Of all the human activities that contribute to the warming of our planet, perhaps none contributes as much as our burning of fossil fuels. It thus makes perfect sense that we at Macalester should focus our efforts on trying to curb their consumption as we try to halt climate change. There are many ways for us to do this, and most of them are strategies I support. However, I want to focus here on one that I do not: divestment.
In an article titled “For College Endowments, Ethical Stands Can Be Complicated,” published in The Chronicle of Higher Education, President Rosenberg argues against divestment. Though I feel that there are more compelling reasons for objecting to divestment than his, he and I agree on the importance of acknowledging a few key facts about the issue. I want to discuss these briefly before laying out my own arguments, to ensure that everyone is on the same page.
First, the notion that it would be easy for us to stop investing in companies like Exxon Mobil is false, because the investment of our endowment is not a simple task. In fact, such investment decisions are so complex that Macalester has professional firms make them for us. That is, the money from our endowment is parceled out to dozens of fund managers, who then make decisions about how to invest that money. Now, Macalester often stipulates to many of these managers what sort of investments they can make. We could, therefore, choose to work only with managers that promise us they will never invest any of our money in fossil fuel companies. However, finding enough suitable managers that meet this new criterion would be no small undertaking.
Second, the fossil fuel industry is the largest in the world, in terms of its worth. As Rosenberg notes, it accounts for “about 16 percent of the market capitalization of the New York Stock Exchange.” Assuming that colleges’ invest their money in industries in proportion to their size, then the total holdings of American colleges and universities in fossil fuel companies amount to “less than half of 1 percent of their capitalization.” It seems, therefore, that divestment would be a symbolic act.
Yet as Rosenberg argues, these are not in themselves strong arguments against divestment. I agree; they are not. Something that is difficult to do and is only symbolic may still be worth doing. However, such an action’s potential benefits would need to be weighed against its potential costs.
Rosenberg writes, “[This] might well be a discussion worth having, since at the very least one should be prepared for such a possibility. Ultimately, though, my caution about the appropriateness of divestment is rooted more deeply in other concerns.”
I do not think it necessary to explain what these concerns are. Suffice it to say that I think a consideration of the potential costs of divestment is a better argument against such action than arguments based upon these concerns.
So what are these potential costs? There are three, I think. The first is a loss of returns on our endowment. This might happen for the following two reasons. One, to eliminate one of the most consistently profitable industries as an investment option would seem to entail accepting a lower rate of return for the endowment. Two, we might have to forgo working with many fund managers. As a consequence, some of our investment strategies, such as placing money in hedge funds, might become impossible to implement effectively. This would further impair our ability to achieve adequate returns on our investments.
The point then that Fossil Free Macalester raises in her article in last week’s issue that, “although it is not clear precisely how much of the endowment is invested in fossil fuel, likely it is a very small portion of overall investments, and the effects will be negligible,” misses the point. The real issue is not about how much money we have invested in fossil fuels, but the restrictions that divestment would place on our investment strategy. This strategy is carefully crafted, and for it to function effectively as a whole, every small piece of it must also be able to function effectively. As noted above, divestment would compromise our ability to successfully carry out at least two key pieces to this strategy.
This loss of return on our investments would prompt divestment’s second potential cost: cuts to Macalester’s budget. These cuts could manifest themselves in the form of reductions in financial aid, faculty and staff hiring and salary freezes, and elimination of programs, among other things. In my mind, the magnitude of such potential cuts is large enough to make the costs of divestment outweigh its benefits.
It seems that Fossil Free Macalester disagrees with this assessment. In an article published in last week’s issue, the group writes that “arguments that divestment is ‘too hard’ or might cost some money are not convincing considering the difficulties we will face if the industry is allowed to continue business as usual.” I find this objection troubling because it fails to recognize that the issue with divestment is not that it “might cost some money,” but that the loss of this money means a potential reduction in Macalester’s ability to do any number of things, including actions that address important social issues. I am thinking especially about the possible negative impact divestment would have on the college’s ability to provide financial aid. Aid is a tool Macalester uses to directly combat economic inequality by subsidizing the costs of its education for students whose families could otherwise not afford it.
Climate change may indeed be the greatest threat humanity faces. What Bill McKibben says—that if we do not do anything to stop it then our work on social justice issues is for naught—may also be true. Nevertheless, it is wrong to presume that we cannot address climate change and economic inequality (or any other social justice issue) simultaneously. We can. Issues of social justice need not, and should not, be ignored in order to address the issue of climate change. After all, a primary point of doing so is to prevent human suffering. It would be tragically ironic if to combat climate change we made decisions that compounded such suffering. Finally, I contend that choosing to divest might actually end up being a self-defeating action—that is, it might come at the cost of the very goal it seeks to achieve. For example, when constructing new buildings or renovating old ones, or making general infrastructure improvements, Macalester makes an effort to do it in the most environmentally friendly way possible. This commitment, however, is often a commitment to spend more money. Thus, potential loss of return on investments—a risk we certainly take if we choose to divest—may hinder our ability to combat climate change.
In a nutshell, the potential costs of divestment outweigh the potential benefits. It would be irresponsible for Macalester to take what seems would be purely symbolic stand against climate change at the potential cost of hindering its ability to take real action in regards to other equally important issues. Furthermore, it seems quite possible that divestment would, in the long run, defeat its own stated aim of reducing fossil fuel consumption. Thus, to the question “should Macalester divest from fossil fuels?” I answer “no.”`