Divestment: An Empty Cause

Many Academy community members are of the opinion that divesting the Academy’s endowment from the fossil fuel industry should be a top priority. However, as Head of Trustees Tom Hutton stated at the Divestment Forum on Tuesday, divesting is not an effective way to solve environmental problems. Divesting the endowment would have no financial impact on the oil industry – the shares we would sell would simply be repurchased. The only possible outcome would be a political statement and a contribution to a “social movement,” as stated by the panelists from the Better Future Project. Divesting would have no direct impact on reducing climate change and would also cause long-term reductions in endowment returns, according to Hutton. Additionally, it would show that the Academy would risk potentially negatively impacting its baseline mission of education in order to make a political statement.Firstly, divesting is logistically impractical and would not allow us to invest with the best investment managers, as we currently do. Exeter’s $1.1 billion dollar endowment is invested in about 30 of the most successful funds, which is why we have such high returns and why we have the resources and operating budget that we currently do. These funds invest money as a pool and do not provide specific statistics on investments, and do not have portfolios per client (so the Academy could not simply request to have the investment strategy changed). As a result, the only option would be for the endowment to be completely pulled and reinvested in “eco-friendly” funds that do not invest in fossil fuel companies. “To my knowledge, there are so few leading funds with ‘eco-friendly’ missions that forcing the PEA Investment Committee to be limited to these funds would greatly reduce flexibility and in my own humble opinion it would reduce returns (income) for quite some time,” Hutton said. The bottom line is that if we divest, the returns on the endowment will drop an unknown amount for an unknown amount of time. As the returns constitute about half of our operating budget, our lives could be impacted by even a small change in returns.It is a common misconception that the Academy controls $1 billion that the trustees can allocate as they wish, such as simply allotting more money for financial aid. The reality is that only the returns from the invested money are used in budgets; furthermore, much of the endowment is earmarked, so the money cannot be reallocated or redistributed. Almost all financial aid comes from the returns on designated financial aid funds in the endowment, so lower returns on the endowment means less financial aid. When the endowment dropped by over 15 percent after the ’08 recession, the financial aid program was significantly impacted. Under 30 percent of the students accepted for the 2010-2011 school year were admitted on financial aid, compared to the more than 50 percent who were offered aid for the 2007-2008 school year. Budget reductions also have an immediate impact on our life here; money has been saved to the seemingly tiny level of removing juice from dining hall. Why would we risk reducing the operating budget and financial aid program by divesting from our current management funds?The answer that some panelists at the Forum gave is that morality is more important than the money that funds our education. As one panelist put it, oil companies are corrupting democracy, destroying the world and are completely immoral; in some panelists’ opinions, where our money is invested represents the moral values of the school. The only problem is that morality is subjective in this case. Some may say that the bigger moral problems are institutions that have a history of exploiting workers, contributed to the recent recession through questionable financial practices, have social policies that are different from ours, or more. Additionally, our money could be in foreign companies – if we had money in Brazilian companies that abide by Brazil’s poor labor safety standards, than by the panelist’s arguments, that shows that this institution stands for worker exploitation. If our investments represent our own (subjective) moral standards, so then we have a much bigger problem. Everyone may disagree on our “moral standards” and what that means in terms of investing.Finally, it is concerning that people are arguing to use our resources to make a statement that will hopefully incite political change. The panelists from X argued that the point of divesting was to contribute to a “social movement” that would eventually change the public opinion of oil companies enough so that politicians would stop accepting lobby money from big oil and would therefore be free to pass environmental legislation. Not only is this plan a theoretical outcome based on political activity, it is arguing that we should be placing a “social movement” above our students and our baseline mission of education.There are plenty of “social movements” out there that our community members could argue that we should be making a “statement” about by investing or divesting in certain sectors or institutions, but that’s not the point of Exeter’s endowment. As Harvard’s President Drew Faust said in her explanation for why Harvard chose not to divest, “The endowment is a resource, not an instrument to impel social or political change.” Divesting would make absolutely no financial impact, other than the negative one on our own endowment, and its proponents can only say that it will contribute to a “social movement” to cause political change via environmental policymaking. As an unbiased educational institution, our role is not to try to change policies – we are not lobbyists. The point of this institution is to provide the best education possible, which could be jeopardized in order to make a minimal political statement.Even if divestment costs just one student the chance to attend Exeter, it could be taking a world-class education away from a student who might have developed a revolutionary and accessible solar panel solution with the tools of an Exeter education.We should not be making investment decisions in order to make a statement. Exeter exists to educate its students, and its endowment exists to support that.