Could Beloit College divest from fossil fuels?
This article was originally published on Nov. 23, 2015. A shorter version appeared in the print edition.
Since Swarthmore College started the first campus campaign to divest from fossil fuels in 2011, over 450 institutions around the world have committed to some level of fossil fuel divestment. Beloit College was one of almost 200 colleges and universities that signed on to the South African Apartheid Divestment movement of the 1970s and 1980s. It is considered one of the most successful divestment campaigns, largely because of the involvement of student activists.
Decades later, in 2010, the College faced $60 million in bond debt, which few banks wanted to take on during the economic recession. JP Morgan and Chase Bank, which Forbes ranked as the sixth biggest public company, were willing to take on the debt, as long as it had control over investing the College’s endowment. The $130.7 million has since been invested into a portfolio of diversified mutual funds, with oversight from the Board of Trustees. Prior to JP Morgan, State Street Global Advisors managed the endowment. There are thousands of assets in each package; the Financial Asset Management Committee, consisting of eight trustees, can choose how much money to allocate to each fund, but cannot request what companies the funds are invested in.
Neither Laurie Stickelmaier, Vice President for Finance and Planning and College Treasurer, nor President Scott Bierman have looked at what specific firms are included in the portfolio. Stickelmaier also argues looking up individual stocks where money is invested at a point in time is “nonsensical” considering the investments change each day. Bierman, holding a Ph.D in economics from the University of Virginia, says he “would be really surprised if we didn’t” have stocks in fossil fuel extraction companies.
The fossil fuel divestment campaign is the fastest growing divestment campaign, according to a study by Oxford University. In less than half a decade, approximately $2.6 trillion dollars has been divested from commitments from faith-based organizations, foundations, pension funds, governmental organizations, colleges and universities, NGOs, for-profit corporations, health organizations and others.
Fossil fuel and apartheid divestment are only two such campaigns. In 2005, Palestinian civil society issued a call for global boycotts, divestments and sanctions against Israel until it complies with international law and Palestinian rights. Known as the Boycott, Divestment and Sanctions (BDS) Movement, more than 30 U.S. student groups support the goal, with many more continuing to join across the globe. This summer, Columbia University became the first U.S. university to divest from the private prison industry. Other successful divestment movements in the past include those targeting tobacco companies and violence in Darfur.
Fossil fuel divestment does operate differently than these other campaigns, though there are some similarities. The movement’s goal was never to bankrupt fossil fuel companies. Instead, divesting relies on morally and politically stigmatizing those companies. As Bill McKibben, founder of global climate change organization 350 and one of the key figures in the divestment campaign, remarked in a New York Times op-ed, “if it’s wrong to wreck the climate, then it’s wrong to profit from the wreckage.” Another element is fossil fuel companies’s precarious grip on economic and infrastructural power. Fossil fuel reserves store more than three times the amount the globe could burn without breaching the generally agreed upon threshold of temperature change, McKibben explains. Fossil fuel companies continue to extract these reserves and look for more. This leads to a “carbon bubble” of trillions of dollars of assets that may end up being meaningless.
Bierman, aware of the College’s involvement in Apartheid divestment, notes the two campaigns are different. “[Divesting from apartheid] may have had more direct impact on decision making by the government. Those are details but those details matter,” he says, noting that coal doesn’t rely on financial markets for profit, while divesting from Apartheid more directly affected South Africa’s economy.
Acknowledging the scientific consensus that anthropogenic climate change is real and likely to worsen, he commented, “I’m a little uncomfortable calling [fossil fuel divestment] a moral issue.” He elaborated, “So suppose the price of energy were to triple? Seems to be that just different people are hurt. I don’t know I can make that choice.”
This sentiment reflects — almost — the College’s stance on Apartheid divestment. Then President Robert Hull remarked that the institution should not be governed by personal views and instead “maintain neutrality to the extent possible in any such moral or political issues,” according to the “Minutes of the Investment Committee of the Board of Trustees,” on May 24, 1985. Yet the College divested anyway.
Tristan Glowa, a sophomore at Yale College, is a student organizer for the school’s divestment campaign. The financial situation differs widely between Beloit and Yale, whose $24 billion endowment is privately managed. However, Glowa sees the campaign as a moral issue. “This is a moral imperative that institutions of higher learning must act on – colleges and universities have weighed in on the morality of investments in the past, such as in the case of divestment from Apartheid or tobacco,” he says. “To assume that it is possible to stay apolitical when our schools are invested in injustice is to ignore how political this industry is.”
