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Divestment debate: making the case for and against stripping endowments of fossil fuel investments.

Stop Feeding the Monster. End the Coal Age. Divest the West. Sandy Says: Divest Climate Destruction. Bound by Fossil Fuels, Freed by Action.

Messages like these have emblazoned banners on campuses across the country since's Fossil Free divestment campaign began last November.

The organization, dedicated to building grassroots movements to solve the climate crisis, urges colleges and universities to divest their endowments of 200 publicly-traded companies its leaders identified as posing the greatest threat to the climate. There are now student-led divestment campaigns on more than 300 campuses.

Divestment--when organizations sell stock in companies to further a political or social cause--was first used aggressively in the 1970s and 1980s to protest apartheid in South Africa. In an effort to weaken the oppressive apartheid regime, colleges and universities spearheaded a major campaign, which peaked in the mid-80s, to divest from companies that did business in South Africa.

Momentum for the fossil fuel divestment campaign grew slowly all spring. In late April, students at Rhode Island School of Design staged a sit-in to draw attention to the cause.

And during a nationwide Day of Action on May 2, student groups at more than 60 colleges and universities hosted events pushing for fossil fuel divestment. At Western Washington University, students covered a Bellingham city plaza with orange squares--the universal symbol selected for the campaign. The following day, hundreds of students, faculty, and alumni at Brown University cast symbolic ballots for divestment.

"We have no illusion that colleges are going to rush into this decision, but students are making the case that they have enough information to make a firm commitment and move forward with full divestment," says Jamie Henn, cofounder of

The buzz has been building, but is divesting a good idea? Here are arguments for and against divesting endowments of fossil fuel investments.


As of mid-May, only five U.S. schools had committed themselves to divestment. All small liberal arts colleges in New England, they are: College of the Atlantic (Maine), Sterling College (Vt.), Unity College (Vt.), Hampshire College (Mass.), and Green Mountain College (Vt.). Officials at these institutions have cited three big reasons for making the move.

Set a positive example. For Unity, which emphasizes the environment and natural resources, divesting was a no-brainer. "We're very eager to start moving forward with it because it speaks to who we are," says President Stephen Mulkey. "We embrace what we think are good ethics, and it's time to have that translated into our good business practices."

In November, Unity became the first school to announce its commitment to full divestment, a process that began in 2008. It has so far reduced the extent of its endowment's investments in fossil fuel companies from 10 percent to 3 percent. Mulkey says most institutions tend to be somewhere between 10 percent and 2 percent exposure, passively and by default. The process of getting closer to zero percent is one that requires consistent, deliberate action, he says.

Officials at Sterling, another environmentally focused college, have decided to practice what they preach, too. President Matthew Derr says the college has a mission of environmental stewardship. "Our investment strategies and our investment commitments needed to run parallel to what we're teaching in the classroom."

Make a statement. Unity's Mulkey believes divestment, over time, could have a large impact on companies' bottom lines, but what matters now is bringing attention to the issue.

"This is making a strong statement to these companies about their social license to continue business as usual," says Mulkey.

Derr says the push to divest from fossil fuels is consistent with the higher education tradition of investing responsibly.

"Fossil fuel divestment is an ethical consideration and one that's also strategic because it's bringing broader understanding," he says. "However small Sterling may be, we should have a voice in that. It's the issue of the 21st century. We say that without any reservations."

It won't hurt endowments. In terms of generating competitive investment returns, Unity's endowment portfolio has met or exceeded market benchmarks over the past five years despite the shift away from fossil fuel holdings, says Deborah Cronin, vice president of finance and administration.

While it's possible that in any given year the move could reduce Unity's investment earnings, "over time investment performance should not be negatively impacted by this strategy," Cronin said in a release.

"The thing that determines whether or not your portfolio gains or loses is not the social screening. It's the decisions you make after that," says Mulkey. Unity's strategy has been to shift investments in developed countries to non-energy sectors. Investments in emerging countries cannot be as easily moved out of fossil fuels.


Christine Wood, a Vassar College (N.Y.) trustee with 30 years experience in the investment management field, has dealt with one divestment after another--including those related to South Africa, tobacco, companies that do business with Sudan and Iran, manufacturers of birth control, and those that create weapons of mass destruction.

Her conclusion? "The problem I have found in every instance, without exception, is that trying to use an investment portfolio to accomplish social or political causes comes up short in every way you can imagine," she says.

Divestment doesn't actually hurt companies. Many who promote divestment wrongfully believe that selling off their investments somehow hurts a company financially, according to Wood, who has overseen the global equity portfolio of the California Public Employee's Retirement System and served on the boards of the International Corporate Governance Network, International Integrated Reporting Council, and the Global Reporting Initiative. "By petulantly selling your shares, you have not hurt the company at all. You've just transferred ownership of shares to some other party who cares much less about the issue than you do," she says.

A 1999 study by economists Ivo Welch and C. Paul Wazzan argued that even South African divestment had little financial impact. "Despite the prominence and publicity of the boycott and the multitude of divesting companies, the financial markets' valuations of targeted companies or even the South African financial markets themselves were not easily visibly affected," they wrote.

Wood says colleges and universities that choose to divest could be the ones hurt financially. For any individual or organization, she believes divestment leaves the investor with a more volatile portfolio in the end, due to inferior risk-adjusted returns.

"A lot of these theoretical things don't work in real time," she says.

It leaves institutions voiceless. Stockholders are the only ones who can truly engage the company, she says. "If you don't own shares you're not eligible to vote with a proxy, you can't elect boards of directors, you can't vote on share proposals. You are completely without a voice."

It's the easy way out. Wood says there is no comparable model in society that indicates divestment is the best way to solve a problem. "Would the best solution be to put up a 'for sale' sign in front of your house if there are problems in the neighborhood? No, you engage and you try to rectify the situation. Divestment is the easiest thing to do."

Instead, she suggests that institutions channel their passions into supporting organizations doing positive work on the environmental front, such as the Investor Network on Climate Risk, the International Corporate Governance Network, the Global Reporting Initiative, the International Integrated Reporting Council, the Carbon Disclosure Project, and the UN Global Compact, among others.

While the fossil fuel divestment campaign is a cause rooted in legitimate concerns and founded with good intentions, Wood doesn't believe divestment is the right instrument to convey these concerns.

"We have institutions in our society responsible for public policy, such as legislators, regulators, and standard setters, who ultimately have to set standards for corporate sustainability," she says. "These institutions need to be engaged and held accountable. Working from within, as an investor with proxy votes that influence corporate decision-making, is more powerful in advancing corporate sustainability than stepping outside the sphere of influence by divesting."

Resources Fossil Free Campaign,

Investor Network on Climate Risk,

Sterling College Divestment,

"The Effect of Socially Activist Investment Policies on the Financial Markets" study,
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Title Annotation:CAMPUS: FINANCE
Author:Domonell, Kristen
Publication:University Business
Date:Jun 1, 2013
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