Expert Opinions Weigh in on Divestment Strategies

Proponents of the movement to divest at the Claremont Colleges claim that the economic and political pressure of divestment will cause real change in government and energy firms and catalyze large-scale environmental action. However, once market-savvy professors on campus weighed in on the merits of the divestment campaign, it became clear that divestment may not be as straightforward or effective as it may seem.

Richard Hazlett, geology professor and coordinator for the environmental analysis program at Pomona College, says he has seen the strength of the environmental movement come and go over the decades. “So far this ‘climate conundrum’ ... hasn’t galvanized action on the part of humanity,” Hazlett said.

However, Hazlett said he feels that time is running out for citizens to take a stand on meaningful change.

“It’s not an environmental problem, it’s a political problem,” he said. According to Hazlett, our government is in the grip of powerful firms and we, as citizens, should take a moral stand.

“I think that the colleges and universities really ought to propagate the message” of the injustices committed by the fossil fuel industry, Hazlett explained.

This symbolic message is among the goals of the divestment campaign. Colleges and universities show by example that citizens will no longer tolerate the activities of the fossil fuel industry.

“It’s a conversation that begins at these institutions,” said Deirdre Smith, West Coast Organizer of 350.org.

Smith saw the growth of interest in socially responsible investment funds when colleges began reexamining their holdings.

“It’s really lifting up the narrative of, ‘Is this a safe investment?’” Smith said. “We know we’re creating a national conversation.”

On the other hand, Smith said that schools often realize that they could have just as high of returns on fossil-free funds as they saw in previous portfolios. She pointed to the five-year stipulation of divestment as a way to allow institutions to divest in a responsible way.

Smith also explained another strategy, which she called, "divest or we’ll find another money manager," as a reason for the upsurge of interest in socially-responsible funds.

“No one’s saying [divestment] is simple,” said Smith, “but it’s absolutely possible.”

The mechanics of endowment investing, however, raise questions of the effectiveness of divestment. John Jurewitz, economics lecturer at Pomona, said he sees logistical pitfalls in divesting a college endowment.

“Most endowments do not consist of trustees buying, picking, and choosing individual stocks,” Jurewitz said.

Instead, the Board of Trustees buys into funds of individual fund managers, who are free to manage funds without much input from the trustees. Trustees have little influence over the funds’ holdings, Jurewitz explained, including stipulating that certain industries or companies be avoided.

Bo Cutter, professor of economics at Pomona, is also wary of the risk posed by a narrow investment strategy inherent to divestment’s goal.

“The college can’t have diverse investment with divestment,” Cutter explained. He also advised that actively trading in the current market is a risky move in itself. Logistically, then, divestment poses issues for board members entrusted with the responsibility of seeking the highest returns on their investments.

Cutter said that he believes the value of divestment lies in its ethical roots, although it would come at the price of risky investment strategies.

“As long as everyone knows it’s a moral statement, we would bear the cost,” Cutter said. But Cutter views the present demands of the divestment movement as too vague.

“We cannot accept a commitment until a real pathway is established ... it is nowhere near defined as an objective,” he said.

Pomona already has a review process in place to ensure socially responsible proxy votes for shareholder votes. Thomas A. Moore, professor of physics and Convener of the Social Responsibility Committee, said that the committee itself was formed after the divestment campaign of South Africa.

The board examines voting issues brought to them by the treasurer. The committee then votes and makes a recommendation to the president of the college who, in turn, makes a recommendation to the Board of Trustees.

Moore acknowledged that fossil fuel companies like Exxon-Mobil would probably never change the fundamental and underlying business of the firm, which ultimately involves the extraction and distribution of fossil fuels.

“Unless there was a whole movement among the Exxon shareholders, it would be a gesture,” Moore said.

Jurewitz also said that he does not see the divestment movement as having a significant impact on the fossil fuel companies.

“Even if something as large as all the college endowments in the United States were to withdraw their money from fossil fuel companies, I think that it would have a really, really, really minimal effect on the stock prices,” said Jurewitz.

