Objections and Replies

Below are some common objections and replies to fossil fuel divestment as a strategy for addressing anthropogenic climate change.

Common objections and replies


Some may say: “Why reduce our ESG policy just to fossil fuel divestment?”
However, ESG means at least divestment, not merely divestment. 
This objection is actually just a misunderstanding. We contend that our ESG policy requires at least fossil fuel divestment, not merely fossil fuel divestment. We are not advocating to limit the scope of ESG. Gonzaga’s mission requires that we are rightly concerned about social and environmental justice on many levels. That we don’t know all that is required of our ESG policy is not a reason not to decide whether the policy requires at least fossil fuel divestment. In our judgement, it should be a goal of the Investment Committee to create a process whereby members of the community can make a case why X or Y or Z should also be included (positive screen) or excluded (negative screen) from our endowment investment approach. For instance, another group on campus could mount a campaign and argue that the university should divest from companies manufacturing small arms. If they make a sufficiently compelling case that the ESG policy requires such an action, then it is added to the list of precedents and helps to further define what we mean by ESG. If not, the policy is still further clarified in that it is now clear what it excludes and why.
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Some may say: “Fossil fuel divestment can’t solve climate change.”
Divestment is one among many strategies. 
This is not an objection because no one advocating for fossil fuel divestment believes it alone can “fix climate change.” Gonzaga has a climate action plan to address the impact of its operations and to deepen sustainability across the curriculum. The point is also to align our endowment investment with our mission values. Divestment is one of many tools. It is no panacea. But it is a meaningful action required by our stated values.
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Some may say: “Isn’t divestment really just an empty symbol that doesn’t achieve anything in the end?”
No divestment is a potent symbol that removes the social license of fossil fuels. 

This objection is understandable, but ultimately mistaken for several reasons:

  1. The objection mistakenly thinks that the goal of fossil fuel divestment is to starve fossil fuel companies of capital. This isn’t the case. We do not expect to be able to effect enough of the marketplace to cause significant financial harm. The goal of divestment is to use a financial strategy to remove the “social license” of fossil energy. Apartheid divestment didn’t starve the government of capital. The government collapsed in part because it was seen as illegitimate by the international community. Fossil fuel divestment similarly seeks to show that creating energy from fossil sources is illegitimate. If we have any hope of avoiding catastrophic climate change, we must not burn more than 80% of current fossil fuel reserves.
  2. The objection mistakenly assumes that actions are either practical or “merely symbolic.” However, symbols can be extremely potent forces. The Christian crucifix is a symbol. The American flag is a symbol. People fight and die for symbols. The question is: what symbol does Gonzaga want to be associated with? Do we want to be associated with the fossil fuel industry’s ecocidal pursuit of fossil energy and the creation of climate change or do we want to be associated with a just transition to a clean energy future?
  3. Even if one’s actions do not “fix the problem,” one ought nevertheless attempt to embody more consistently one’s most deeply held values simply because one believes them. Living up to one’s values is intrinsically valuable. Moral integrity is its own reward, especially for a Jesuit University.

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Some may say: “Divesting the endowment from fossil fuels will increase risk.”
But targeted, narrow divestment need not increase risk.  
In principle, decreasing the size of the investment universe can increase risk. However, a targeted, narrow divestment of the top 200 most carbon-intensive companies would not meaningfully decrease the size of the investment universe and the role of energy stocks could be captured through other investment strategies. Thus, in the end, whether risk is increased depends not on divestment per se but the investment strategies pursed. There are many investment vehicles that have been created in the last few years that make it possible to divest from the top 200 fossil fuel stocks without any significant effect on risk adjusted performance. Though divestment may likely require significant changes to our approach to investing and perhaps even turnover of fund managers, there are many ways to responsibly divest from fossil fuels without increasing risk. Dozens of universities and hundreds of institutions have successfully divested from the 200 most carbon-intensive companies and have not been harmed financially. That it can be done responsibly has been demonstrated the world over. The question is whether we will do it.
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Some may say: “Divesting the endowment from fossil fuels will harm returns.”
But responsible divestment need not harm returns.  
A bet that fossil energy stocks will track historical performance is a bet that humanity fails to meet its greenhouse gas emission reduction goals. It is a hope to profit from climate disruption and the sufferings it causes. The Paris Climate Agreement gives reason to believe that the world is serious about moving away from fossil energy, which makes fossil stocks a poor longterm bet. In the end, whether returns are harmed depends not on divestment per se but the investment strategies pursed. There are many investment vehicles that have been created in the last few years that make it possible to divest from the top 200 fossil fuel stocks without any significant effect on the fee load or risk adjusted performance. Though divestment may likely require significant changes to our approach to investing and perhaps even turnover of fund managers, there are many ways to responsibly divest from fossil fuels without harming risk adjusted returns. Dozens of universities and hundreds of institutions have successfully divested from the 200 most carbon-intensive companies and have not been harmed financially. That it can be done responsibly has been demonstrated the world over. The question is whether we will do it.
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Some may say: “Divesting the endowment from fossil fuels will increase our ‘fee load.'”
But responsible divestment need not entail higher fees.  
Whether Fund management fees go up depends not on divestment per se but the investment strategies pursed. Some fossil free mutual funds are associated with higher fees, some are not. Some ETFs have little or no fees. Today there is a wide array of investment vehicles that have been created in the last few years that make it possible to divest from the top 200 fossil fuel stocks without any significant effect on the fee load or risk adjusted performance. Though divestment may likely require significant changes to our approach to investing and perhaps even turnover of fund managers, there are many ways to responsibly divest from fossil fuels without increasing fees. Dozens of universities and hundreds of institutions have successfully divested from the 200 most carbon-intensive companies and have not been harmed financially. That it can be done responsibly has been demonstrated the world over. The question is whether we will do it.
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Some may say: “Aren’t we being hypocritical?”
But this is why we don’t call for divestment of
all fossil fuels. 
We cannot avoid using fossil fuels in many parts of our lives. First, the resolution under consideration does not call for the elimination of all fossil fuels, but to stop seeking to profit (invest) from those who own the fossil fuels (top 100 oil and 100 coal companies). We need to keep the carbon in the ground and then develop alternative ways to make energy and do transportation. The real concern of hypocrisy should be claiming concern for justice and care of creation in our mission while continuing to seek to profit from the sale of fossil fuels.
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Some may say: “Why not let fossil fuels companies lead the way?”
But fossil fuel companies are fighting the renewables transition. 
Some may claim that instead of divesting from carbon-intensive fossil fuel companies we should continue or even increase investment in them because, as energy companies, they are best situated to lead the transition to renewable, low-carbon forms of energy. In principle, this is true. In fact, most fossil fuel companies have steadfastly fought against attempts to transition away from fossil fuels and to renewables, the most dramatic example being ExxonMobile. They have proven themselves to be bad actors in the system and they are fighting the transition.
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Some may say: “Why not shareholder activism instead?”
But this is not an appropriate strategy for our situation or to address anthropogenic climate change. 
After all, “You can’t effect change, if you don’t have a seat at the table.” The logic of this seems quite attractive and reasonable. In the abstract, it is entirely possible to take such an approach. In fact, this is rightly included as a strategy in Gonzaga’s own ESG considerations, which state that the Board may choose to “influence the social behavior of firms invested in through the exercise of ownership rights.” However, there are a couple of reasons why this is not a meaningful response to the challenge of anthropogenic global climate change.

