Grinnell College, acting under pressure from its community, agreed to create a task force to study divesting from fossil fuels. In their report, the Task Force dismisses divestment and instead recommends embracing neoliberal policies that have been utter failures at addressing climate change. Below is a letter submitted to the Grinnell Magazine:
In the summer issue of Grinnell Magazine, I was surprised to read the recommendations from the Climate Impact Task Force and that they were accepted by the Board of Trustees. The recommendations reflect a profound misunderstanding of how politics works, Grinnell’s power and potential role, and the opportunity for an engaged college community to help reverse climate change. The Task Force adopted prevailing attitudes toward divestment wholesale, and this suggests that either the process was compromised or that the intent was never to consider divestment as a viable choice.
Firstly, the endowment and its healthy growth is held up as a paramount concern of the Board. This is somewhat reasonable. Assuming divestment is a threat to the endowment, it is less of a threat to it than the Board’s active management of the endowment. As of June 2017, Grinnell’s 1-year net return on its endowment was indeed 18.8 percent; however, its 10-year annualized net return was 3.9 percent, well below the average of over 4.5 percent for the 100 institutions with the largest endowments that reported results. (Grinnell is one of these 100 institutions.)
For comparison, the S&P 500, which simply tracks 500 stocks from large companies, had a 1-year return of 19.2 percent and a 10-year annualized net return of 7.1 percent. These returns are all net of fees, although Grinnell likely has expenditures relating to its investment team and managers not incorporated into these figures. The bulk of these expenditures would not be necessary if Grinnell passively managed its endowment, by for example, investing in funds that tracked the S&P 500 or similar indices.
If Grinnell had simply invested in an index that tracked the S&P 500 ten years ago, its endowment would be hundreds of millions of dollars richer. It would also likely have had fewer expenses related to managing the endowment. The Board cannot seriously consider divestment more of a threat to the endowment than its own active management.
While the College could, in some timeframes, outperform benchmarks like the S&P 500, research has shown passive management (not necessarily in an S&P 500 index, which is relatively risky) wins out in the long-term. (The stock bubble in the late 1990s and early 2000s as well as the housing bubble, which caused the financial crisis and led to the Great Recession, can make it difficult to make some specific comparisons.) In addition, passive management of the endowment can be considered a type of divestment. The College would not be actively choosing to invest in fossil fuels — it is opting out of making any specific investment decisions.
But this assumes that divestment is inherently a threat to the endowment. Fossil fuel holdings of 2.4 percent of the endowment are not a significant portion of the College’s endowment. Contrary to what the Task Force’s report suggests, it’s a very small amount. Reinvesting this amount of money over time should not be disruptive to the endowment overall unless Grinnell’s endowment is extraordinarily unstable. As to whether this is technically possible or not, various student groups across the country have spoken directly to investment managers, who have indicated that it would be possible to divest from fossil fuels without much difficulty. Indeed, investment managers are being paid to do things just like that. If the specific investment managers the College is using are unable to figure out how to buy and sell specific parts of the endowment, I’m sure other managers with similar or better track records would be more than willing to take on the College as a client.
Most significantly, the Task Force glosses over the fact that an institution like Grinnell divesting from fossil fuels would have a large impact on the movement to divest from fossil fuels (“[it] is largely symbolic”). The decision to divest from fossil fuels or even zero out carbon emssions is, of course, symbolic: Grinnell does not make policy for the United States or the world, and its emissions and investments have close to no impact on any real-world outcome. But the point is that a small college can serve as an example to other colleges; the point is that the Administration can enthusiastically talk about divestment and how important it is; the point is that students will understand the importance of this symbolism and take it with them into their careers and lives. If every institution that purports to care about social justice divests from fossil fuels, it would actually have concrete political ramifications. Grinnell could be a leader in this movement. This is how grassroots politics works.
Instead, established and ineffective pathways to address climate change are endorsed. The recommendation that the College quietly look after its own carbon footprint — which is a dressed-up version of the idea that personal environmentalism matters — might have very, very small concrete effects but it has a much lower chance of actually causing systemic change. It also implicitly endorses the ideas that lowering carbon emissions is voluntary, that it’s a personal or institutional responsibility, that everyone is able to do it, and that the current economic system can address climate change or the enormous social and political problems inherently connected to it. None of these ideas are true, and all of them are distractions.
The other recommendations aren’t much better. Increasing shareholder engagement has had some very limited success around specific topics, but not around much larger and intractable problems like climate change. A green endowment fund seems designed to be a release valve for the Grinnell community’s frustrations about the Administration’s opposition to divestment, and it will almost certainly be ineffective. So-called “socially responsible” funds often lack credibility, have high fees, and have no serious path to creating positive change politically. Overall, the Task Force’s recommendations summarize and endorse the prevailing neoliberal approaches to climate change, which have been utter failures.
Perhaps the most disturbing part of the report is when the Task Force points to inaction from other colleges as a reason to oppose divestment. Such logic applied to history would lead to some controversial outcomes, like the College deciding instead not to divest from apartheid South Africa because of what its peers are doing. As a community with a significant history of activism, it’s also at odds with Grinnell’s values. Divestment is an appropriate course of action for a College that wants to build a movement to stop climate change. This is something that the Board and the Administration should enthusiastically approach.