Stickelmaier and Bierman, along with at least a few professors and administrators, agree with Harvard economist Robert Stavins, who visited in Sept. 2014 for the Upton Scholar residency. Stavins argues divestment is a “feel-good measure” that substitutes for real change, like pushing for “strong government action.” Universities and colleges should focus on what they do best: research.
Economics professor Warren Palmer, who teaches the Environmental Economics class, would like to see infrastructural changes. Instead of “symbolic action,” he says, “Beloit College could install a large-scale solar PV array on campus. The impact of such an installation is easy to see, easy to measure and contributes directly toward what the world really needs to be doing: continuing to develop low-cost renewable energy technologies that beat fossil fuels in the market place. The trend toward achieving this is promising.”
Beloit College’s Sustainability Plan seems to provide the most tangible contribution to fighting climate change. Since hiring Lindsay Chapman as Sustainability Coordinator in 2014, the College has made some significant changes at the institutional, financial and cultural levels.
While Chapman has considered divestment, she doesn’t consider it a viable option. “When the campus was crafting the Sustainability Plan back in the spring of 2014, I pursued divestment as an option to include in our 3-year sustainability plan,” Chapman says. “After having a few internal interviews as well as looking into some external research, I concluded that divestment wasn’t an initiative that we could partake in right now at Beloit College, as some other small liberal arts colleges have been able to do.”
“I dream of solar or wind generated on campus, but those are expensive endeavors in a political climate without many renewable energy incentives at the moment,” she says. Instead, she has focused on other infrastructural changes.
Beloit College’s energy comes from Alliant Energy. According to their website, the electricity comes from 48% coal, 18% nuclear purchased power, 18% purchased power from variable sources considered renewable, 7% natural gas, 4% purchased power from wind, 4% wind from Alliant generated wind farms and 1% other.
“We are making small strides to reduce the College’s carbon footprint,” Chapman says. “Our baseline year — the 2013-14 academic year — includes both scope 1 and 2 CO2 equivalent greenhouse gas emissions. For the 2013-14 academic year we generated 10,734 metric tons, and last year that number dropped to 10,462 metric tons,” she adds. “In terms of energy, last year we used over 8.8 million kwh of electricity and over 736,000 therms of natural gas, together costing the College over $1.1 million,” Chapman adds. That means the College reduced its energy use by 5.9 percent compared to the baseline year. When taking into account abnormal weather, however, the reduction was only 1.6 percent.
Political Science professor Pablo Toral, who teaches Global Political Ecology and whose research focuses on environmental issues, is interested in the movement but sees it as mostly symbolic. “If we were good at investing, we would just do that,” he says. Education is where the College can make the most difference, he says, so he tries to focus teaching students methods, skills and tools. He brings climate change into courses because “it’s a pressing issue,” but it’s “not my job to teach students how to think about the world.”
Bierman agrees. “It’s not obvious to me that institutions are not abdicating part of their responsibility [by divesting].”
Clare Lanaghan’19 sees it a little differently. “I think part of the education Beloit is trying to give every student who comes here is a sense of the world around them, and if the college itself is not looking at how it is affecting the greater world, that is just hypocritical,” she says. “Just like the socially or environmentally or personally responsible choices the college would hope we make as students, I think we have the right to ask the same of Beloit.” Lisa Colligan’19 agrees, arguing that by not divesting, the College is “betraying the sustainability movement of Beloit.”
Symbolic or not, Glowa also sees the global campaign as part of a bigger picture that leads to a new future. Along with divesting, institutions are also called on to re-invest money into sustainable initiatives. “Divestment is a solidarity tactic in the fight for climate justice and against the exploitation and destruction caused by extraction economies, the way the fossil fuel industry perpetuates colonialism, racism, and classism, and the need to reinvest in a just transition towards a new economy!” He adds, “For a mass movement to tackle climate justice, we need to build momentum to polarize public opinion and dethrone the fossil fuel industry, call out the impacts of corporate power and exploitation, and propose a vision for a different energy system and economy.”
Stickelmaier looked into divestment while at her previous colleges, St. Mary’s in Indiana, and the College of Wooster in Ohio. While at Wooster, Stickelmaier worked with the institution and city to switch energy sources from a coal plant to natural gas. She would have preferred wind or geothermal, but those were impractical or too expensive.
