The Fight to Divest from Fossil Fuels

Illustration by Nicholas Massarelli

Illustration by Nicholas Massarelli

Swarthmore students helped spark a national movement toward fossil fuel divestment. But their own school has yet to take action.

by Steve Neumann

When freshman Kate Aronoff arrived in 2010 on the small, idyllic campus of Swarthmore College, a “Little Ivy” tucked away in the suburbs of Philadelphia, she was already eager to become an activist.

She’s the kind of student drawn to Swarthmore’s professed mission: to help its students realize their full intellectual and personal potential, combined with a deep sense of ethical and social concern. The college prides itself on a spirit of “social justice,” “social entrepreneurship,” and “civic and social responsibility,” dating back to its Quaker roots.

When Aronoff learned that a group of students was organizing a trip to West Virginia that fall to meet Larry Gibson, widely known by environmentalists as the “Keeper of the Mountains,” she jumped at the chance.

Gibson was famously introduced to the world by an article published in U.S. News and World Report in 1997 on mountaintop removal coal mining operations. His family had lived in the Appalachian area for generations, and by the 1990s his family’s 54 acres was the only tract of green land left on the mountain. Gibson began hosting tours in order to raise consciousness about the magnitude of destruction in the region, and in 2004 he founded the Keeper of the Mountains Foundation to educate and inspire people to work for sustainable mountain communities and bring an end to mountaintop removal.

When Aronoff’s student group arrived at Gibson’s home, she found herself standing atop a bucolic Appalachian mountain with swathes of destruction splayed out all around her. The powerful visual and the cognitive dissonance that resulted had a big impact, as did Gibson’s admonition at the end of the trip: He told Aronoff and the other students that if they were to go back to their school without being inspired to do anything about mountaintop removal, then he had wasted his time.

“We came back,” Aronoff says, “and thought about what we could possibly do [to respond].”

Looking around campus, Aronoff found that the kind of environmental work that was happening at the time—converting lightbulbs, keeping bottled water off of campus and other small, localized sustainability measures—didn’t match what she now considered an urgent issue. “Seeing that,” Aronoff says, “and then seeing folks like Larry and other people doing this kind of deep work, made us look for something that was more public, more militant.” 

In the spring of 2012, Aronoff and others formed Swarthmore Mountain Justice and began a petition on campus calling on the president to initiate discussions around the divestment of college money from fossil fuel extraction companies. 

Since then, schools around the country have heeded the call to action that rang out from Swarthmore’s quiet campus five years ago. 

Unity College in Maine was the first to divest, in the fall of 2012. Hampshire College in Massachusetts came next, followed closely by Sterling College and College of the Atlantic, starting a cascade that now totals 31 schools nationwide that have either fully or partially divested. The divestment movement has since grown beyond educational and other mission-driven institutions to large and influential organizations from new sectors divesting their assets of fossil fuels. Large pension funds and private corporations such as insurance companies now hold over 95 percent of the assets of those committed to divestment. To date, more than 500 institutions representing $3.4 trillion in assets have committed to divest from fossil fuel companies. 

Swarthmore College, however, has so far resisted the call. 

They aren’t alone. Many well-known universities, such as Harvard, Yale and Cornell, have all made the argument that Swarthmore has made: that their endowment is there to make money for the school, not to reflect its values or political ideology.  

But as the world moves away from fossil fuels in an attempt to combat climate change, two larger questions remain: Are schools like Swarthmore, which continue to fund educational activities through investments in fossil fuels, at risk of losing alumni donations and the ability to recruit students from the bad PR? And are fossil fuels a bad investment, anyway?

The Swarthmore story: a power struggle on campus in service of a larger power shift
In the spring of 2013, Swarthmore Mountain Justice arranged a “convergence” where nearly 200 students from more than 70 colleges and universities came to Swarthmore’s campus to discuss divestment from fossil fuel companies. 

Yet despite renewed enthusiasm and solidarity among students, meetings to discuss divestment among student activists and board members remained unproductive. Ultimately, after a summer of deliberation, the board decided not to divest.

Aronoff’s Mountain Justice was unsurprised by this response, and they were undeterred, eventually responding by staging a monthlong sit-in in the Finance and Investment Office on the second floor of the main administration building last spring, after Aronoff had graduated. The sit-in was deemed a success by the students, and made national headlines. 

During the sit-in, students received a boost when faculty members voted to support the call for the college to divest from all primary holdings in fossil fuel companies. Lee Smithey, associate professor of sociology, co-authored the white paper that underpinned the faculty resolution calling for divestment. 

“Divestment is an attempt to change the political and cultural landscape,” he says. 

