Divestment doesn’t work – but it’s still worth doing

Coal Power Plant - Arnold Paul

By JUSTIN BULL

May 15, 2014

Stanford University has directed its endowment to sell any stocks directly related with coal mining. Stanford, with its $18.7 billion USD endowment, thus becomes the first major American university to divest from coal. Advocates for fossil fuel divestment applauded the move, hailing it as an important step in changing investment policies and fighting climate change.

Pressuring universities to divest from fossil fuels has been a popular tactic for campus-based organizations to act on climate change. Last year, 72 percent of undergrads at Harvard University voted in favor of divestiture in a non-binding referendum.

But the university passed, finding a “troubling inconsistency in the notion that, as an investor, we should boycott a whole class of companies at the same time that, as individuals and as a community, we are extensively relying on those companies’ products and services for so much of what we do every day.”

The University of British Columbia went through a similar process, with students voting in favor of divestiture from all fossil fuel stocks. The leaders of UBC 350, the student-led organization that supported the vote, want the university to sell $8 million worth of the stock it directly owns. But real divestiture would go further, as researchers estimate that 10 percent of UBC's portfolio might be tied up in fossil fuels through a variety of pooled funds.

Some argue that divesting from companies will achieve little when the real problem is a global economy addicted to fossil fuels. The U.N.’s Principles for Responsible Investing (PRI) advise investors to remain engaged with companies, using their place as shareholders to influence corporate behavior. By owning shares, investors at least have some say in how companies are run. Besides, there’s no guarantee that divestment even reduces carbon emissions.

Earlier divestment campaigns, like the one targeting South Africa during the apartheid regime were part of broader boycotts and sanctions. Comprehensive campaigns can have real impacts, but tweaking Stanford’s endowment will not exactly cripple Big Coal.

In the best-case scenario, a large group of universities could divest from coal or fossil fuels. This might temporarily depress share prices and embarrass executives. But the stock market would respond quickly, as value investors and algorithmic trading scoop up bargains.

If divestiture slows carbon emissions at all, the impact is slight. And if it hurts the profitability of fossil fuel companies, the effect is brief. But it is still one of the most effective ways for student organizations to raise awareness and demand action on climate change. Given the urgency on that matter, any additional awareness should be welcomed.



Photo Credit: Arnold Paul