The Problems with Divestment

Divestment has recently become a buzzword at Brown. The Brown Divest Coal Campaign calls for Brown’s divestment from “15 of the largest and filthiest coal companies in America,” according to its website. The Brown Daily Herald reported in November that, in a letter to President Christina Paxson, the Brown Advisory Committee on Corporate Responsibility in Investment Policies recommended starting a campus dialogue about the University’s investments in companies that profit from Israel’s occupation of Palestine, a measure that the student group Brown Students for Justice in Palestine supports.

It is difficult not to feel incensed by the chilling facts about coal that Brown Divest Coal showcases on its website or the knowledge that Brown invests in companies that commit human rights violations. But would Brown’s divestment of coal companies or human rights-violating companies make a real difference?

Done wrong, divestment could impoverish our school without effecting great social change.

For one, we have to consider how much money Brown has invested in each of the offending companies. While Brown does not make its investments public, it does disclose the worth of its endowment, which currently stands at about $2.5 billion. If we assume that Brown’s investment officers diversify the school’s portfolio, it follows that Brown invests less than $2.5 billion in the companies at stake for divestment. Such a sum of money is chump change for American Electric Power, a member of the “filthy 15” coal companies due to its large consumption of coal. The company brought in over $15 billion in revenue in 2011. Caterpillar, which, according to SJP, provides equipment that the Israeli army uses to raze Palestinian houses, raked in over $60 billion in revenue in 2011. It is unlikely that Brown’s divestment alone would have a shattering economic impact on such companies. Even the full $2.5 billion value of Brown’s endowment represents a mere 16.7 percent of American Electric Power’s annual revenue and only 4 percent of Caterpillar’s annual revenue.

Another question to weigh before divesting is whether there are viable alternative companies in which Brown could invest. Brown Divest Coal’s October letter to Paxson does not explicitly mention or express a need for viable investment alternatives. However, replacing divested funds with new funds is crucial to keep Brown running as it does now. Brown runs on money. The quality of our education and overall Brown experience, including our buildings and the diversity of the students around us, is dependent on a strong endowment. It is unfair to diminish the value of the educational experience for which we cough up over $42,000 per academic year.

And finally, it is hard to imagine that every company in which Brown invests holds a record free from all environmental and human rights abuses. A company may buy its raw materials from another company that obtains them through unsavory means, such as deforestation or pollution of the ocean. It is possible that Brown students could find moral problems in every company Brown is likely to invest in, which would be financially troubling for the school’s future. Which moral wrongs will merit divestment? Where will the moral bright-line be drawn?

The sobering reality is that divestment does not make a huge dent in offending companies’ finances. Ivo Welch, a former Brown economics professor who currently holds a professorship of finance at the University of California at Los Angeles, and two other researchers found in a study that while the 1970s and 1980s divestment from companies doing business in South Africa ended apartheid, those companies’ public market valuations faced no significant impact. Though divestment campaigns’ goal is to hit morally repugnant companies’ wallets, divestment campaigns do not work in that way.

However, through the collective efforts of numerous schools and companies across the country (and the world), divestment campaigns can send a powerful moral message that a particular practice should not continue. The South African apartheid divestment campaign worked in this way. While the companies involved will not go bankrupt, moral outcry has the potential for real change. But it is unlikely that Brown’s voice alone will end a morally wrong practice. If Brown is joined by many other schools and companies, has viable alternative investments to replace the divestments, and decides where to draw the line of which companies to divest from, then divestment is worth considering.


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About the author

Olivia Conetta is a co-editor-in-chief at The Spectator. She is majoring in public policy and economics and hails from Roslyn, New York.

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