting another year for a referendum would prove disastrous in an era in which climate action is so essential and urgent. We must take immediate action to stigmatize the fossil fuel industry; we have the power and the resources to act NOW. With environmental regulations and agencies being gutted, global temperatures and sea level continuing to rise at an alarming rate, and extreme weather events increasing in frequency and severity, arguing that we can afford to wait yet another year for meaningful and tangible climate action ignores the devastating effects of climate change, and erases the extremely real and urgent struggle of frontline communities being impacted globally.


Objection 2) Divestment measurably hurts the school

The distinction between partial and full divestment is indeed a little technical, so confusion surrounding this point is understandable. However, Mountain Justice has made multiple resources available to learn about what partial divestment is (in addition to tabling and hosting events about it). Partial divestment does not hurt the school’s endowment.

There are three types of funds: index funds, separately managed funds, and commingled funds. Swarthmore’s endowment is currently invested in separately managed funds, which are customized to meet our needs, and commingled funds, in which multiple clients are pooled together to invest in a set of companies.

So what does partial divestment entail?

  • That we ask our separately managed funds to screen out the top 200 fossil fuel companies, since these funds are customized for us anyway.
  • For our commingled funds, we are asking our managers who already have fossil free accounts to move our money into those accounts.
  • For our commingled funds that do not have fossil free accounts, we ask the Board to request that the managers of these accounts investigate the possibility of implementing fossil free accounts in the future.

The claim that Swarthmore will lose $200 million if we divest is no longer applicable with this proposal. As a Daily Gazette article on the loss specified, “The estimate has little to do with the returns of fossil fuel industry stocks and hinges on the argument that fund managers will refuse to select investments based on a particular client’s company-by-company preferences.” Since we are no longer asking to switch to index funds, as the original report assumed, this cost of $200 million does not apply to the proposal of partial divestment.

However, the report makes several other flawed assumptions as well.

  • It assumes that there are only 500 securities in the market, and we would divest from 250 of them. Instead, there are over 63,000 securities, and we would only divest from 200 of these.
  • It assumes that fossil fuel shares will perform at or above the market average. The expectations for fossil fuel performance are based on the fact that over the past several decades, fossil fuels were very lucrative; but in a time when they are becoming increasingly stigmatized, this no longer holds. Fossil fuels have actually underperformed the market average over the past several years.

Partial divestment is not projected to hurt the endowment and in the long-term will actually help it. For more information on the finances of divestment, look at Gregory Kats’ article on why divestment is financially advantageous, or this collection of resources around going fossil-free, including information on how fossil-free portfolios have been performing relative to the market average.


Objection 3) Divestment makes no tangible difference.

Strictly speaking, it is true that Swarthmore’s decision to divest from fossil fuels would not financially harm the fossil fuel industry in a significant way. Fossil fuel divestment, however, has never been about financially crippling the fossil fuel industry; rather, the fossil fuel divestment movement seeks to isolate and stigmatize the fossil fuel industry, stripping it of its social license to operate. In order to keep the planet below 2 degrees Celsius of warming, we will have to leave 80% of existing fossil fuel reserves in the ground. This goal cannot be achieved unless drilling, fracking, and mining become morally unacceptable. Divestment is a powerful and crucial way to foster that stigma.

Will Swarthmore “be the meaningful tipping point that collapses the stock price of fossil fuel companies”? No, nobody claimed that it would be. Swarthmore is, however, the birthplace of the international fossil fuel divestment movement. We are an institution that prides itself on taking moral leadership, and the immorality of the fossil fuel industry is hardly disputable.  Swarthmore divesting will not collapse stock prices, but it will send a clear message that we refuse to be complicit in the destruction of our planet. Divestment, as a strategy, does not operate in a vacuum: it is strong because it is a powerful global movement.

In the same vein of not operating in a vacuum, divestment and other sustainability initiatives are not mutually exclusive; rather, they support one another. While greening our campus is an extremely important step to take, and we applaud the administration for doing so, avoiding climate disaster means more than just shifting a demand curve–it requires the complete rejection of the fossil fuel industry’s business model. As we work towards carbon neutrality and construct more sustainable buildings, we must acknowledge that we need to work on a broader scale beyond just the scope of this campus. Additionally, continuing to invest in companies that have funded climate denialism and carry on extractive practices that poison our air, land, and water actually undermines the important sustainability work Swarthmore is undertaking on campus.

While the goal of the fossil fuel divestment movement is not to financially cripple the fossil fuel industry, the financial success of this movement has been enormous. As of December 2016, over $5 trillion have been committed to divestment. This value is not the sole product of colleges and universities, either– Ireland recently divested, as did the Rockefeller family fund, and Norway divested from coal two years ago. The divestment movement has been growing exponentially, doubling in the last 15 months alone.

What’s more: oil and natural gas companies are taking notice. A study by the Oxford University Stranded Assets Programme found that “the outcome of this stigmatization process, which the fossil fuel divestment campaign has triggered, poses a far-reaching threat to fossil fuel companies and the vast energy value chain,” noting that stigmatized firms “suffer from a bad image that scares away suppliers, subcontractors, potential employees, and customers.”  

Divestment is a proven strategy, and a successful one. In an era of inaction from the federal government, institutions must take moral leadership. One institution reducing its carbon footprint is not going to create the massive, systemic change that we need now more than ever before. To effect real, tangible, and meaningful change, we need to send a clear message that the fossil fuel industry is morally unacceptable. That message starts with partial divestment.

