It should be easy. We see a situation that we students disagree with. We advocate to the school, to the Board of Trustees, that CC should not be invested in fossil fuels, and that it clearly goes against our values. The administration responds that the issue is not that simple; it is not as easy as we think it is to divest.
I was one of many students who found fault in CC’s investments in fossil fuel companies. So, I thought I would fact-check the administrations claims and see if it really is that difficult to divest from fossil fuels. The unfortunate truth is that they’re right. The self-perpetuating system that leads to CC’s investment in fossil fuels extends beyond the choices CC is making, ultimately saying more about Wall Street than it does about our college. Almost every college suffers from the same problem because almost every college invests their endowment with investment managers on Wall Street. The dynamics of Wall Street are at the root of the administration’s claim that divestment is trickier than we think.
Over the past few months of dialogue between CC and its students, the administration has clearly laid out the importance of maintaining the endowment through a minimum rate of return. Without a certain rate of return, the endowment shrinks, and either tuition goes up or CC starts cutting events and offering less to the students.
The college invests in certain money managers because they have demonstrated a history of strong returns. The college defers to their expertise because they trust that the investment managers will make informed investments. The first issue the college runs into with divestment is that it is unwilling to divest without the guarantee of a similar or better rate of return on their investments. I believe the college is right to emphasize the growth of the endowment, and I think that most students would agree if the consequences of a shrinking endowment were another $5,000 added to tuition or the cancellation of Llamapalooza.
So can we students find a way to guarantee a strong return on the endowment while also divesting from fossil fuel companies? David Cully made a great point in his article last week that CC’s fossil fuel holdings have performed worse than the market average. So it would then logically follow that CC should dump the polluters and the endowment would do even better. Again, unfortunately, it’s not that simple.
The investment manager who Cully focuses on in his article manages over $6.6 billion for over 91 clients. Although the $142.6 million that CC invests with that manager seems like a lot of money, it is only a small part of their portfolio. For the typical investment manager, CC’s limited amount of money is not enough to influence their decision-making.
Also, Colorado College doesn’t get to choose which parts of the portfolio they want to invest in; it’s either all or nothing. So divestment doesn’t just mean tossing out the bad stocks and keeping the good. The process involves finding a new money manager who doesn’t invest in fossil fuels.
I thought that would be simple enough, but remembering that the endowment demands an investor with a proven track record, and including the additional parameter of “responsible” investing, significantly narrows the options. Adding to the trouble is the need for diversity in assets so that a downturn in a sector of the economy would not devastate the endowment. So suddenly, instead of thousands of managers to choose from, CC has limited itself to a select few.
There are successful, socially responsible investment managers, and concerned students should continue to research and present to the school viable alternatives to the current investment strategy. Furthermore, a quick Google search shows that there are students at hundreds of kindred schools who are also concerned about endowment investments.
Although CC’s endowment alone garners no cash on Wall Street, the combined influence of hundreds of institutions can emphasize the need for additional socially responsible investors. On Wall Street, where the money goes the talent follows.
However, even if divestment is successfully implemented, the impact on the fossil fuel industry is most likely limited. The investing process is analogous to a bet placed on a football team – the team’s success or failure impacts the bettor’s return on their bet, but the bet has no effect on the team.
In the same way, when CC’s investment manager buys stock in BP, none of the invested money goes directly to BP. The our nation’s constant use of petroleum gives money to oil companies, not investments made on the stock market.
If all the universities in the United States removed all their money invested in fossil fuels, the oil companies’ stock price could initially be negatively impacted. But oil companies would still be highly profitable, and Wall Street investors would leap at the chance to invest in a profitable and now undervalued industry. The stock price would rebound.
Unfortunately, I believe that divestment, even if carried out at a national level, would have little impact on either the use of fossil fuels in this country or the economic health of the fossil fuel companies. Ironically, by selling our stocks in fossil fuel companies, CC has less potential to influence the fossil fuels industry—as a stockholder, CC could advocate for change from within corporations. I don’t, however, believe that divestment is worthless. Symbolic acts have value. If our campus doesn’t believe in investing in fossil fuels, then we should look to invest elsewhere. But if the impact of divestment is limited, perhaps our time and passions are better spent on other causes.