Wrong-Mindedness: George Will Recycles Apartheid-Era Claims To Dismiss Fossil Fuel Divestment

Syndicated columnist George Will claimed that fossil fuel divestment is an ineffective exercise in “right-mindedness” that will only serve to harm universities' endowments, returning to arguments he made almost 30 years ago to dismiss divestment from apartheid South Africa. But many financial analysts have determined that divesting from fossil fuels has a negligible or even positive impact on institutions' investment portfolios, and the track record of past divestment campaigns -- including in South Africa -- suggests that the current movement can be successful by stigmatizing the fossil fuel industry.


Will Dismissed Divesting From Both South Africa And Fossil Fuels As Counterproductive “Right-Mindedness”

Will Claimed Divestment Has “Negative” Effect On Endowments, But Effect On Fossil Fuel Consumption Is “Nil.” George Will attacked the fossil fuel divestment movement in an April 16 Washington Post column in which he broadly criticized “propaganda-saturated” universities for embracing “sustainability” in their curriculum and investment decisions. Will alleged that the effect of divestment “on the consumption of fossil fuels will be nil,” while “the effect on the growth of institutions' endowments will be negative.” He added that divestment will hurt alumni giving because alumni will disapprove of universities prioritizing “righteous poses” and “flamboyant futility” over “the goal of expanding educational resources.” [The Washington Post, 4/16/15]

Flashback: In 1986, Will Similarly Dismissed Sanctions And Divestment Against Apartheid South Africa As Faulty “Right-Mindedness.” As Climate Progess' Joe Romm observed, Will's case against fossil fuel divestment "[r]eminds one of his July 1986 piece opposing economic actions against South Africa (including divestment), 'Sanctions Will Hurt The Blacks....'!!" Indeed, Will wrote that "[i]t will cost the University of California $118 million in commissions and other administrative costs to divest itself of holdings in companies that do business in South Africa." He even used the term “right-mindedness” in both columns to dismiss these kinds of activities. [Climate Progress, 4/17/15; The Washington Post (republished on Philly.com), 7/31/86]

But Numerous Independent Studies Show Fossil Fuel Divestment Has Negligible Or Even Positive Impact On Returns

Impax Asset Management: Historical Data Shows Replacing Fossil Fuel Stocks With Clean Energy Investments Would Have Had “Positive Effect On Returns.” In a report about the effects of the divestment of fossil fuel stocks on investment portfolios, the investment management firm Impax Asset Management constructed fossil-free portfolios and found that, over a five-year period, “removing the fossil fuel sector in its entirety and replacing it with 'fossil free' portfolios of energy efficiency, renewable energy, and other alternative energy stocks, either on a passively managed or actively managed basis would have improved returns, with limited tracking error.” [Impax Asset Management, Beyond Fossil Fuels: The Investment Case For Fossil Fuel Divestment, accessed on 4/16/15]

AP: S&P Capital IQ Study Found Endowments That Divested Ten Years Ago Would Have Been “Better Off.” In a study commissioned by the Associated Press, the financial research firm S&P Capital IQ reportedly found that university endowments would have performed better over the last ten years if they had divested from fossil fuels:

The campaign targets companies that own most of the world's coal, oil and natural gas reserves. While many schools argue divestment would harm their endowments, an analysis conducted for The Associated Press casts doubt on that. The research firm S&P Capital IQ found that by one measure, endowments would have been better off had they divested 10 years ago.

The firm calculated the total returns of the broad U.S. market as tracked by the S&P 500 index, with and without the companies singled out by Fossil Free. An endowment of $1 billion that excluded fossil fuel companies would have grown to $2.26 billion over the past 10 years, but an endowment that included investments in fossil fuel companies would have grown to $2.14 billion. That extra $119 million could pay for 850 four-year scholarships, assuming tuition of $35,000 per year. [Associated Press, 5/22/13]

Northstar Asset Management: The Cost Of Fossil Fuel Divestment Has Been “Greatly Exaggerated.” A June 2013 analysis by Northstar Asset Management found negligible costs between 0.07 and 0.15 percent annually for divesting from fossil fuels:

Even if the entire energy sector in an actively managed global portfolio were divested, the expected cost is only 0.15% annually in a 250 stock portfolio with an average annual expected return of 8%. And, if shareholders limit divestment to the top 200 fossil fuel companies by carbon in proven oil, gas and coal reserves,19 then the estimated annual cost falls by half again to 0.07% even with no assumption of any other mitigating factors (e.g., fewer holdings, lower expected return, substitution for divested securities, and so on). [Northstar Asset Management, The Cost Of Fossil Fuel Divestment Has Been Greatly Exaggerated, June 2013]

