A few days ago, Cambridge Associates, which advises 71% of the largest college & university endowments, quietly published a paper about divestment entitled The Fossil Fuel Divestment Discussion.
This is their first general statement about the fossil fuel divestment movement, although several individual Cambridge Associate consultants have published their own papers claiming significant costs to divestment (Pomona College being the most notable case). In this new paper, Cambridge remains fairly bland and expertly nonpartisan. The general conclusion to their paper is that institutions (in this case mostly schools) should think about social policies and sustainable investments, but be aware that fossil fuel divestment will change the structure of their portfolios.
Although there are many statements in the paper that deserve discussion, a few important issues stand out. In the spirit of the paper, I’ll break it down into two distinct categories:
Theory of Change:
Cambridge consolidates the arguments for divestment, into two general categories. Here they state Limiting Capital Supply as a primary argument. This movement has been very clear that this is not one of the arguments for divestment. Bill McKibben was clear about that on the Do The Math stage, and the students have been clear about that in their campaigns. We can’t bankrupt these companies, but we can bankrupt their social license.
They then go on to talk about Creating Public Pressure. Let’s remember that divestment is a time-tested political tool. In the cases of adult services, Darfur, tobacco, and South Africa, divestment campaigns were successful in lobbying for restrictive legislation. Institutions should be aware of the history of divestment success.
Risk & Return:
Cambridge compares the energy sector to the general stock market over the last 20 years. What they don’t show is how the market without the energy sector (or the top 200 fossil fuel companies to be more specific) would have performed over time. The question at hand is divestment, not the performance of energy stocks. Investors should be asking “how can we do without these stocks,” not “how are these stocks doing.”
Barry Schachter, advisor at Fossil Free Indexes, wrote in his blog about their S&P 500 without fossil fuels, “Return is usually the primary focus of investors when thinking about performance. Stated simply, the returns of the fossil free S&P 500 and the S&P 500 are not distinguishable, looking at daily returns for the last 10 years.” Financial experts have taken an empirical lens to look at divestment and have found that it can be done at low risk. Institutions should be aware of this.
Now that I’ve gotten those things off my chest, lets hear a few reactions from students at the institutions Cambridge advises:
The report by Cambridge Associates in itself should be considered a win for the fossil fuel divestment movement; it demonstrates the demand for further investigation by financial experts. Given my college’s interaction with Cambridge, I am impressed with the stance the company took on divestment. Cambridge, a key player in leveraging divestment at larger endowments across the country, recognizes (at least at a superficial level) the moral impetus for divestment. My worries are the ways in which Cambridge presents a biased case against full divestment by discounting the non-monetary value of the action. The decision of whether or not to divest is necessarily one based on morality; earning $2 million from fossil fuel investments and the destruction of our planet is equally unethical as earning $1 million. This report demonstrates the serious misunderstanding of people in power of the power of social change and the need, not cost-benefit calculation, of social responsibility.
– Meagan Tokunaga, Pomona College
Anything less than totally wiping our hands of these companies misses the point and ultimately, falls short of the bold action and institutional change needed to address the climate crisis.
Really, Cambridge used a lot of the report to evade any sort of responsibility or involvement in the issue by repeatedly emphasizing that the decision of divestment was ultimately up to their clients. I understand that this is how the investment world works and appreciate Cambridge’s interest in “facilitating informed discussions.” That being said, the longer Cambridge remains “neutral” on divestment, the more complicit they become in our society’s failure to meaningfully address climate change.
– Deirdre Shelly, American University
If you’d like to read the report, click here.
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