Saving the Planet Hasn’t Persuaded Colleges to Divest From Fossil Fuels. Will Saving Money Do the Trick?

In 2013, students at Middlebury College marched through a dense snowstorm to the Old Chapel, where the Vermont college’s administration is housed, chanting slogans and hoisting bright orange signs in front of the windows. They were protesting the college’s investments in fossil-fuel companies, and demanding the endowment be disentangled from the industry.

Administrators told them it wasn’t going to happen.

“Given its fiduciary responsibilities, the board cannot look past the lack of proven alternative investment models, the difficulty and material cost of withdrawing from a complex portfolio of investments, and the uncertainties and risks that divestment would create,” the president at the time, Ronald Leibowitz, wrote.

Less than six years later, the college’s Board of Trustees voted unanimously to fully divest its $1-billion endowment from fossil-fuel companies, joining a growing list of divested institutions. What had changed?

It wasn’t that the climate crisis was becoming more apocalyptic by the day, or that the Board of Trustees had felt a sudden, Grinchlike burst of moral clarity. A statement from the college on the decision cited “the profound threat of climate change” as the motivation. But Leif Taranta, a senior at Middlebury and a member of a divestment group on the campus, said the reason for the group’s success was the same as the reason for its failure in 2013: simple economics.

New research shows that investments in fossil-fuel companies are increasingly less profitable, and carry a much higher risk, than they were 10 years ago, undercutting colleges’ longstanding claims that divestment would hurt endowment growth. Students are seizing on that shift to try to force their colleges’ hands, and while it’s slow going, a growing number of higher-profile institutions are acquiescing to an idea that many administrators have long said was completely off the table.

Fiduciary Duty — a False Fig Leaf?

Last year the energy sector performed extremely poorly, placing dead last in the S&P 500. A study published by the Institute for Energy Economics and Financial Analysis — which examines financial and economic issues related to energy and the environment — presents the financial case for divestment.

“Over the past three and five years, respectively, global stock indexes without fossil-fuel holdings have outperformed otherwise identical indexes that include fossil-fuel companies,” the study reads. “Fossil-fuel companies once led the economy and world stock markets. They now lag.”

Kathy Hipple, a financial analyst at the institute and one of the study’s authors, said that for the most part, colleges that make a financial case against divestment are “hiding behind the fig leaf of fiduciary duty,” and are actually putting their funds at risk by pooling more stable investments together with increasingly risky fossil-fuel investments.

“It’s a very weak defense,” she said. “It’s a ludicrous idea to me that because I’m only doing my duties as a fiduciary, I must remain invested in a money-losing property.”

Some universities that were reluctant to cave in to student demands in the past have found economic arguments convincing where moral pleas fell flat. Taranta said the activists at Middlebury were able to effectively flip the “fiduciary duty” argument in favor of divestment.

Lewis and Clark College, in Oregon, voted to divest in February 2018, thanks in no small part to the financial savviness of the decision, its president, Wim Wiewel, told The Chronicle.

“That began to really turn the whole argument around, from ‘this is a good thing to do for moral reasons’ to ‘this is a financially sensible thing to do,’” he said. “I think that argument weighed very heavily, and it kind of took away the initial reluctance.”

Wiewel said one reason administrators have been wringing their hands about losses is that for years there weren’t enough mutual funds without fossil-fuel companies in their portfolios to know what the effects would be.

“The fact that more mutual funds became available that were fossil-fuel free, you began to be able to make the comparisons,” he said. “When this whole discussion started, back in the early 2000s, there wasn’t enough data to really be able to make a convincing case.”

That’s changed. Tom Mitchell is managing director of Cambridge Associates, a global investment firm that manages the endowments of Lewis and Clark and other institutions. He said that green investment funds had become more common thanks to climate concerns, and that the data from those emerging alternative models doesn’t look good for the fossil-fuel industry.