He said that there are also too many large investors who would rush in and buy the stock. The much bigger players in the divestment field—holdings of powerful countries like Saudi Arabia and China—will be far more concerned about wealth than a morally driven divestment initiative.

“My opinion is that we can’t hurt these guys directly,” said Jurewitz. He said it would be a largely symbolic measure, “and if that’s what you want to do, well, go right ahead.”

Instead, Jurewitz sees a clearer solution: reduce our carbon footprint by cutting back on our own use of fossil fuels.

“[Shareholders] don’t fund [energy companies], consumers do. If we do want to hurt them, we ought to quit buying their product,” Jurewitz said.

But, as Jurewitz noted, it is almost impossible to become carbon neutral. Smith agreed that there are structural difficulties in becoming carbon-neutral.

“It’s hard to walk the walk and become carbon-neutral,” Smith said.

For example, the 2010-2011 Pitzer College Climate Action Plan found that the largest contributors to Pitzer's carbon emissions were study abroad air travel and travel between campus and home.

“The system doesn’t lend itself to individual footprint reduction, but it does lend to individual activism," Smith continued.

Jurewitz saw a compromise by using our investment dividends to “[invest] in renewable energy funds, buy California Carbon Allowances, and fund real actions on campus to reduce our campus carbon footprint."

Jurewitz added that the problem of fossil fuel dependence is institutional and due to an unbalanced tax system. He proposed that the government reduce taxes on income and investment and increase taxes on carbon.

Cutter said that the government will begin to regulate fossil fuel firms' untapped oil reserves and enact more climate change policy.

“These companies’ stock prices rely on their ability to sell their reserves,” Cutter said, “and if they can’t sell their reserves, then stock prices would go down.” Cutter sees this scenario as one where selling holdings in energy companies would, in the long run, be the right choice for the endowment.

However, Jurewitz dismissed this as improbable.

“If I really thought that these stocks would become such a worldwide pariah,” perhaps it would be best to sell, Jurewitz said, “but I don’t think this is going to catch on."

Indeed, the sheer inelasticity of demand for fossil fuels should give both environmentalists and motorists pause. Consumers in the present and near future have virtually no alternative to fossil fuels, so government regulation will drive prices of both the product and energy stock up.

As a political movement, divestment is more of a symbolic statement than an effective tool to influence lawmakers. According to Jessica Lovering, Policy Analyst in the Energy and Climate Program at the Breakthrough Institute, an Oakland-based environmental think tank, divestment has little political merit because colleges are still using products that come from fossil fuels.

"It is viewed as purely symbolic," Lovering said of divestment.

Instead, Lovering suggests that colleges should invest in energy innovation and the development of alternatives to fossil fuels.

"[Investing in innovation] contains the symbolism and is pragmatic and still shows value," Lovering said.

The greatest benefit this movement may have on campus is the mobilization of students around awareness of fossil fuel dependency.

“Divestment may not be a solution, but it is part of a package of public awareness,” Hazlett said.

William Ascher, professor of government and economics at Claremont McKenna College, said that he believes divestment is “doable and can be done with minimal impact on endowment,” though the money’s small size means it will not hurt the energy companies directly.

Ascher echoed Cutter and noted that the movement will be successful in raising awareness of our fossil fuel dependence only if it is a catalyst for continuity. The determining factor of the success of the movement will be whether it institutionalizes action.

“Can you institutionalize the cooperation and commitment going forward?” Ascher asked. However, he said that he believes that the movement will “fizzle” if it maintains ineffective goals.

“I think the divestment leaders need to ask, ‘What is our value added to the environmental movement? How will we make the biggest difference?’” he said.

Though Jurewitz does not endorse the current divestment plan, he is still optimistic about more effective change in the future.

“What I have learned [from the divestment forum] was, ‘Hey, this movement has really galvanized people,’” Jurewitz said. “And a social movement is a terrible thing to waste.”