Op−Ed | Divestment isn’t enough
Published: Wednesday, January 30, 2013
Updated: Wednesday, January 30, 2013 01:01
I’d like to begin this letter with a brief personal introduction. I have some stronger opinions on this matter than most of the topics I discuss in my column, and I’m going to refrain from my usual hilarity — you guys do find me hilarious, I know. I do not, and probably never will, consider myself an environmentalist; I am generally a supporter of big businesses including the Keystone XL pipeline when it is working safely and carefully. Most importantly, I do believe climate change is very, very real.
In the past year, the Tufts Divest for our Future (TDF) organization has received a great deal of attention, both on-campus and off and for good reason. They do tremendous work for a good cause; in no way is this meant to be a “take-down” piece, or anything of the sort. I am friends with several members of the group, and they are all incredibly passionate, educated and informed on the issue. However, I feel that the divestment campaign itself is flawed.
Divestment essentially means “un-investing” from a certain group of assets. Although we most commonly use the term divestment in reference to social issues, divestment is a common strategy to avoid risk. For example, pension funds could choose to divest from an emerging market because of an impending regime change, or I can divest from Starbucks because my coffee tasted funny.
“Social divestment” has been used as a vehicle for change before, most effectively to end the apartheid regime in South Africa in the late 1980s. Using that campaign as a basis, TDF has listed 200 fossil fuel companies that they wish the university to divest from, joining a national effort to stop university endowments from investing in such companies. But South Africa’s apartheid regime and the fossil fuel industry are wildly different; the success of divestment in one instance does not mean it will work in another.
Oil is the largest industry in the world. Comparing the fossil fuel divestment campaign to the one used to end the apartheid regime ignores the economics of what happened in South Africa. Divestment led to capital flight, yes, but capital flight led to the appreciation of the South African rand, which led to the collapse of its export industry, and hence, its economy. There is no currency to appreciate in the fossil fuel fight. The price of oil is determined by far more than the amount of capital invested in the oil industry.
Divestment itself will do nothing. According to the American Petroleum Institute, United States universities have less than $8.5 billion invested in fossil fuel companies in total. Though the size of these companies varies greatly, it is more than likely that most universities have the majority of their holdings in the largest companies, as these are generally seen as safer investments.
Take Exxon-Mobil, the largest publicly traded company in the world, as an example. Let’s be highly unrealistic for a moment, and assume that every endowment has the entirety of its fossil fuel holdings in one stock, and decides to close their entire position in one day. That $8.5 billion accounts for just 2 percent of all shares; even then 50% of Exxon-Mobil’s shares are held by the company.
This leads to another fundamental point about divestment that I feel has been overlooked. Let’s say all the endowments dump the stock in one day, let’s be even more unrealistic and say this causes a massive selloff, leading to the price per share falling 10 percent. Ignoring that this is basically impossible, Exxon-Mobil still does not care. In every transaction you have a buyer and a seller; the stock doesn’t just disappear. The shares are still out there, and more importantly, companies do not make money based off their share prices. This drop would not affect Exxon-Mobil’s profit at all.
And that’s the real problem with divestment: it doesn’t speak to the issue at hand, and simply is not a feasible tool to stop the production or burning of fossil fuels. Divestment is like putting up a few sandbags to stop a flood. It only delays our demise.
In their proposal to the Investment Committee, TDF wrote that “we are asking Tufts to divest from the top 200 publicly traded companies that hold the vast majority of the world’s proven coal, oil and gas reserves.” This is entirely false. More than 70 percent of proven oil and gas reserves are held by nationally owned companies in places like Saudi Arabia, Iran and Venezuela. Let’s say the divestment campaign is a smashing success on a national level, and we magically kill all 200 companies on the list. From a production standpoint, it does nothing.
The purpose of this piece is not to belittle the efforts of the students involved in TDF, it is to show that we need to be doing much, much more. I attended TDF’s teach-in event which featured some prominent figures in the divestment movement, and it persuaded me that Tufts could realistically divest from fossil fuel companies. Bob Massie of the New Economics Institute said that divestment itself is not the end, but the civic engagement that comes with it will be key to pressuring our country’s leaders.
I approached Massie after the talk and asked him about how divestment could make a difference against the privately held oil companies. He responded by saying that the divestment campaign focuses on getting people talking about the issue. If it can change the oil industry, it will leave these corporations with billions of dollars in stranded assets, and they too will fall. According to him, it’s about “the debate.”