Ethical economics: assessing the effectiveness of university divestment campaigns

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Divestment campaigns at universities have targeted a diverse range of issues in the last several decades, varying from South African apartheid in the 1970s to companies involved in fossil fuels today

Divestment is the reduction or elimination of investment in a particular company or sector for ethical and social reasons. In the last few years campaigns have sprung up at universities across Canada and around the world, including student group Divest McGill’s campaign for the university to divest from certain companies with connections to fossil fuels.

This week, the Tribune takes a look at university divestment campaigns to understand the ideas behind divestment and the arguments for and against it.

Historical instances of divestment

In the past, university divestment campaigns have focus on several different issues. One campaign that is often cited as a success was against companies that did business with apartheid-era South Africa in the ‘70’s and ‘80’s. Hundreds of universities and other institutions around the world took part in this campaign, including over 20 from Canada.

The campaign against South African apartheid was one of two instances where McGill chose to divest. The second was the divestment from tobacco companies in 2007.

However, McGill’s Director of Internal Relations Doug Sweet said other factors may have contributed to the success of that movement.

“At the same time as divestment, there was also a pretty widespread global boycott against some South African products, like South African wine,” he said. “That probably had more economic impact than divestment.”

Unlike divestment, boycotting is a practice undertaken by individuals rather than institutions.

Effectiveness of divestment

There is an ongoing debate on how effective divestment campaigns really are, and whether or not they are a wise decision for universities.

According to Divest McGill Coordinator Bronwen Tucker, divestment is a good financial decision for universities because fossil fuel companies will decrease in value in the future.

However, John Limeburner, McGill’s executive director of investments, said that divestment would be both inefficient and unwise in the case of their companies because divestment hardly affects the companies financially.

“At the end of the day, even when someone divested, there [is] someone else there to buy [the stocks] there at a bargain,” Limeburner said. “When you sell a stock and divest, you are not taking money out of the company’s pockets but out of the pockets of the investors by making the price [go] down, and that’s another opportunity for others to come and buy it at a lower price.”

Limeburner added that divestment would leave McGill in a financially volatile position.

“Taking these sectors out and not investing in them would leave us with an undiversified portfolio,” Limeburner explained. “The risk there is that you have swings of higher volatility, which is what happened in the year of 2008/2009, and that’s what we try to smooth out by having a diversified portfolio to different sectors, countries, and types of assets.”

Tucker argued that the current stock price may not reflect the companies’ stabilitiy.

“The evaluation of fossil fuel companies on the stock market are completely based on them being allowed to burn all the reserves that they have; those companies are not as valuable as their stocks right now,” Tucker said. “It is called the carbon bubble—which is similar to the housing bubble that is associated with the recession. There are a lot of banks coming out saying that carbon investments are risky.”

Since the sectors of energy, materials and financials­—all of which are involved in fossil fuels—comprise of  70 per cent of the Canadian market, if McGill were to divest from these sectors, their portfolio would be severly effected by any fluctuations within the market, according to Limeburner.

However, Divest McGill member David Summerhays said that promotion of university divestment does not primarily intend to financially affect subject companies.

“We expect university divestment to raise a ton of awareness about the problem and not directly harm the share price of fossil fuel companies,” Summerhays said. “McGill and many other institutions divested from tobacco in the past 20 years, and we’ve seen a wave of health-protecting legislation across the world.”

Divest McGill and the campaign to divest from fossil fuels

At McGill, a recent movement has resulted in the creation of Divest McGill, although the group’s campaigns have yet to be accepted by the administration. Its current platform calls on McGill to divest from the top 200 fossil fuel companies in the world by carbon reserve and 36 companies involved in the oil º sands.

Earlier last year, Divest McGill petitioned the Board of Governors to divest from fossil fuel companies in its investment portfolio.

According to Tucker, the divestment movement to prevent climate change began two years ago.

“There have been lots of fledging climate movements in the past, but none of them have been engaging students,” Tucker said. “We’ve known about climate change for 20 years, but there is kind of larger scale change that needs to happen in terms of government and corporate policies.”

Several small colleges in the North eastern United States like Unity College, College of the Atlantic in Maine, and Sterling College have already divested from fossil fuel companies and many of them are focused on climate change.

However, Todd Pettigrew, associate professor at Cape Breton University, argues in his article “Ethical investing isn’t as easy as it sounds” in Maclean’s Magazine that unethical companies are difficult to define.

“There are almost no easy cases—every investment is bound to have its pluses and minuses, ethically speaking,” Pettigrew said.
“So, while ‘no unethical investments’ sounds great at a protest rally, the slogan rings hollow the moment it’s really tested.”

Other universities across Canada and the world also have divestment campaigns—for example, the University of Toronto’s group, Toronto350.

“The threat of climate destabilization is the main driving force behind this campaign,” Toronto350 President Stuart Basden said. “With that in mind, fossil fuels have no place in the liveable future. We are trying to work within the bureaucracy to change things.”

Although McGill currently maintains such investments, Summerhays said he is looking forward to future opportunities to achieve their goals.

“We’re optimistic that we can iron out a concrete way forward that would preserve the divestment impact while keeping a balanced portfolio that would put Limeburner and the [Board of Governors] at ease,” he said.

Errata: A previous version of this article included an infographic that was incorrectly labeled as “McGill investments in various sectors of the Toronto Stock Exchange as of Dec. 31, 2013.” In fact, the data represented the breakdown of the S&P/TSX as of Dec. 31, 2013, not the McGill Investment Pool.

In addition, the table below the infographic stated that 71.8 per cent of McGill’s investments were in sectors that had connections to fossil fuels. This is incorrect. The sectors in question comprised 71.8 per cent of the Canadian market, not the McGill investment portfolio.

The Tribune regrets these errors.