There were many reasons I took a leave of absence from Yale in 1970 after the National Guard lined the streets looking like aliens with their gas masks and camouflage -- there to keep the peace by shooting rubber bullets. I was not yet angry enough about the legal system and the Bobby Seal trial to join the dissenters, and the studios were too small for the big sculptures I wanted to create as a fine arts major. My lottery number was high and a year off would make me eligible for the draft and unlikely to be drafted. Once clear for a year I would be free. I also felt the hypocrisy when pacifism is expressed violently and wasn't certain I agreed with all the shouting, but at the same time I felt guilty for my inaction. My solution was to learn how to farm organically in England... practical, politically correct sculpture on a large scale. My feelings are similarly mixed now when I hear about the loud chanting that has been happening on at least 300 campuses across the country, even though I agree with their message. It is time to divest from fossil fuels and it can be done sanely and with full fiduciary reality. Why can't we just discuss it?
Unfortunately, the experts on the financial boards of endowments may one day look down on the smoldering remains of Earth, and comfort themselves by asserting that at least they did their "fiduciary duty" by putting profits ahead of people or planet! Their lack of willingness to consider the passionate pleas of students to divest is just as disingenuous as activism without real debate. A newspaper article at Swarthmore that divulged the talking points of an expert on why divestment would cost the endowment over $200 million in the next 10 years was full of stretched truths and hidden assumptions (read it here. Using the same kind of reasoning I came up with the following back of the envelope argument:
- Since 80 percent of oil reserves can not be burned as fossil fuels (if continued life on the planet is considered important) the value of oil stocks cannot reflect those reserves as an asset; in fact they can arguably be considered a liability since the continued depletion of our atmosphere (now at 400ppm of carbon when 350 is carbon neutral!) is likely going to result in class action lawsuits. So, projected over time, the holding of oil-related stocks, now 5 percent of their portfolio (guessing) overvalued by at least 80 percent means that they will have a likely loss of 4 percent of the value of their portfolio per year for the next 10 years or $594 million (lots of similar guesswork)!
- The bogus assumption that it will cost them dearly when leaving the best co-mingled managers now after they have done so well gives rise to another argument (a real study, but like them I am not providing the source!) that shows that over a long period of time the best 5 percent of managers in any 5-year period tend to be in the middle or tail-end of the pack in the next 5 years! If they argue that they are an exception, then I would argue that their managers are likely to be deftly shifting their portfolio anyway to stay ahead, so divestment happens regularly for financial reasons. They are used to it and should have no problem.
- Finally, the assumption that divesting within the separately managed accounts will cost them is unfounded. In fact it could benefit them greatly if divestment catches on and big oil and coal stocks crash, but even without that consideration, the challenge we are all facing is that the universe of investments any manager considers is too small and looking outside that universe will expand diversification from the status quo, not contract it (another risk mitigation strategy). I haven't seen their "recent" study (since they did not provide a source), but there are many studies that show that, contrary to their favorite study, socially responsible criteria, including negative screening cannot be shown statistically to have an impact on performance (read about Moskowitz Prize here). Researchers in general cannot say whether negative screening has any reliable impact, positive or negative because, on average, all managers underperform their benchmarks by the amount they charge in fees.
It was particularly sad for me to watch the useless interchange at the Swarthmore Board meeting where the term sophomoric came alive on the YouTube video screen.
That said, even though no one was listening and you couldn't hear what was being said through the cheers and chants, the students did get some attention and goodness knows we need to wake up. The prospects of the Gulf Stream cooling to the point of ending its streaming warmth to Europe is becoming more imaginable as winters grow longer in Ireland and Northern Europe. We are now at 400 parts per million of carbon in the atmosphere, and despite the pleasant imagination that plants will just keep getting more lusciously leafy and eat up all the carbon while we enjoy more exotic weather on our North shores; we are beyond the neutral point of 350 ppm and if we don't do something drastic soon, well -- join us in reinventing how to invest in a world that will last.
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