KNIGHT, GAMI AND LIU: Selling our right to vote

Our generation is often criticized for “slacktivism” and armchair protests; all too often we care only about that which affects us in our isolated Yale bubble. With this in mind, we applaud Fossil Free Yale for bringing an important dialogue to prominence on campus. Global warming is a serious problem, but we take issue with Fossil Free Yale’s proposed solution. Now is the time for Yale to take the lead, but not by lobbying in favor of a dramatic, but likely futile, gesture: divestment. We must overcome the tendency towards hyperbole and advocate practical solutions to address the problem at hand.

There are several issues with the divestment proposal. First, the Yale endowment is a fund of funds. It does not directly invest in stocks, but rather in hedge funds and other asset managers. It cannot directly divest from any companies involved in the production of fossil fuels any more than it could invest in companies working to further world peace or get Peter Salovey to regrow his mustache. In order to do as Fossil Free Yale asks, the endowment would have to either demand these funds divest from fossil fuel companies (they are unlikely to comply, as they have many clients) or withdraw from these funds.

The latter option would significantly affect our overall returns. To put things in perspective, up to 36.4 percent — that’s $7 billion of the endowment — could be invested in funds that invest in companies related to fossil fuels. The University’s investment portfolio is a major reason why Yale can offer us an incredible variety of opportunities to make positive impacts on the world. What will Yalies lose out on if FFY’s campaign succeeds?

Second, we reject the artificial binary that FFY attempts to draw between fossil fuel companies and other firms. Oil companies like Exxon, Shell and BP are also some of the largest private sector investors in alternative energy. It seems arbitrary to only target companies directly involved in the extraction of fossil fuels, and not the firms that transport oil or provide drilling rigs and machinery. In fact, if being involved in fossil fuels is a crime, a large portion of the US private sector is complicit. The solution is not to condemn all such companies, but rather to look to the incentive structure that enables them to continue to engage in socially unproductive activity. Even if it were possible to directly divest from companies that were exclusively involved in fossil fuels, what would divestment actually mean in the context of global warming? The term divestment is really a misnomer — we would merely be selling our shares in these firms to another party. The companies in question would continue to profit, but Yale would no longer benefit from dividends and returns that might otherwise have been directed towards the School of Forestry or a student working to conserve the environment in the future.

Lastly, ownership in fossil fuel companies does not mean Yale supports environmental destruction. Because Yale is a fund of funds, its ability to directly influence companies is limited, but it has much more leverage with money invested in asset managers. Owning a share of common stock entitles you to a vote. Shareholders elect members of the Board of Directors,determine executive compensation and present shareholder proposals. FFY argues that divestment sends a principled message, but the stronger message would be to encourage shareholder action by pushing for internal change.

If FFY really wanted to change how a company operates, it would make more sense for Yale to lobby for more responsible corporate governance as a respected member of the investment community, and to use its close relationships with fund managers to put ethical directors on corporate boards. If Yale divests, we will be left with no leverage and no influence. The appropriate time to divest is when there is grave social injury and no possibility to remedy the situation, but this is not the case here. In the meantime, lobbying for divestment alienates the very businesses we ought toengage with directly.

We cannot merely distance ourselves from the problem and hope it disappears. The deteriorating environment is a pressing issue, and one that we as a University should address. However, divestment is not an effective means to do so. What Yale should do is encourage its fund managers to push for corporate responsibility as shareholders in all the companies they hold: to be activist investors for a healthier and safer world. Ultimately, Yale can have greater influence on fossil fuel companies by retaining its influence than it can by giving up its right to vote.

Alexander Knight is a sophomore in Pierson College, Paavan Gami is a sophomore in Silliman College and Kevin Liu is a junior in Ezra Stiles College. Contact them at alexander.knight@yale.edu, paavan.gami@yale.edu and kevin.liu@yale.edu .

This column is part of the News’ Friday Forum. Click here to continue.

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