Timothy Spurlin: Fossil fuel divestment is complex but necessary

Thursday, October 24, 2019 - 5:38pm

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The Michigan Daily

This year, the University of Michigan saw the development of a massive ongoing student protest regarding climate change on campus. Thousands of students, faculty and community members attended the climate strikes held on the Diag last spring and again this fall, highlighting just how important fighting climate change is in students’ minds. On Oct. 10, some of the students who were arrested at last year’s sit-in at the Fleming Administration Building following the strike appeared in court to fight the charges.

The movement itself, headed by a coalition of student groups and individuals known as the Climate Action Movement at the University of Michigan, includes many demands involving the University’s current climate policies. One demand involves the complete divestment of fossil fuels from the University’s endowment. Last year, it was calculated using information from the University’s 2017 financial reports that roughly $1 billion of the total $12 billion endowment is tied up in investments related to fossil fuels. This raises two questions: how can the University’s carbon neutrality pledge and current climate action plans coexist with their investments in fossil fuels? And what would the actual effect of divestment be? 

What exactly is divestment, anyway? Divestment is the process by which a company or institution sells off stocks or financial assets for a certain cause, often associated with an intentional statement of protest. The thought process behind it is if a large number of big investors intentionally pull their resources, the affected party will be forced to cease whatever bad practice has drawn criticism, or simply become financially damaged altogether. In the case of the climate movement, we and other institutions ought to divest from fossil fuels to stand against the industry, which is responsible for worsening the issues of climate change. 

The University is no stranger to calls of divestment, as other student activists have called on this tactic for social change in the past before. The only successful divestment campaign on the University’s campus was back in the ’80s, when students pressured the regents to fully divest from companies that did business in South Africa in response to Apartheid. More recently, the Boycott, Divestment, Sanctions movement (BDS)  on campus tried to push the University to divest from Israeli companies in response to the ongoing dispute and violence in Palestine. The University put out a statement that its “longstanding policy is to shield the endowment from political pressures and to base our investment decisions solely on financial factors such as risk and return.”

Given the pretext that they will indeed only divest based on risk and returns alone, should they divest now? Based on some recent financial analysis, yes. According to a 2018 report from the Institute for Energy Economics and Financial Analysis, there is a legitimate case for divesting from fossil fuels. Fossil fuel stocks are now increasingly speculative. According to IEEFA, “Current financial stresses — volatile revenues, limited growth opportunities, and a negative outlook — will not merely linger, they will likely intensify.” Suffice it to say, investment in fossil fuels is likely to become riskier over time, and it would be a smart financial decision by the University to divest.

Everything is a trade-off, and divestment is no exception. One of the biggest questions surrounding divestment is how effective it is in actually fighting emissions. A 2018 report published by the Political Economy Research Institute, found “that divestment campaigns, considered on their own, have not been especially effective as a means of significantly reducing CO2 emissions, and they are not likely to become more effective over time.” This is a concerning fact that needs to be kept in mind during these discussions.

Another issue is who gains control of companies once stocks are sold from divesting firms. It could be the case that if we were to sell our holdings, another less-climate-friendly group could buy up shares, who could put less pressure on fossil fuel companies to have better practices. By holding onto our investments, we could take a so-called “one hand on the wheel” approach. This is a double-edged sword: On the one hand, we want the ability to nudge bad actors in the right direction. On the other, holding onto our assets means financing something we do not support.

Still, it seems wrong that the University holds onto such a large investment in an industry whose values are so misaligned with the University’s climate goals. It is important to remember that divestment, as big and complicated as it is, is ultimately a moral decision at its core. When the University divested from South Africa it wasn’t a financial decision. It was because students stood strong and demanded the University act. It is understandable to want to avoid politicizing something as big and important as the endowment, but climate change is not really a political issue — or at least it shouldn’t be. If the University is actually committed to being a leader in the climate action space, then divestment from fossil fuels needs to remain on the table as a serious possibility. We can’t have it both ways.

Timothy Spurlin can be reached at timrspur@umich.edu