Divestment campaigns struggle against stock market, profits

HOUSTON — Environmental advocates across the country are urging foundations and universities to sell their investments in oil and gas companies, arguing they have a responsibility to withhold support from companies whose activities contribute to climate change.

Whether the strategy is effective is another question.

Earlier this year, a group of 17 foundations with nearly $1.8 billion in assets announced plans to rid their portfolios of investments in fossil fuels companies.

“We’re all mission-driven organizations,” said Brian Depew, executive director of the Granary Foundation, a Nebraska-based foundation associated with a nonprofit concerned with farm and rural issues. “If we own fossil fuel, we own climate change.”

Meanwhile, activist groups are sprouting up on college campuses across the country, urging schools to divest from oil and gas companies. So far, the movement has had limited success — only a handful of schools have agreed to divest, and those that have aren’t big names — but it’s a movement that administrators are noticing.

Despite pressure from some students, Harvard University President Drew Faust announced in October that the school wouldn’t divest from fossil fuel companies. But this month, she said, the school would sign a voluntary agreement to integrate “environmental, social and governance factors” into its investment analyses.

Sellers and buyers

Advocates for the divestment campaigns draw parallels between their efforts today and the movement in the 1970s and 1980s in which universities, religious organizations and some municipalities sold off holdings in companies they believed were complicit in South Africa’s apartheid.

“It’s a strategy that’s been used before, and it’s a strategy that’s been successful before, to bring about both capital and political pressure,” Depew said.

But some financial experts say that’s not entirely true.

C. Paul Wazzan, a director at consulting firm Berkeley Research Group, said energy companies have little reason to worry.

In a widely cited paper published with two professors in 1999, he found no evidence indicating shareholder boycotts in response to apartheid affected companies’ stock values.

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The notion that they did have an effect persisted — and influenced future divestment campaigns — because “conventional wisdom doesn’t understand financial markets,” Wazzan said. The problem: for every stock seller, there’s a buyer.

When investors sell off their stocks, those shares don’t vanish. They’re simply bought up by other investors.

Academic investors

Moreover, a recent study from Oxford University found the direct impact of a fossil fuel divestment movement would be limited because the maximum amount of capital likely to be divested would be relatively small. It estimated that U.S. universities typically have 2 percent to 3 percent of their assets in fossil fuels equities, and public pensions have 2 percent to 5 percent of their assets in those equities.

Sally Grans-Korsh director of facilities management and environmental policy at the National Association of College and University Business Officers, said her organization isn’t telling members whether to embrace divestment campaigns, though it is providing information about them.

Rice University spokesman B.J. Almond said the institution “does not endorse nor boycott products,” a policy that applies to the purchases of goods and services as well as to investment decisions. The university has investments in fossil fuels but also supports conservation efforts.

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University of Houston spokeswoman Jeannie Kever said the school has received no proposals regarding divestment.

Building stigma

Skeptics of the movement note that energy companies make money by selling oil and gas — not stock — so divestments don’t directly affect profits. And because fossil fuel companies are among the biggest in the world and their stocks are traded in huge volumes, fluctuations in prices aren’t uncommon.

The Oxford study noted that divestment campaigns could help create a stigma and negative publicity for targeted companies.

“I think these financial campaigns can certainly focus attention on the issue,” Wazzan said. “It could lead to political pressure that ultimately succeeds. As a pure financial effort, I think it fails.”