5C divestment campaign: slaying (oil) giants or just tilting at windmills?
Anthropogenic global warming, rising tides or melting icecaps; these terms represent the burgeoning visibility and prevalence of the issues surrounding climate change. In modern political discourse, arguments about these issues grow increasingly contentious and urgent. This discourse has expanded into all corners of the country and also onto the 5Cs. Last semester, the 5C Student Divestment Campaign began to call for the Claremont Colleges “to immediately freeze any new investment in fossil-fuel companies, and to divest within five years from direct ownership and from any commingled funds that include fossil-fuel public equities and corporate bonds.” This campaign is a part of a larger, national campaign organized by 350.org, a website started by renowned environmentalist Bill McKibben, to convince schools, governments, religious institutions and other organizations to divest from the fossil fuel industry. This campaign though, while founded with good intentions, does have several key flaws.
There are several issues with this divestment campaign, both at the campus level and at the national campaign’s level. At the 5Cs specifically, demands for equivalence between the schools ignores the financial realities at the differing institutions. At Pitzer, where endowment returns only cover five percent of operating costs, such a decision does not have the same substantial financial impact that the same decision does at Claremont McKenna or Pomona, where the endowments cover 28 percent and 40 percent, respectively, of operating costs. Endowments usually rely upon stable long-term investments to provide consistent profits that then cover operating costs. Divesting from stable, mature industries like the traditional energy industry and transferring those funds to younger, more volatile alternative energy companies should not be undertaken lightly. In addition, the fact that representatives of the 5C divestment campaign argued that their efforts were based on “moral, scientific and philosophical” reasons, coupled with the national campaign’s claim that companies like Exxon and Chevron are “very risky investments,” raises concerns that very real financial considerations are being overlooked. Such companies are in fact blue chip stocks listed on the Dow Jones Industrial Average, and represent stable and reliably profitable investment vehicles. Such considerations should not be ignored, especially at schools that rely upon endowment income to provide an excellent education to its students. In the end, each institution will need to decide for itself whether or not divestment represents the correct approach to climate change, whether such an approach can work within its investment strategy, and whether it is worth the costs. At the national and international level, the problems become more serious and wide-ranging, and even the efficacy of the divestment approach itself becomes suspect.
Divestment became the activist approach du jour after the campaign to divest funds from Apartheid-era South Africa and has been suggested as a solution in subsequent campaigns against other nations and corporations. Whether it will work against a multi-national industry, however, is highly suspect. In the South African case, which 350.org freely admits inspired their campaign, the divestment campaign targeted a certain policy implemented by a single centralized authority. This fact meant that it was easy to target business activity in one very specific region without disrupting the global economy significantly. The United States did exactly this in the South African case when it passed the Comprehensive Anti-Apartheid Act of 1986, which banned all new U.S. trade and investment in the country. Now try to imagine the U.S. issuing a similar law in regards to the fossil fuel industry. The success of a divestment campaign, like the one imposed on South Africa, relies on high levels of participation. In the South African case, sanctions imposed by the U.S., Europe and Japan enforced these levels of participation. Such laws are highly unlikely in the case of the fossil fuel industry.
Even if the campaign intends to proceed based upon private decisions to divest, and attains some critical mass, the fact still remains that the industry is decentralized, and unless the pressure exerted by the campaign is uniform across the board, some companies will benefit whiles the others suffer. This is because instead of a single central authority, like a national government, there are multiple diverse and often unconnected groups to target. The 350.org campaign has identified 200 such entities for divestment, and a quick look at the top 25 reveals the incredible diversity between the firms.
To begin with, several of the top 25 companies are not listed on U.S. stock exchanges, and will thus benefit from a U.S.-based divestment campaign, as such a campaign will disproportionately target the companies that do trade on American exchanges. In addition, seven out of these 25 are state-controlled entities, and would be unlikely to suffer from a divestment campaign, given that their primary or controlling backer also has the power to levy taxes. In fact, such entities may benefit from a successful divestment campaign, as they would be able to acquire assets from their shrinking capitalist competitors. This fact opens up another set of issues surrounding national security and energy.
Any divestment campaign would naturally damage those companies with more individual, private shareholders, and thus benefit the competing state-run entities. This could become problematic from a national security perspective, as it would shift control of the global energy market into the hands of nations like Russia, China, Brazil, Venezuela and several Middle Eastern nations, all of whom already have a strong presence in this market.
Going “green” is also not a solution to this issue, as the campaign calls for immediate action, and even with the hypothetically substantial infusions of capital, the technology cannot improve quickly enough to be ready to immediately take over all energy duties from fossil fuels, and nor can our trucking-based infrastructure and predominantly coal- and natural gas-powered electrical systems be replaced overnight.
Devising an alternative solution to divestment is no easy task. However, it seems that 350.org’s campaign is based off of the belief that these energy companies are unwilling to change their operations in any way, shape or form. In their FAQs, 350. org claims that “Exxon could still make a profit as an energy company if it transitioned its massive wealth and expertise over to renewables, but they’ll do it because of government regulation, not because they willingly decide to make the move.” This notion defies common sense. Energy companies like Exxon are motivated by profit, and will respond to market pressures much more positively than to politically vindictive regulation. Public opinion determines where the money flows, and private companies follow the cash. It comes as no surprise that most of the predominantly Western, private energy companies have all dedicated some portion of their press materials to alternative energy. For example, Chevron says in the “global issues” section of its website: “Chevron is taking a pragmatic approach to renewable energy—pursuing and focusing on technologies that leverage our strengths. These include geothermal, advanced biofuels, solar and energy efficiency technologies.” Even if these statements are viewed cynically, the fact that these companies have made an effort to respond to public opinion and are making an effort to comply with these wishes is encouraging. Attacking these companies and indirectly helping the state-run enterprises and oil-states that have no such incentive to change seems counterproductive. Instead, it would be more productive to raise public awareness about climate issues, but more importantly help individuals identify what can be done to promote change on a personal and local level.
Helping individual investors identify financially promising alternative energy companies is one such project. Another method is promoting environmentally sustainable alternatives for use at the corporate level or in local and state government. Sustainability is gaining ground in public opinion, and pushing for awareness of concrete solutions, as opposed to concepts, will help sustainable solutions become more financially viable, and subsequently more widespread. Positive grassroots campaigns that create public and market pressures in favor of environmentally friendly solutions and companies are much more likely to produce the changes desired than a divestment campaign, and without the added issues of creating conflicts of interest between financial and moral concerns, as well as avoiding global economic and security concerns.