In recent months, we have become aware of concerns that divestment might present a risk to financial aid. Divest Middlebury would like to state publicly that the accessibility of our institution is a top priority for our group. We are a climate justice organization that stands for racial, gender and economic equity. Financial aid is a priority of our group as a whole and also of personal importance to many of our organizers. In writing this op-ed we also hope to stress the economic benefits of divestment and reaffirm our commitment to our fellow students. Arguments that pit financial aid and environmental justice against each other are unfair and inaccurate. These arguments ultimately put the burden for climate inaction on Middlebury College’s most vulnerable students.
There is ample evidence that divestment from fossil fuels is a financially savvy decision. In the official referendum ratified by the student body, SGA and the faculty, Divest Middlebury asked the Board to pledge to divest all holdings in the top 200 publicly traded fossil fuel corporations over a five-year time period. This extended timeline would allow the college’s investment managers to divest holdings in a controlled way, ensure low financial risk, and reinvest in more profitable and sustainable industries.
In 2010, MSCI, a prominent provider of stock market indices and analysis, created two investment indices of the largest 9,500 corporations, one that included fossil fuel investments and another that did not. Over the next five years, the fossil-free portfolio averaged an annual return .97 percent higher than the index including fossil fuel corporations. If $1 billion had been invested in the fossil free index in 2010, it would now be worth $2.24 billion, whereas its counterpart would be worth $2.13 billion. In 2017, fossil fuels were also the second worst performing sector in the S&P 500 stock market index, losing four percent compared to market gains of 19 percent. The Rockefeller Brothers Fund, a fortune that made its money in the fossil fuel industry, recently published a report stating that the Fund’s success has shown that fossil fuel divestment “can be done without causing harm to the overall performance of your investment portfolio.” These sentiments are shared by the nearly 1,000 other institutions that have pledged to divest. A recent analysis by investment strategist Jeremy Grantham found that there was no evidence that divested financial institutions experience increased losses. Similarly, another study demonstrates the potential financial penalties for not divesting, suggesting that New York State pension funds have lost $22 billion by staying invested in fossil fuels.
Stranded assets theory confirms the financial risk of not divesting: continued investment only exposes portfolios to risk, since marketed valuation of fossil fuel corporations is contingent upon the burning of 942 gigatons of carbon reserves. Fossil fuel corporations cannot approach their market valuation without ignoring the Paris Climate Agreement, which restricts future carbon emissions to 800 gigatons. Failure to divest puts our endowment at unnecessary risk of the carbon bubble caused by stranded assets. Furthermore, when other institutions of higher education have divested, donations have significantly increased. For all of these reasons, we believe that divestment is the fiscally responsible action.
Even in the unlikely case that Middlebury loses returns due to divestment, losses should not impact financial aid. Investments in the top 200 publicly traded fossil fuel companies make up 0.6 percent of Middlebury’s endowment, with 5 percent of the endowment having exposure in the entire fossil fuel industry. Currently, 25 percent of Middlebury’s endowment goes toward financial aid. In the case of any loss due to discontinued exposure to the fossil fuel industry, risk would be spread evenly across the endowment. It is unlikely that fossil fuels outperform the rest of the market and all alternative investments, yet even if fossil fuels outperformed the other 95 percent of investments by 10 BP points (.1 percent), the impact of not being invested in the fossil fuels industry would be $55,000 from our total endowment. This would result in a total loss of $13,750 from financial aid, a minimal loss in comparison to millions our school commits to financial aid each year. In the past, Middlebury has not cut its institutional commitment to funding financial aid in years of poor endowment performance. For this reason, individuals who argue that financial aid should be the first thing to be cut reveal much more about their own priorities than the priorities of the college or the divest movement.
It is unfair and insulting to use students on financial aid as an excuse for inaction and the perpetuation of injustice. Divestment represents an important action that Middlebury can take to condemn climate change, support the college mission statement, and protect students’ futures. We would like to point out that students of more vulnerable socio-economic backgrounds are statistically more likely than wealthier classmates to experience negative impacts from fossil fuel infrastructure and environmental injustice. We are here to learn the skills necessary to protect our families and home communities from climate change. Falsely using our education as an argument to continue investment in the same industry that is hurting us is both cruel and flawed.
In the end, discourse that frames divestment as being at odds with financial aid is fearmongering. We know that divestment and financial aid can go hand in hand and we are thrilled to stand for both. We regret that our fellow classmates may have felt nervous about the financial impacts of divestment and will happily participate in further conversation about concerns regarding this issue. As always, our movement is open to everyone, especially those most marginalized by the climate crisis. We will not allow our educations to be used as a rhetorical device with which to jeopardize our futures as we move towards climate justice together.