LOS ANGELES — TONIGHT, the 20,000 students at Stanford will sleep more soundly. Earlier this week, a group called “Fossil Free Stanford” persuaded the university’s endowment to divest its stock holdings from coal-mining companies. The world will be a better place.
Except that it won’t be. Individual divestments, either as economic or symbolic pressure, have never succeeded in getting companies or countries to change.
Global public equity markets constitute about $60 trillion of market capitalization. With about $19 billion, Stanford’s endowment represents only about five-hundredths of 1 percent of the world’s capitalization. Even if Stanford divested itself fully of all its stocks, both fossil and nonfossil, it would probably take the market less than an hour to absorb the shares. It would not lead the executives of the affected companies to engage in soul-searching, much less in changes in operations.
Proponents of divestment argue that it sends an important signal, and that other university endowments will follow. Yet all of them together command only about $500 billion of market capitalization.
Moreover, if divestment really drove down fossil-fuel stock prices, then there would be plenty of other investors ready, able and willing to step in to buy their shares, now trading for just a little cheaper than they otherwise would.
But didn’t a similar boycott force South Africa in the 1980s to abandon apartheid?
Unfortunately not. In an academic study, my co-authors and I found that the announcement of divestment from South Africa, not only by universities but also by state pension funds, had no discernible effect on the valuation of companies that were being divested, either short-term or long-term.
And there was no real effect on the composition of their shareholders between institutional and noninstitutional investors. We looked hard for evidence linking boycotts and sanctions to the value of the South Africa’s currency, stock market and economy. Nothing.
In retrospect, our evidence should not be surprising. For each investor and business that withdrew, there were others standing by ready to step in.
True, stating that the impact of economic sanctions was low is not the same as stating that the isolation of the apartheid regime had no effect. The wide ostracism may well have weighed on President F. W. de Klerk’s mind. But it was not the economic effect of the boycott that forced him to the table.
Of course, not everything is economics. Morals matter. Would I have divested from South Africa? Yes, but I would have had no illusion that doing so would have made a difference. And I would have told others that, in light of its ineffectiveness, I would have understood that reasonable and moral individuals could have come to a different conclusion.
In the case of fossil fuels, the situation is even murkier.
The moral choice is much less clear than it was with apartheid. Energy is an area with no obvious solutions. Apartheid had no place in a civilized world. Fossil-fuel companies are supplying a market demand, one that for the time being cannot be met by other fuel sources. Divestment won’t change that calculus.
And there is no guarantee that the strategy will lead to the outcome that divestment proponents want. Suppose divestment worked — and coal companies poured their resources into, say, hydroelectric power, or nuclear. Neither outcome would be a clear-cut win for society or the environment.
If Stanford really wants to reduce fossil fuel use, it has two better options.
For one, Stanford could pay polluters to pollute less and press institutions that want access to Stanford’s intellectual resources. One way to do this would be to take a 180-degree turn from its current course and buy up lots of energy stocks, concentrating its holdings and then using that position to press corporate boards to make changes.
This would be expensive. The values of these companies would most likely drop, imposing a cost on the Stanford endowment. But unlike the “run” strategy, the “influence” strategy could actually make boards and executives of these companies take notice.
The second option is to help make both clean and nuclear energy cheaper than fossil fuels. Stanford has enormous intellectual and financial resources that have helped revolutionize the technology sector. Why can’t it do the same with energy? This includes not only the research and development of clean-energy technology, but also its commercialization.
Neither option is cheap. And neither is necessarily the mission nor in the self-interest of Stanford. But either would be more effective than divestment.
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patroklos
Los Angeles 10 May 2014When a student at Columbia, "divestment from South Africa" was the cause of the day (we even occupied the business school). I don't think that at the time we thought the economic impact of the school's divestiture might be the undoing of the South African regime.
Certainly it was a moral issue, but the calls for divestiture also sought to shine more light on apartheid. And they did. No one thing brought an end to apartheid, and no one action will reduce fossil fuel emissions nor accelerate alternative energy policies. But that there may be no direct economic consequences is not the point. News is news, awareness is awareness, and getting the NYT to print an editorial on the issue is not a PR failure.