Featured image courtesy of www.greenphillyblog.com


1 Comment

  1. Hi Aru, thanks for writing this. Although I don’t really know you whenever I’ve interacted with you on facebook you’ve been incredibly open to dialogue, and I really appreciate that. I’m going to try to respond to this article by hitting the big points but I probably won’t be able to cover everything.

    1) The Referendum is sketchy:
    A) You say that you wanted to ensure that you had the date before you began advertising. The problem is that you don’t need to know the date in order to tell the school that there will be a referendum. We didn’t need to know that a referendum was taking place today, we just needed to know that a referendum was taking place at all. Instead, we only found out through a campus-wide email on Friday. Basically, either SGO or MJ should have notified campus the moment the petition was turned in regardless of whether the date was finalized.
    B) While MJ has been very good at holding information sessions, the problem is that short warning has given us almost no time to organize an opposition. MJ is well prepared to organize in 3 days flat with months of warning about what a partial divestment would mean. The opposition only had three days even come up with a message in the first place, there’s no way we could hold “information sessions” with so little morning. And yes, information sessions from the opposition are necessary because the information MJ is likely to give out is entirely skewed to make your argument seem as strong as possible (which is fine, that’s good strategy after all).
    This problem is only compounded by the fact that MJ has access to campus-wide emails and we only have access to the DG to get our points heard.
    C) Finally, if the rules are truly bad (which is an argument you seem you agree with) then we should scrap the vote and redo it next year under the correct decision. I’m not saying this is all MJ’s fault, but voting no could create the conditions for more legitimacy next time around under an improved situation.

    2) Divestment measurably hurts the school
    A) I’ve recently seen emails between a school organization and Greg Brown about the differences between full and partial divestment. In his words, “Mountain Justice’s present proposal is similar to ones that have been made before, so it does not represent a change from what they’ve asked for in the past…. we have been clear that this strategy [partial divestment] would not be effective relative to our portfolio.” You don’t have to take my word for it now, but apparently it’s being published tomorrow. Basically, his point is that partial divestment doesn’t really address the major concerns the school has with the financial cost of divestment even though you say it does in your articles. You cite the administration and Greg Brown specifically as sources and they seem to disagree.
    B) Isaac Lee really sums up a ton of the issues well in his recent article when he lays out part 2 of the proposal (the problematic part). “The issue with simply withdrawing our money from a fund and putting it in another is that it could incur high fees. Investment managers don’t want their clients to withdraw randomly, as that may constrain the amount of cash they have and force them to sell assets. That is why they charge exit fees for investors that pull out before a target date.
    Proposal 2 assumes that if we kept the money with the same investment manager and simply switched to their fossil-fuel free funds, it would be cheaper than withdrawing money from the investment manager altogether. We don’t know for sure if that’s true. The fees incurred for exiting a fund and entering another one under the same investment manager would depend on the terms that Swarthmore has agreed to.”
    This is the most important part of the debate and yet one of the many topic areas where we haven’t been given any information to review. We don’t know how large the fees are when we switch funds. This is, presumably, Greg Brown’s major hang up. I agree that it’s unlikely to be $20 million a year, but it still has the potential to be a massive cost.
    C) The point that fossil fuel is not profitable isn’t a great one. If this were true we’d see a massive dive in stock prices because investors aren’t stupid and they’d sell off stocks and drive the price of these stocks down to a lower arbitrage point. This hasn’t happened. On top of this, it seems like a lot of your data relies on the fact that in 2015 energy prices dramatically tumbled because of political issues (OPEC) and an oversupply of oil/natural gas, not systemic problems with fossil fuels. Since then, stock prices have rocketed back up. I’ll admit, your argument made some sense in 2015 but not 2017. We want to invest using long-term trends, not using the one-year short-term trends to jump to conclusions.
    D) I’ll admit, the carbon bubble stuff is hard to deal with because I don’t know a ton about the issue, but from my understanding this will be a long-term trend, not a sudden shock. If this is the case Swarthmore will have plenty of time to divest gradually as it begins to make more and more economic sense. In this world, divesting all at once is not the economically efficient strategy.

    3) Will it do anything?
    A)I’m glad you admit that divestment only sends a message, nothing more.
    B) You say 5 trillion in assets have been divested, the problem is that there are 100+ trillion in invested assets across the world. This is a pretty small fraction.
    C) Also, you didn’t answer my point that even if you are able to change the action of Exxon (for instance) you will likely be unable to change the actions of the 13 largest fossil fuel companies in the world, all of which are government run and hold more than 3/4 of global oil reserves.
    D) You say divestment is a proven strategy. Can you name instances where divestment actually changed the actions of a fossil fuel company? I know you may want to cite South Africa here but there are very compelling arguments that divestment didn’t work in South Africa (For instance, In a 1999 study, Ivo Welch, from UCLA, found that “the announcement of divestment from South Africa, not only by universities but also by state pension funds, had no discernible effect on the valuation of companies that were being divested, either short-term or long-term.” ) In this instance, literally every single industry in a country was boycotted, not just divested from. Not really analogous.
    E) Finally, most large fossil fuel companies don’t really care about their stock price. They care about their profits, which this won’t change. This is because most aren’t selling their shares to raise capital anymore, they have all the capital they need. The value of shares really only matters the “prestige” of a company which doesn’t mean much. I guess you could hurt other owners of fossil fuel stock but I don’t see why you’d want to do that.

    Sorry about the inevitable typos, I wrote this in a hurry. Once again, thanks for the dialogue.

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