Aperio Group: Divesting From The Most Environmentally Harmful Stocks Carries “Virtually No Risk Penalty.” A report by the Aperio Group, a financial management firm, found that a portfolio excluding the 15 most harmful stocks as identified by climate change advocates incurs “virtually no risk penalty.” The report added that the impact of divesting from a more comprehensive list of fossil fuel companies “may be far less significant than presumed.” [Aperio Group, Do the Investment Math: Building a Carbon-Free Portfolio, 2013]

And Divestment Campaigns Have Proven Track Record

Oxford University Study: Divestment Can Be Effective By Stigmatizing The Fossil Fuel Industry. A 2013 study by Oxford University found that divestment campaigns can have a significant impact, primarily by stigmatizing the campaign's target, and that this reputational risk “poses the most far-reaching threat to fossil fuel companies.” The report listed some of the negative consequences a stigma can produce, such as a “bad image that scares away suppliers, subcontractors, potential employees, and customers” and the “cancellation of multibillion-dollar contracts or mergers/acquisitions.” The study added that one of the most important consequences for fossil fuel companies is the increased likelihood of new legislation, writing: “In almost every divestment campaign we reviewed from adult services to Darfur, from tobacco to [apartheid in] South Africa, divestment campaigns were successful in lobbying for restrictive legislation affecting stigmatised firms.” The study concluded:

Even if the direct impacts of divestment outflows are meagre in the short term, a campaign can create long-term impact on the enterprise value of a target firm if the divestment campaign causes neutral equity and/or debt investors to lower the subjective probability of target firm's net cash flows. The outcome of the stigmatisation process, which the fossil fuel divestment campaign has now triggered, poses the most far-reaching threat to fossil fuel companies and the vast energy value chain. Any direct impacts pale in comparison. [Oxford University, October 2013]

Wealth Management Firm President: Divestment Aims To Change Discourse In Public Policy. Donald P. Gould, president of Gould Asset Management, said in a letter to The New York Times that one of the main goals of fossil fuel divestment is to change the “public discourse,” and is aimed at those who “craft ... public policy.” From his letter:  

Fossil fuel divestment has two goals, both achievable. First, it aligns actions with values. Colleges intent on weaning themselves and the world from a carbon-based lifestyle should not seek endowment profits from fossil fuels. Call it irreconcilable differences.

Second, divestment changes the public discourse on our collective energy future. It's aimed not at oil companies, but at those who must craft a public policy consistent with a habitable planet. Divestment reminds us -- implores us -- to place society's interests above those of one industry. [The New York Times, 5/14/14]

Wallace Global Fund Executive: Purpose Of Divestment Is To “Raise The Specter Of The Financial Risks And To Compel Ethical Action.” Ellen Dorsey, executive director of the Wallace Global Fund, said to the National Journal that the purpose of fossil fuel divestment is “to raise the specter of the financial risks and to compel ethical action, and also to capitalize the solutions.” She explained further in the Wall Street Journal that divestment is “about sounding an alarm in the financial community about the systemic risk of  'stranded' fossil assets,” and “challenging politicians to take a stand against the donations of the fossil-fuel industry and take meaningful action on climate change”:

Fossil-fuel divestment has never been about bankrupting the industry. It is about challenging the legitimacy of a business model that now threatens lives and livelihoods around the world. It is about sounding an alarm in the financial community about the systemic risk of “stranded” fossil assets. It is about challenging politicians to take a stand against the donations of the fossil-fuel industry and take meaningful action on climate change. And it is about moving money into things like energy efficiency, renewables and clean technology. It is a movement aimed at both shifting markets, while building political power to propel government action on climate change. [National Journal, 9/21/14; The Wall Street Journal, 11/23/14]

Swarthmore Board Investment Expert Advised College To Divest For Financial, Stewardship Reasons. Gregory H. Kats, the President of Capital E, advised Swarthmore College to divest from fossil fuels to maintain “financial prudence and stewardship.” He responded to opponents' concerns that divestment may be ineffective by pointing to the example of South Africa and stating that the decision to divest “would have a very large public relations, moral and leadership impact vastly larger than the dollar amount”:

[Divestment opponents] assert that the exit of fossil fuel firm holdings resulting from divestment would involve dollar amounts too small to have any material impact and is therefore a pointless gesture. However, a divestment decision by Swarthmore and other leading academic institutions would have a very large public relations, moral and leadership impact vastly larger than the dollar amount involved, as demonstrated by the success of the South African divestment movement. [Swarthmore Daily Gazette, 3/5/15]

Vox.com: Symbolism Of Divestment Movement Matters. Vox.com's Matthew Yglesias also compared the fossil fuel divestment movement to that against the South African apartheid regime in the 1980s. He wrote that while it is “unlikely” that divestment had a direct impact on South Africa's financial markets, it was “part and parcel of a larger ongoing campaign that left South Africa socially and economically isolated from the world” and overall “did have an impact” as it “gave campaigners concrete asks that were smaller in scale than whole national-level sanctions.” [Vox.com, 9/22/14]