Smithey is adamant that, in the face of the looming climate crisis, large-scale political change is desperately needed. “Thoughtful, nonviolent action sometimes disrupts business as usual and forces us to think more closely about the ways in which our daily lives are structured and intertwined with larger systems of power,” he says.

But after the board met again last May, they reiterated their opposition to divestment, this time stating that “the Board of Managers of Swarthmore College reached consensus not to divest from fossil fuels,” noting that the school’s investment guidelines since 1991 have stated that the “Investment Committee manages the endowment to yield the best long term financial results, rather than to pursue other social objectives.”

This past January, student activists declared a new ultimatum to the board: Three board members, whom they believe have a conflict of interest, must refrain from participating in the board’s decision-making on divestment. The students claim that the three have financial ties to fossil fuel companies that would compromise their impartiality in deciding whether Swarthmore should divest its endowment from fossil fuels. Information on board members’ connections to the fossil fuel industry was compiled by LittleSis, a research tool run by the Public Accountability Initiative, a “nonprofit, public interest research organization investigating power.” 

Swarthmore’s president, Valerie Smith, responded to the ultimatum by saying that the board rejects “the tactic of singling out loyal members of our community who are deeply committed to the college and who have worked tirelessly on its behalf,” and that “the tenuous links between individual board members and the oil industry are not, in fact, conflicts of any kind, and the assertions amount to nothing more than spurious ad hominem attacks.” Smith could not be reached for comment on this story.

Sophomore Sophia Zaia and freshman Abby Saul, both organizers for Swarthmore Mountain Justice, disagree with that characterization. They’re disappointed with what they perceive as their institution’s disconnect between a socially responsible image and a very public refusal to divest from fossil fuels. Zaia and Saul believe the fact that President Smith responded so forcefully to the proposal for recusal means that they’ve struck a chord. “I think they like to have the board appear as this monolith,” Zaia says, “but we know from talking to certain board members that many were in support of divestment.”

Swarthmore Mountain Justice plans to continue to chip away at the board’s resolve, and today, a year after the board gave its opinion on divestment, student commitment remains as stalwart as ever. Saul is still hopeful that the administration will change its mind. “Hopefully, if and when Swarthmore does divest, it’s going to have an impact on this industry, not necessarily financially but by using our social capital as a very well-known and respected institution that does not want to be profiting from this industry anymore.”

Zaia agrees. “Taking the schools out from supporting the energy industry, taking away one of the pillars that hold them up,” she says, “is one way to shift the power.” 

Eileen Flanagan, board chair of the Philadelphia-based Earth Quaker Action Team and author of the memoir “Renewable: One Woman’s Search for Simplicity, Faithfulness, and Hope,” also thinks that Swarthmore’s refusal to divest is hypocritical. She notes that Quakers have always believed in two things: striving to live with integrity and challenging things they believe are wrong.

“For a college to advertise its Quaker roots,” she says, “making sure that its money is not invested in industries that are actively putting their students’ future at risk seems to me a basic form of integrity.” Flanagan added that she doesn’t see how they can in good conscience be invested in fossil fuels.

“It’s very hard for me to see how any institution could claim to be Quaker,” she says, “and not be actively trying to do as much as they can to address this issue.”

Is divestment a good investment?
The Swarthmore debate has exposed the most common, and most powerful, counterargument to fossil fuel divestment: Endowments exist for making money—not making social statements—and fossil fuels have traditionally made money. Harvard University, which has the largest endowment in the nation, stated in a letter in 2013 that they “maintain a strong presumption against divesting investment assets for reasons unrelated to the endowment’s financial strength and its ability to advance our academic goals,” further stating that “the endowment is a resource, not an instrument to impel social or political change.”

Donald Opatrny, chairman of fellow Ivy Leaguer Cornell University’s investment committee, issued a similar statement. “The university’s endowment must not be regarded primarily as an instrument of political or social power,” he said. “Its principal purpose is to provide income for the advancement of the university’s educational objectives.” 

It’s the same argument that the board from any corporation would make: They are there to make money, period. In the case of publicly traded companies, they are legally obligated to do so.  As one would expect, many members of the financial community agree that divestment is an unwise financial decision. 

The costs may be very real, but it’s hard to quantify, and many studies are industry funded. One, by the Independent Petroleum Association of America, “Fossil Fuel Divestment: A Costly and Ineffective Investment Strategy,” outlines the possibilities. The author states that those schools that divest would incur trading costs, compliance costs and diversification costs. Trading costs are composed of broker commissions and other fees, while compliance costs are ongoing charges incurred to ensure that the investment portfolio continues to meet divestment goals over time. Diversification costs are those presumed lower investment returns for a given level of portfolio risk. The study concludes: “These costs have real financial impacts on the returns generated by an investment portfolio, and therefore, real impacts on the ability of an educational institution to achieve its goals.”

