Divesting of fossil fuels for ethical endowment growth

By Ben Richmond, The Bowdoin Orient 

Just four days after the tragic shooting in Newtown, Cerberus Capital Management, the New York-based private equity firm, announced it would sell its holding in Freedom Group, the manufacturer of the semi-automatic weapon used by the Sandy Hook shooter. 

The New York Times reported that Cerberus made this sale in response to ethical concerns raised by the California Teachers’ Pension Fund, which has over $750 million invested with the firm. 

The move to drop Freedom Group may have surprised many of Wall Street’s rank-and-file, who often assume that an investment’s ethical or social impact is irrelevant. However, Cerberus’ sale is a sign that the times are changing. 

Each year, more investors demand putting their capital in funds that only invest in socially responsible or sustainable business ventures.
As students continue to advocate for divesting Bowdoin’s endowment from fossil fuels, Bowdoin finds itself in the heart of this changing investment landscape. 

If President Mills and the Board of Trustees refuse to consider divesting the endowment from fossil fuels, they will be siding with the Wall Street logic of their generation, which preaches that business and investment decisions should not mix with ethical and social considerations. Frankly, Bowdoin deserves better. 

Bowdoin should assess the feasibility and costs of restricting endowment investments from some of the worst fossil fuel firms. Moving towards divesting fossil fuels puts Bowdoin on track to follow the business logic of current students’ generation—that good investment decisions can go hand-in-hand with the common good.        

Any campaign to divest our endowment from fossil fuels will unfortunately be a long one, as it appears President Mills is opposed to the idea. 

The December 7 edition of the Orient quoted President Mills who stated, “Management of the endowment…is not something which at Bowdoin—or frankly any other institution—is subject to a large democratic effort as to how the money is invested.” 

Contrary to Mills’ remarks, some of the most successful divestment campaigns in history are the products of so-called “large democratic efforts.” For reference, see the divestment campaign which crippled South African businesses and helped end apartheid. 

Bowdoin participated in this divestment campaign based on the demands of students, faculty, the actions of other institutions, and our society’s broad outrage at the events occurring in South Africa. Sounds like a large democratic effort to me.    

If Bowdoin joined divestment campaigns in the past, why won’t it join the current campaign to divest from fossil fuels? 

President Mills argues that in the  South African scenario, “there was widespread national and international agreement that the subjects that we were dealing with were abhorred,” implying that there is not a similar level of agreement about fossil fuel firms.

It is true that there is not broad moral outrage over burning fossil fuels at the same level that there was against South Africa’s institutionalized racism, although it is difficult to even try to compare these two distinct cases. 

Fossil fuels allow us to attain a very high standard of living. They heat our homes, power our cars, and provide us with the majority of our electricity. However, there is a widely accepeted argument that in the long term, burning fossil fuels is not good for the earth, and that it needs to stop or slow to prevent some of the worst consequences of global warming.

Fossil Free, the national organization which advocates for divestment from fossil fuels, recommends divesting 200 publicly traded companies which control the majority of the world’s gas, oil and coal reserves. These are the large energy firms with records of massive oil spills and human rights violations. They are not the local heating oil delivery companies. There is broad consensus that some of these large firms have committed deplorable crimes, and that they do not deserve our endowment dollars. 

The firms on the divestment list include BP, responsible for the Deepwater Horizon explosion, the largest offshore oil spill in U.S. history. 

Dutch Royal Shell—a firm that has refused to clean up repeated oil spills in the Niger Delta area and recently paid $15.5 million to settle charges that it collaborated in the killings of nine political dissidents in Nigeria in 1996, is also on the list. 

ExxonMobil is one of the largest firms on the list, responsible for the disastrous ExxonValdez spill in Alaska.

The list of environmental disasters and human rights violations these companies are responsible for is beyond the scope of this article, but the point is clear—society universally abhors many of the crimes of these large fossil fuel firms.    

Examining past divestment campaigns and the behavior of the largest energy firms seems to present a very practical situation in which Bowdoin would join a “fossil-free” divestment campaign. But another major reason Bowdoin is likely refusing to even consider divestment is that it wants to defend its endowment. Restricting investment decisions means that the endowment might get lower returns, or that it may not grow at the fastest possible pace.
The endowment is important, as it provides Bowdoin with its operating budget and factors into various prestige rankings. Bowdoin’s endowment is pretty close to reaching the $1 billion mark, so we wouldn’t want to slow it down now, would we? 

This desire for more funds and prestige prevents Bowdoin from even considering divestment.
President Mills and other college officials may argue that making investment decisions to maximize the endowment is simply in the best interest of the College. But is it? Let’s say Bowdoin makes amazing profits from investing in an energy firm that improperly disposes hazardous waste. The investment makes sense under the ideology that the investment with the best return is in the best interest of the College. But increasingly, the idea of “social investment” is on the rise in the investment world. 

The Forum for Sustainable and Responsible Investment reports that as of 2012, sustainable and responsible investment (SRI) encompassed a record breaking $3.74 trillion out of the $33.3 trillion U.S. investment market. 

Increasingly, investors want to use their savings to promote ethical business growth. These investments may not be as profitable as just any investment, but the sheer quantity of investments in this sector demonstrate that investments can be both profitable and ethical. 

Most students, faculty, administrators and alumni would likely be willing to accept small changes in the endowment (with its corresponding changes at Bowdoin) in return for investing the endowment in ethical, sustainable businesses.            

The final argument against divesting fossil fuels is that Bowdoin’s efforts to divest would have little impact on fossil fuel use, an argument similar to the one that South African divestment would have little impact on apartheid. 

In December, the Orient quoted Paula Volent, VP for Investments at the College, arguing that, “Markets are efficient and it is unclear if one group of investors decides to boycott a specific sector that there is any meaningful result. Other investors will step in and buy cheaper securities.” Financial professionals during South African apartheid also argued that divestment would have little effect on that nation’s racist policies. Private South African divestment campaigns led to broad government-sponsored economic sanctions and massive capital flight from South Africa. Crippled South African businesses eventually begged the government to renounce apartheid, leading to the system’s fall. 

Divestment campaigns work, and Bowdoin can help to lead a divestment campaign against fossil fuels and help  create real change in the energy sector.

We students belong to a generation that sees investment not only as a means for profit, but also as an indication of our social values. We want to create real change in the energy sector by divesting fossil fuels. 

The question is whether Bowdoin’s decision makers, the Board of Trustees, the Office of the President, and alumni donors will support students in this progressive, exciting and challenging journey. 

The first step is to assess the feasibility of divestment, a threshold at least one of our peer schools has already crossed. I sincerely hope that President Mills reconsiders his position.