Terence Stoeckert
Hoboken, NJ 10 May 2014Divestiture may not change corporate behavior in significant ways, but it's worth promoting anyhow if only for the sense of solidarity it can engender amongst people struggling to resist. If we organize to force divestiture, we may or may not succeed, but we will have organized; and organizing is the essential prerequisite to meaningful change. Organizing, and learning to think radically.
Consider. Nearly 60 years ago, the black citizens of Montgomery organized a bus boycott and everything changed. Everything! Boycotts can be extremely powerful weapons, and after 40 years on the losing end of class warfare, we need all of the weapons we can muster.
It's almost too easy. The makers of Wonder Bread give 99% of their corporate donations to Republicans. Ok, switch to another bread. And never switch back. Do you find executive compensation at Coca Cola obscene. Switch to Pepsi, or better still to something that might actually be good for you. Find virtually all of Walmart's policies deplorable, use Costco. Do any of us ever need to drink Coors beer again? The power of the boycott resides in the fact that even a 5 or 10% cut in sales can be crippling for corporations dependent on continuous growth.
Citizens United granted weapons to our oligarchs, which they are using with great effect. We should respond with our own weapons, selective boycotts. We control our spending, and with that comes enormous power, the power to change ourselves and the power to change our society.
Chilena
New York, NY 10 May 2014"Even if Stanford divested itself fully of all its stocks, both fossil and nonfossil, it would probably take the market less than an hour to absorb the shares."
You could also say that Rosa Parks was just one lady on a bus, and Montgomery was just one city in a belt of Jim Crow states populated by millions of committed racists, and really the NAACP shouldn't have bothered trying to put a movement together....
Organizing is more than the sum of its parts. A bus boycott, freedom riding, sitting in, and marching did not cost racist institutions exactly enough money that they acquiesced to passing the Civil Rights and Voting Rights Act. The divestment movement did not cost South Africa exactly enough money that it was forced to end apartheid. Apparently leaders do not make decisions based purely on economic calculations. I suppose fossil fuel executives might be more homo economicus than American or South African politicians. But they probably also have some capacity for shame, or desire to be thought of as decent people, or tendency to make slightly panicky decisions, just like any other human beings. I don't know for sure - I've never been in a boardroom when the powers that be decided to give in - but I think those sensitive, irrational points are where activism somehow ends up having its effect.
Your analysis of the anti-apartheid divestment movement was a worthy inquiry, but it is sort of like dissecting a body, then being surprised not to find a soul in there.
Alex Hall
Los Angeles 10 May 2014This reminds me of arguments for opting out of voting in national elections. "I don't vote because one vote won't make any difference," some say. But if enough people on your side make that calculation, the election outcome won't be in your favor. And if enough people on your side do decide to participate, your side just might win. And so it is with the the movement to deprive the fossil fuel industry of more capital to keep polluting the planet. Someday enough investors may join to make a difference, and somebody has to start that snowball rolling. Thank you Stanford, for doing that.
Nathaniel H.Thorn
Poughkeepsie, NY 10 May 2014Ok. So the professor can prove that Stanford divestment is like an individual "spitting in the ocean". He dismisses the notion that "economic or symbolic pressure" have ever succeed. But then proceeds to only prove less than half that statement. He can show that divestment does not represent a significant percentage of the capitalization of the companies targeted. But he never explains how that proves his point.
He could not find a measurable link between the South African boycott and the valuation of South Africa's economy. So he concludes that the end of apartheid and the boycott just happened to occur at the same time. His conclusion appears to be that the end of apartheid and the boycotts of South Africa happened coincidentally. No relation, the one to the other. Seems like a specious argument, but maybe he's right.
Still I applaud Stanford for their actions. Because maybe he's wrong. And as for the alternatives the author suggests at the end of his article: why not encourage Stanford to do ALL these things and divest? When it comes to saving this planet's ecosystem, it would be better to look back and say we did too much than to look back and realize we did too little.
Helena Sidney
Berlin, Germany 10 May 2014Divestment is a powerful public relations and education tool, and that would seem to be Stanford's point here.
It's interesting how much resistance is voiced to multiple, decentralized solutions to our energy problems, perhaps out of an underlying fear that small steps--taken by individuals and individual institutions--could change the game entirely. For example, nothing has so convinced me of the high potential of solar as the Koch brothers' attempts to punish solar users.