Another industry-funded study published last September, “The Divestment Penalty: Estimating the Costs of Fossil Fuel Divestment to Select University Endowments,” claimed that universities could lose millions if they cut oil, gas and coal holdings. The author writes: “While a few universities have divested (either in whole or in part), most others have chosen not to do so and many have noted that divestment is likely to have little impact (financial or otherwise) on fossil fuel companies, while creating the potential for endowment shortfalls due to a lack of investment diversification and other costs.”

But others disagree that fossil fuels are a safe bet, especially in the long term.

Jeff Siegel, publisher and managing editor of the website Green Chip Stocks, is one such expert. “Globally,” he says, “we’re seeing more and more people accepting the data analysis from the IPCC [International Panel on Climate Change], which says that scientists are 95 percent certain that humans are the dominant cause of today’s rapidly changing climate.” 

He believes this growing acceptance puts pressure on policymakers to consider climate change as a serious issue that needs to be addressed. “So whether or not you find the data and data analysis from the IPCC to be sound is irrelevant,” he says, “at least from the perspective of an investor.” In other words, the fact that policymakers are listening to warnings about climate change should be enough to warn investors about coming policy changes that will change the markets and profitability of fossil fuels. 

Siegel cites the reality of a so-called “carbon bubble” in his analysis. A carbon bubble, like the housing bubble that was implicated in the Great Recession of 2008, happens when companies’ stock prices become overvalued for whatever reason. In this case, it’s because the valuation of fossil fuel companies is premised on the idea that all fossil fuel reserves will be consumed. However, a study from University College London, published in the journal Nature last year, argues that over 90 percent of U.S. and Australian coal, and almost all Canadian tar sands, cannot be extracted and burned if the global temperature rise is to be kept under the 2 degrees Celsius limit that has just been agreed to by the world’s nations in Paris in December 2015. As this story went to print, ExxonMobil’s credit rating was downgraded for the first time in approximately eight decades. 

Siegel admits that the carbon bubble isn’t going to have much of an impact on investors at the moment. “We’re talking about a massive transition of our energy economy,” he says, “where fossil fuels will start losing market share to electrified transportation and renewable energy, simply because these alternatives are technologically, economically, socially and—ultimately—politically superior.”

And he goes on to emphasize that, while oil is still king and will be so for decades to come, it’s also a very old industry that’s become complacent, propped up by plenty of policy support and lack of innovation. Those two things are changing now, he says, so investors who ignore this reality are putting their long-term financial health at risk. In response to whether schools should invest in alternative energy companies after divesting, Siegel says they really should invest in alternative energy in any case. “At this point,” he says, “any institution that doesn’t have some exposure to the alternative energy space is making a very bad financial decision.”

In addition to Siegel’s analysis, other studies have suggested that divesting from fossil fuels can actually save money. Matthew Patsky of investment firm Trillium Asset Management directly contradicted the industry-funded findings for Harvard University, reporting that the university lost an estimated $21 million over three years by ignoring calls to divest. A 2013 analysis commissioned by The Associated Press found that university endowments would have been better off had they divested a decade ago. 

The University of Hawaii is one investor that saw the writing on the wall that Siegel describes. Last year, after the university’s Task Group on Divestment and Sustainability met with representatives of its investment manager, the UBS Group, it decided to divest from companies that produce fossil fuels over a three year period.

A statement from the task group referred specifically to the idea of a carbon bubble: “An argument can be made that fossil fuel companies are currently overvalued, because a portion of their value represents the value of underground reserves that have not yet been brought to the surface and sold.”

But the university’s decision to divest rested on more than just the economic argument. It also felt it was imperative that it lead by example. 

“Because we’re an island community that is heavily dependent on imported fossil fuel for our economy,” says Randy Moore, chair of the university’s board of regents, “and because we’re clearly going to be affected by rising sea levels, the idea of CO2 reduction has a bigger degree of resonance in Hawaii than it might in Philadelphia.”

Though the university recognizes that “divestment will not reduce future CO2 emissions one iota,” according to its task group’s statement, it also recognizes that the value of divestment is to galvanize the community to take action and to change institutional as well as individual behaviors.

“Progress never comes as fast as you want it to,” Moore says, “so there’s no other alternative than to keep working at it.” 

Is divestment an effective strategy to combat climate change and environmental degradation?
Some of the most substantial criticism of the campaign for fossil fuel divestment comes from those who would normally be considered political allies. For example, writing in Slate in 2014, Matt Yglesias makes the argument that even if many universities divest from coal companies, the temporarily low share price of those companies will look attractive to value-hunting investors. “In fact,” Yglesias writes, “in the age of algorithmic trading, the entire process will run its course in the blink of an eye.” The argument is, essentially, that someone is going to profit, even if it’s not a college or university. 