“There’s still money to be made in fossil fuels, but I would argue that profit margins will be greatly diminished as demand diminishes over the next 20 years,” he said. “If you’re just looking from a pure investment standpoint, you will find more profits in the growth potential of renewables and alternatives.”

“It’s been a great time to be divested, frankly,” Mitchell added.

Stubborn Status Quo

If divesting from fossil-fuel companies is both environmentally and economically savvy, then why are so many institutions still resisting it? Students say it’s because universities are loath to do anything that could hurt profits before it’s imperative that they act.

Ilana Cohen, a sophomore at Harvard University and a member of the campus group Divest Harvard, told The Chronicle that she and her fellow organizers had lobbied the university with economic reasoning before, to no avail. She said Harvard had a “long history of intransigence” on divestment issues — the university, as a matter of policy, is against using its endowment to effect social change — and she doesn’t believe that position can be reversed through civil discussion, but that direct action remains divestment proponents’ best tactic.

“It’s not that they don’t understand the reasons to divest or that they probably haven’t considered the arguments,” Cohen said. “They’re effectively hearing without listening. And in order to make them listen, that requires a different approach than just kind of trying to talk to them.”

Others say making an investment decision that could be seen as political, alienating potential donors or trustees, is a big risk.

Wiewel admitted that Lewis and Clark has an advantage politically in Oregon, where legislators and trustees are less likely to be outright climate deniers or to see divestment as an inherently left-leaning political statement. Of the 40-plus colleges that have divested in some capacity, only three are in Republican-leaning states, and a majority are in solidly liberal states like California, Oregon, and Vermont.

“For some schools, it is easier to do than for others,” he said. “The politics do matter.”

And even a school like Lewis and Clark isn’t immune to a backlash: Wiewel said one member of the Board of Trustees stepped down after the decision, which was “certainly a factor”; another prospective board member, who worked for a fossil-fuel company, decided not to join.

“Even in the little bubble of Portland, Ore., it was not that this was cost-free to the college,” he said.

‘The Heart of the Climate Crisis’

Making the case for fossil-fuel divestment on economic grounds may be more persuasive for administrators and money managers, but activists aren’t parting with what they see as their most compelling argument: the moral urgency of the climate crisis.

Institutions of higher education have long positioned themselves as moral actors in the fight against climate change. Hundreds of institutions have signed climate-commitment pledges, promising to cut their carbon emissions sharply in the next few decades by building renewable energy plants or expanding their sustainability offices.

But student activists say such “campus greening” efforts are insufficient in the face of a pressing, existential threat like climate change. Cohen, the Harvard student, said she and other activists want to continue exposing what they see as the university’s moral hypocrisy, and create enough public pressure to force administrators to act.

“It’s fundamentally immoral to invest in an industry that is at the heart of the climate crisis, and the destruction of our planet and our communities,” she said.

Zoe Brownwood, a sophomore at Stanford University and a member of Fossil-Free Stanford, said that despite the university’s decision to divest from coal companies, in 2014, students want to see it go all the way. She said they hoped to use the new research on divestment’s economic benefits to appeal to the Board of Trustees, without playing down their moral argument.

“We definitely want to use the economic argument, the compounding factor, to kind of like push the university over the edge to get them to actually divest,” she said. “But the ethical argument is still central to our campaign.”

Hipple, the analyst at the energy-economics institute, believes momentum is shifting in favor of the divestment movement, due to both the fossil-fuel industry’s decline and the growing urgency of the climate crisis. She said college administrators who continue to reject divestment will be the exception, not the norm, as the energy sector evolves.

“If you are a money manager, a fiduciary, you have an obligation to ask, What is underperforming and why?” she said. “And do I want to be the last investor holding a buggy whip in one hand and the Yellow Pages in the other?”

Liam Knox is an editorial intern at The Chronicle. Follow him on Twitter @liamhknox, or email him at liam.knox@chronicle.com.