David M. Ellis
Yatesville, GA 31097 10 May 2014I agree with the flow of the four other post already stated. Divestments do matter and in this case DOES MATTER. We are no longer talking about hotter summers and not so cold winters. Capital must move into renewable resources in a sustaining way as if the future matters. For it does matter. When blocks of money move out of fossil fuels it becomes free to be invested in renewable energies. It will go somewhere else. If enough follows it into renewables and mainly carbon capture fast enough we all miss the big one. What is the big one? Our ability as a species to live in peace and harmony with our environment. We are starting to understand that we have no choice in this equation. If we do not end our addiction to fossil fuels we are going to be consumed by this addiction and we will be some future life's fossil fuel. Even if that life turns out to be lots of bacteria.
Matt
Philly 10 May 2014I think the argument concerning apartheid is spot on. De Klerk saw the writing on the wall. Concerning climate change there is no writing yet because affordable zero-carbon solutions are available. Instead of using divestment to get the energy to see writing on the wall that isn't there yet, it would be better for universities to actually invest in carbon free research like next generation nuclear. That way they're putting the writing on the wall themselves for industry to see
Paul Muller-Reed
Sunderland, Ma 10 May 2014Actually divestment of fossil fuel stocks is a financially sound decision. Their value will be declining significantly over the next decade. Not only will response to climate change make their business's less valuable, but declining stocks of cheap oil and risk pricing of coal will slice large amounts of market value from their stocks.
Otto
Winter Park, Florida 10 May 2014Perhaps the economic impact of divestment is too small to matter. On the other hand, the moral factor, which you mention, has multiple dimensions, some of them quite personal. I would certainly not have wanted to own stocks related to investments in South Africa back in the 1980s. Right now, I feel similarly about WalMart, a company whose labor-related and other policies strike me as so unconscionable that I don't want to have any connection with them. Recently, when I received a modest bundle of stocks as a gift from my family, the first thing I did was to sell off the WalMart and tobacco company investments. Felt good.
Tom
Boston 10 May 2014Moral decisions are often about changing our own behavior, not someone else's. In this case, there is also a financial concern: the risk of loss due to fossil fuel assets declining value in the face of regulations or lower demand. It is a substantial risk that need to be managed.
Kate Brunette
Washington, DC 10 May 2014As a student leader in the fossil fuel divestment movement, I would like to correct the author on a few points. He makes the central argument that divestment is ineffective because it will have no economic impact. Yet as leaders in divestment campaigns across the nation know, this is a political campaign, not an economic one. No one is fooling themselves thinking these campaigns will bankrupt Exxon. The real goal of the national divestment movement is to begin a moral and political conversation about the role of fossil fuel companies in today's society. The author is correct in identifying the lack of clear cut alternatives to fossil fuel use. Yet it is the fossil fuel industry itself actually campaigning against policies to transition to a clean energy future. At the same time, thousands die and millions more are displaced each year as a result of climate change (WHO). Divestment asks us all to consider the moral implications of investing in companies committed to profiting from climate disaster and to create political space for meaningful climate action (which a recent University of Oxford study has shown to be successful with previous campaigns).
Harvey
New York, New York 10 May 2014What is the role of the Stanford endowment? Is is to secure the future of Stanford financially, or is it to use its resources in an attempt to shape the world to the views of the Stanford faculty and student body? Even if it is latter, which is doubtful, why focus on the divestiture of fossil fuels companies before the divestiture of all companies doing business with countries that annex other countries or the divestiture of all companies doing business with countries that don't fully embrace democracy?
Jesper
Denmark 10 May 2014The author writes " Fossil-fuel companies are supplying a market demand, one that for the time being cannot be met by other fuel sources. Divestment won’t change that calculus."
This is a wrong statement. In Denmark the Danish Association of Engineering has shown how our energy demand can be met without fossil fuels, and globally there are plenty of alternative energy resources, that can cover our demand (which, of course, can be reduced too). The problem is that it requires a lot of new infrastructure, political willpower etc.
But to say that the demand cannot, for the time being, be met by other energy resources is certainly erroneous, the energy is there, its just a question of harvesting it.
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