The Nuances of Divestment Slow Down Action at Northwestern

by Julia Clark-Riddell Aimee Arvayo wears a square orange felt patch safety-pinned to her backpack. On its own, the plain patch doesn’t make much sense — and that’s the point. When people ask the Weinberg sophomore, about it, she uses the opportunity to bring awareness to the divestment movement at Northwestern and to show solidarity with the worldwide effort.

Arvayo is communications director for DivestNU, a student-led movement at Northwestern focused on convincing the university’s Board of Trustees to sell all investments in the coal industry.

This year, DivestNU is trying to reignite momentum against coal investments from previous years, most notably the momentum gained after the Associated Student Government passed a resolution in January 2013 encouraging divestment from fossil fuels which faded when no action was taken by the Board.

“We tried to revive the movement that had kind of died down and is starting back up again this year,” said Arvayo. “Right now the goal is to get a representative at the next Board of Trustees meeting on Nov. 21. We’ve done research on which board members are possible allies for us, people who may have interest in sustainability, people that are younger.”

The investment committee of the board has final control over the university’s $9.5 billion endowment, said William McLean, vice president and chief investment officer of Northwestern. But implementing change will take a long time, McLean said, because the board must take into account all of the stakeholders, including the students, faculty, alumni, trustees and the president.

At stake in the argument is the university’s $17 million invested in the top 100 companies involved in the coal industry, which is only 0.2 percent of the total endowment as of 2013, according to McLean.

However, the fact that the $17 million was calculated only from investments in the top 100 companies involved in the coal industry reflects one major problem with divesting — it is difficult to discern exactly what investments contribute to the fossil fuel industry.

Mark Witte, an economics professor and distinguished senior lecturer at Northwestern, said the issue with defining what the borders of divestment are prevents the movement from being truly comprehensive.

“There are a lot of companies that do something with coal,” Witte said. “There can be coal energy companies that also start wind farms. It’s just hard to split and chose when they’re all mixed together like that. To be serious about [divestment] you need to be completely honest that it’s very hard to clear all of coal’s influences.”

Another problem the movement faces, Witte said, is that divestment itself does not have much of an economic justification because of the principle of efficient markets hypothesis, which states that stocks are always traded for their fair price that incorporates all information about the stocks.

“When a university dumps something, it probably has little effect on the company because someone is willing to buy it for just that price,” Witte said. However, Witte added that because of the movement’s ability to shame unsustainable companies, there isn’t “much of a downside” to divesting if the rest of Northwestern’s portfolio was well-balanced.

Divestment as a Social Statement

But the Board’s investment committee is still resistant because they see no reason to divest simply to make a social statement, McLean said.

“Divestment is symbolic,” said McLean. “[The committee knows] it’s not really going to move the needle in these companies. If we sell our shares, somebody’s going to buy them. It just makes us feel better and makes us feel like we’re doing something – that’s okay. There’s valid points on both sides.”

For DivestNU, the symbolic nature of divestment is precisely why it is so important.

If Northwestern were to divest from coal, Arvayo said, it would send the message that “Northwestern is committed to acting and ending climate change.”

“It’s huge,” she said. “Coming from an institution that has this much prestige, coming from an institution that has such a wide alumni base, it matters.”

Rob Whittier, director of the Office of Sustainability at Northwestern, said that symbolism as the basis of movement means it’s more important for universities to increase investments in sustainable energies to make a real, tangible impact.

“There is some symbolism to [divestment], but there’s value in that symbolism,” said Whittier. “That’s why I focus on the idea of more proactive investment than just divestment. As a collective, if many universities...avoid investing in certain industries, then there is tremendous positive investing power in alternative energy. That will start to have the effect of driving down the value of a company’s stock.”

And Northwestern is already invested in sustainable technologies. The university had a $64 million investment portfolio in green alternative technologies like solar, wind and geothermal energy, batteries and air-purification technology in 2013, according to McLean. That $64 million is about four times the size of the university’s $17 million investments in coal-heavy companies.

“We continue to have the conversations about other alternatives than say straight divestment,” said McLean. “We try to be a little more proactive, we try to find technologies that might improve things as opposed to just divesting.”

A History of Divestment at Northwestern

Northwestern does have a history with straight divestment, though, which often gets cited as a reason for the University to consider fossil fuel divestment.

In the 1970s and ‘80s, a divestment movement advocated for the selling of assets in companies that operated in South Africa to protest apartheid. In 1985, Northwestern’s Board of Trustees chose not to divest from South Africa, despite majority student support and over 150 universities divesting nationwide. The global success of the movement led experts to later herald divestment as a key factor in bringing about significant pressure to end apartheid.

In 2005, divestment meant protesting human rights tragedies occurring in Darfur, Sudan. That year, Northwestern became the third university in the country to divest from companies operating in Sudan. The board decided to remove investments in four major companies, but in 2007, they decided not to completely divest from all companies tied to the genocide, despite protests from students.

With this mixed history, the university does not have a clear precedent to follow on the issue of divestment.

“There’s a reason most schools haven’t done anything on it,” McLean said, citing the ambiguous results of divestment initiatives in the past.

The actions of the few other universities that have divested from fossil fuels and coal in recent years also present a difficult path for Northwestern to follow.

For example, Stanford University received national press and applause in May when it divested from coal-mining companies, but their model is not one that Northwestern could follow – because Northwestern has already divested from coal-mining companies.

“Stanford’s made a big fuss about what they’ve done, but Northwestern has looked at them and [said] that’s what we did years ago,” Witte said. “Everything that was utterly reprehensible, we got rid of it.”

Fourteen universities have divested worldwide, including 13 U.S. universities from Pitzer College to Hampshire College, but the extent of their programs is not always clear. For example, Whittier said, some universities cite investments in sustainable forestry as sustainable investments, which he said “isn’t necessarily where I think – if we’re trying to combat climate change – we should focus our investments.”

A Scholarly Discussion Regarding the Future

Many more universities are in a position similar to Northwestern where they are actively discussing whether or not to divest.

Harvard University and Duke University, Whittier said, have formed advisory committees of students and faculty that make recommendations to the board on socially and economically responsible investments.

Whittier said he believes a “great next step” for the university would be to create a similar advisory committee to “talk about some of the areas where we might shift some portion of the endowment into these sustainable technologies and fields.”

In the meantime, the relationship between the investment office and DivestNU has been cooperative. The group meets regularly with McLean, and Arvayo said that University President Morton Schapiro and McLean spoke out at a board meeting last year in favor of divesting.

Although the positive working relationship does not guarantee a solution in the future, McLean said the divestment debate is "a healthy dialogue for campus to have."

For Whittier, the university needs to have more than just a dialogue, though, and needs to support the claims it makes as a leader in sustainability, climate change and energy solutions through the endowment.

“There is this momentum that I see from the students and the faculty, but I’m not sure if their voice has been heard as loudly as I would like by the Board of Trustees,” Whittier said. “I think in some ways the onus is on the students and faculty and staff to make it clear to the board that they believe this is a priority for Northwestern.”

And Arvayo’s priority is to get the University to divest as soon as possible.

“Implications are long-term, so we could divest later and still see benefits in the future,” said Arvayo. “But study after study keeps on telling us that if we don’t do something now, we’re going to worsen our future for ourselves. The evidence and the projections are only going to get worse, so act now.”

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