She also helped implement sustainable infrastructure, such as water bottle filling stations, LED lights, and low-flush toilets, which “saved 15% on energy costs,” she says. “I’m really involved in this stuff, and it’s really important to me, but I believe we all have to take responsibility,” she adds. What does responsibility look like to her? “If the federal government would invest in these different kinds of alternative energies, if we actually put some real money into them, and they were available, and they were cheap, what would happen to the oil stocks? Over time, nobody would want to buy them, right?” she says. “But that doesn’t happen. Why doesn’t it happen? Because people aren’t screaming loud enough for it to happen. I think all of our votes make a huge difference.”
Nissa Parker’18, who is currently working on a sustainability initiative to reduce energy use of washers and dryers, thinks divestment is an example of that very same responsibility to act. Even if divesting will not “reverse climate change,” she says, “it is important for the school to divest because the solution to climate change will not rest in the responsibility of one individual or institution — it has to be a collective effort.”
Ari Cocallas’16, who works for the Sustainability Office, agrees. “Whether we like it or not we live in a world that is governed by money so every dollar acts as a pseudo-vote for or against the ideals and goals we spend our money with. If the college wishes to make a strong statement about our commitment to environmentalism and social justice then divestment is in my mind the right thing to do.”
At Beloit, Stickelmaier feels divesting with the College’s debt could jeopardize student scholarships. The college accumulated $4 million in cash deficits from the years 2012-13 and 2013-14. According to Stickelmaier, “This was caused by the drop in student enrollment, increasing expenses to operate the college and payments on bond debt. The deficit was improved by expense reductions and revenues increases of $3 million,” she says.
Because of JP Morgan’s performance, the College has been able to provide an increasing amount of scholarship money to students. College-funded scholarship money, meaning without state or federal external money, and that comes from the operating budget with some coming from the endowment, totaled $21.5 million in 2011-12; $22.7 million in 2012-13; $26.3 million in 2013-14 and $27.1 million in 2014-15, according to Stickelmaier. She adds, “The College’s operating budget and other areas of expenditure receive 4.5% of the average market value of the endowment for the past three years, annually, to spend.”
This $55 million debt would also make it difficult to re-invest with a different bank. According to Stickelmaier, the College is rated B-double-A under Moody’s Investors Service, which rates bond credit from triple-A to a single C. “And we have what’s called a negative outlook by Moody’s. So right now, there really isn’t any other bank that would want to take our bonds in total,” she says.
According to the College’s Allocation and Performance document as of June 30, 2015, one year after investing, the College received an 3.96 percent return on its investment, and an annual average of 11.3 percent after 3 years and 10.88% after 5 years. Stickelmaier adds, “I believe that over the next few years, as we improve our finances here, that outlook will change and we might be able to change our situation down the line. But we’re talking about a few years down the line.” Even if that were the case, I don’t know that the Board would want to divest in those kind of stocks.”
“It really would be costly for us to leave JP Morgan,” Bierman says. The firm does have socially aware asset packages available, targeting many different social movements, but these haven’t been pursued. Stickelmaier and Bierman speculate they would likely lose too much performance.
While Stickelmaier is concerned about divestment jeopardizing the College’s budget and negatively affecting scholarships, Bierman is much more concerned about divestment on principle. In fact, he doubts fossil fuel companies represent enough of the portfolio that it would have a significant impact on returns. He’s had a “variety of conversations with students” over the years about the possibility of divesting, but calls it “cheap talk.” Recognizing that “too much carbon is being consumed,” he would prefer a push for policy changes. “The price of carbon is too low. If you believe that the price of action that people could take around it, that would create a huge incentive for firms to switch over to [renewables],” he says.
Even if the College was not in debt, he still sees it as a “waste of time.” Another school would buy the stocks anyway, he says. He adds, “Furthermore, [divesting] takes you out of the vote of whether there’s any change,” since Beloit would no longer have a say with the firms it is invested in.
“It’s symbolic,” he says, adding, “and I think the jury is still out as to whether that symbolism has had any impact whatsoever. We sit on these fantastic institutes of higher education which have the enormous power to educate and change the way that people think about real things that happen. And why not aim the power of education towards real things as opposed to symbolic things?”
What about doing both? “People only have so much time to devote to these things. So if time were free, I might say, yeah it might make sense to do both, even though there’s no real consequence to a symbolic act,” he says. “Maybe that symbolism has some kind of long-run consciousness-raising quality to it, but it’s not obvious to me that’s less than consciousness-raising associated with doing real things. It just feels so wasteful.”
Real or symbolic, the divestment movement continues to grow on College campuses and other institutions across the world. Given administrative reluctance and unorganized student interest, it remains to be seen whether or not Beloit College can — or will — join the fight.
Sources: BDSMovement, Forbes, Go Fossil Free, The Guardian, The New York Times, NPR, Rolling Stone, 350