Is "voting with your money" the best way to solve a problem? Activists have long pressured colleges and universities to affect change with their endowments by divesting funds from companies or organizations they see as socially irresponsible — or even "morally evil."
The most successful instance of higher ed divestment arguably occurred during South African apartheid, when colleges and universities were among organizations that sold off stocks in companies that did business in that nation. Georgetown University, for example, divested $28.6 million that accounted for 16% of its total endowment. While the actual financial impact made by South African divestment efforts is a matter of debate, the effect the increased visibility had on public opinion is seen as a factor in the end of apartheid.
Today, colleges and universities face pressure to divest on a number of hot button issues, with recent efforts focused notably on fossil fuels and tobacco.
The idea of "going green" has been popular among students and faculty for several years now, and rankings like the Sierra Club's list of America's greenest universities have only propelled the movement. Over time, however, some campuses have gone from simply installing solar panels or adopting biodegradable containers and silverware to actually pulling investments in fossil fuel companies.
Earlier this month, Stanford University made headlines when it announced it would divest its massive $18.7 billion endowment from coal companies (it retains its oil and natural gas investments), opting instead to invest in alternative energy sources. It was the largest endowment to be divested thus far, making it particularly noteworthy. These moves are often accompanied by student or faculty action. In Stanford's case, the administration had been petitioned by the student organization Fossil Free Stanford. Ultimately, it's a symbolic move that also makes sense when paired with Stanford's research into sustainable fuel development. California Gov. Jerry Brown has since urged the University of California System to consider divestment, as well.
In all, 12 universities are listed by the Fossil Free Campaign as having committed to divest from fossil fuel companies.
Not everyone is sold, though. Columbia University's Advisory Committee on Socially Responsible Investing announced on May 15 that it would not support a proposal to divest from fossil fuels — though it also noted in the rejection that it doesn't currently own stock in any top-200 public coal, oil, or gas companies, and that its rejection of the proposal wasn't a general recommendation on fossil fuel divestment.
Harvard President Drew Faust, on the other hand, cited concerns over not wanting to position the university politically in his rejection of fossil fuel divestment, while Middlebury College President Ronald D. Liebowitz felt divestment presents too much uncertainty and risk. That's an understandable stance, given Swarthmore College's findings that fossil fuel divestment would cost it $204 million in returns over a decade. Cornell officials, meanwhile, questioned whether such a move would have more than a minimal impact on the companies being divested from.
As Inside Higher Ed reported this month, the University of Pennsylvania's Board of Trustees is set to consider next month whether it will divest its $7.7 billion endowment from tobacco companies. The trustees must justify that the companies behind tobacco products "create substantial social injury," but Cory Weinberg's piece also highlights the difficulties of justifying a company's actions or products as "morally evil." Is it the university's place to make such a determination?
Many campuses nationwide already ban smoking, so it does seem odd that they would still invest in tobacco companies. But doing so is also beneficial to their endowments, as tobacco companies have long been a safe bet. Still, U-Penn isn't the first to consider divestment from big tobacco — Harvard pulled its tobacco investments 25 years ago, and while Yale-New Haven voted to do so not long after, Yale University ultimately favored retaining influence to call for more tobacco education and oversight of promotion to minors.
Is divestment too easy, or even irresponsible?
Along the lines of retaining the university's influence as a shareholder, Vassar College Trustee Christine Wood told University Business in 2013 that divestment doesn't have an effective parallel model in society, comparing it to deciding to sell a house because of problems in the neighborhood instead of taking action to address those problems.
Instead of essentially taking the easy way out, Wood suggests higher ed institutions utilize the aforementioned shareholder influence and support groups already working for change on the issue of concern, like the Investor Network on Climate Risk.
Furthermore, the U-Penn debate on tobacco divestment also raises the question of a slippery slope. If you make the decision to pull investments on the grounds that a company's products or practices "create substantial social injury," where is the line drawn? Does an alcohol divestment movement follow, or of companies that have been accused of conducting inhumane animal testing?
While it may not have more than a minimal impact financially, divestment is still likely a powerful symbol move that can potentially create a domino effect when it involves a Stanford or a U-Penn — but there is always more to consider. The desire to maintain political neutrality and/or shareholder voice, as well as foster continued endowment growth, means there's ultimately no simple, one-size-fits-all decision for all institutions.