Philosopher Scott Wisor, deputy director of the Centre for the Study of Global Ethics at the University of Birmingham in England, believes that the fossil fuel divestment movement has no effect on greenhouse gas emissions. “No fossil fuel company will leave assets in the ground because they are facing shareholder pressure,” he says. He further notes that, even if they did, the largest fossil fuel companies in the world are state owned, and thus not subject to shareholder pressure. They would simply purchase those assets from companies that were facing shareholder pressure. 

“Why spend time, resources and political capital on shareholder divestment when these efforts could be directly focused on public policies that would make a difference in reducing emissions?” Wisor says.

Rebecca Leber, writing for New Republic in May 2015, suggested that the divestment campaign in some ways has the most difficult goal, which is to convince people to divest from the energy we rely on every day and from stocks that make up a massive part of the economy. Additionally, she notes that a 1999 study did not find that divestiture impacted South Africa’s economy. Instead, the South African divestment campaign, which Swarthmore students cited as their inspiration and activist template, was paired with a large-scale boycott of South African goods and sanctions on South African companies, noting that that’s where the real damage was done.

Journalist Mark Engler, author of the recent book “This Is an Uprising: How Nonviolent Revolt Is Shaping the Twenty-First Century,” says that social and political change is as much about power as it is about policy. “Divestment campaigns are helping to generate power by rallying active public support in opposition to fossil fuel industries,” he says. 

He observes that many insider groups have been trying to push forward small demands in the current political climate to secure specific regulations, whereas organizers who are trying to build mass movements need to think about campaigns in completely different ways. He notes that those politicians who tried to push cap-and-trade legislation back in 2008 quickly found that they did not have the power to pass even a watered-down version.

“We need a dramatic shift in public opinion,” he says, “to address the true challenge of climate change and create new possibilities in the political debate.” In his view, campaigns that have a deeper symbolic resonance, ones that target the public, have a greater capacity to engage the base and play a critical role in this process. 

For Engler, divestment is a means to the end of much larger change, and he believes it’s actually a much better means to that end than the technocratic regulatory demands that, in addition to being totally inadequate themselves in addressing the true scope of the climate challenge, also fall short in their ability to galvanize public attention and support for the issue. “I think divestment has made this a leading political issue on campus,” Engler says. “Investors are starting to worry about this idea of carbon risk, and it’s starting to impact energy firms across the globe.”

Engler cites the example of Shell Oil Co. leaving the Arctic last September. After spending $7 billion to explore a single well there, the company said in a statement that it “found indications of oil and gas, but these are not sufficient to warrant further exploration.” 

This contrasts significantly with the company’s previous statements that it was confident drillers would find abundant oil reserves. Shell also cited “the challenging, unpredictable federal regulatory environment in offshore Alaska.” Engler says that what creates an uncertain regulatory environment is politicians not giving fossil fuel companies the kind of free rein that they had before. 

“And why are politicians changing on that?” Engler asks. “It’s because of pressure from activist movements.”

Is divestment about money or morals? Which generation should get to decide?
While many institutions have chosen different paths on divestment from a financial standpoint, others have been more motivated by the moral and pragmatic arguments that accompany the unprecedented crisis of global climate change. 

As Bill McKibben wrote for Rolling Stone: “The logic of divestment couldn’t be simpler: If it’s wrong to wreck the climate, it’s wrong to profit from that wreckage.” Stephen Mulkey, president of Unity College, the first school to divest, was convinced by the moral argument, writing in 2012, “While our public policymakers equivocate and avoid the topic of climate change, the window of opportunity for salvaging a livable planet for our children and grandchildren is rapidly closing.”

David Van Zandt, president of The New School in New York City, echoed these concerns in a statement on the school’s website: “Climate change, the effects of which are already being felt by our most vulnerable populations, is one of the greatest challenges we are facing in the 21st century. With our formidable talents in design and the social sciences, this new plan sets the course for our leadership in the field.”

Swarthmore freshman Abby Saul, who is from New Jersey, says that though her high school tended to talk about climate change in abstract terms, the devastation from Hurricane Sandy made a big impression on her. 

“Dozens lost their lives, thousands lost their homes and millions lost their power,” she says, “and that made it very real for me.” 

Saul also cites the example of her home state governor, Chris Christie, who spent the vast majority of the past year out of state campaigning for president. During the campaign, there was again widespread flooding in New Jersey, and when Christie was asked at a campaign stop why he wasn’t back in the state helping people, he responded by saying “What do you want me to do, bring a mop?” 

“That answer was in classic Chris Christie fashion,” Saul says, “and that made it very clear that we cannot rely on [people in power] to make the changes we need. It has to come from us.”