  1. Gonzaga does not hold very many individual stocks, so we are not in the position of being a shareholder activist. We mostly invest in index and mutual funds where we cannot vote our shares. We could change that, but it would dramatically change our investment posture. So, it is possible in principle, but not possible in fact, given our current investment strategies.
  2. We have such a small endowment that our activism would be nearly meaningless in the big scope of things. Meanwhile Gonzaga would be actively supporting a company whose business model is to profit from the sale of the substances causing climate change. We would be hypocrites with no meaningful ability to change the underlying conditions. It would be an empty gesture justifying unjustified hypocrisy.
  3. Anthropogenic climate change isn’t like other problems which can be fixed by changing the behavior of a company. Shareholder activism would be a very reasonable strategy to get a company like Nike to do a better job of avoiding child labor, for instance. Why? There is nothing inherently wrong with Nike’s business model of making athletic apparel. However, fossil fuel companies are different. The problem is not their practices, but their business model. Their business model is to extract hydrocarbons from the earth and sell them. Shareholder activism cannot get them to not be what they are, so it is an incorrect strategy in this instance. However, it could be a very good strategy to address other ESG areas. For 28 years there has been an active effort among Exxon shareholders merely to get the company to accurately report climate-related risks. The company has fought it tooth and nail, but it finally passed a few months ago.  Again, we could buy the stock individually and vote our shares, but it would not actually do anything to address the problem (climate change) because the underlying business model is incompatible with addressing the solution.
  4. It isn’t clear that companies like Exxon are honest actors in the system. There is considerable evidence that Exxon and other oil companies own scientists knew about the dangers of anthropogenic warming in the 1970s. Like the tobacco companies, they chose to bury that science and mislead investors and the public. Since they are bad actors, there is no reason to trust them to change. With proven bad actors the more reasonable response is to boycott, not purchase their stock.

In the end, the need for shareholder activism does not obviate the compelling moral and financial arguments for divestment. Seeking to profit from the harm of the poor and the destruction of creation is “inimical to the values the University espouses.” We can and should pursue shareholder activism where remediation might change the problematic activities, but anthropogenic climate change is a particularly bad candidate for this.
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Some may say: “Isn’t this making the university political?”
But for a Jesuit institution with a moral mission, neutrality is not an option.  
Some may rightly be concerned that fossil fuel divestment could appear to position the University as a political actor rather than an educational institution. For instance, this is the concern of the president of Harvard University, Drew Faust. While an understandable concern, Gonzaga’s Jesuit character does not make such supposed neutrality an option. As the precedent of Gonzaga’s South African divestment demonstrates and our own ESG considerations affirm, we must consider whether our investments are consistent with our values. Though South African divestment may have been politically charged in the 70s and 80s, Gonzaga’s Board of Trustees was right to conclude that profiting from the injustices of apartheid was morally wrong. As Nobel Laureate and Gonzaga honorary degree recipient Archbishop Desmond Tuto notes, if the case of South African divestment was compelling, the case for fossil fuels divestment is even more urgent: millions of the most vulnerable lives are at stake.
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Some may say: “Instead of divesting from fossil fuels, why not invest in renewables?”
But a narrow negative screen is less risky than a positive screen. 
Our ESG policy clearly allows Gonzaga to “invest in securities of firms or managers that demonstrate a high level of social concern.” Positive screens may very well be warranted. However, it is not a reason not to divest from fossil fuels (a negative screen).

  1. Our ESG policy does also allow Gonzaga to “exclude from the Fund, securities of firms or managers whose policies or practices are inimical to the values the University espouses.”
  2. Divesting from the top 200 most carbon-intensive companies is actually less financially risky because it does not significantly reduce the investment universe and may potentially decrease exposure to stranded assets.
  3. Investing in renewables through a positive screen is desirable, but is financially riskier than a narrow negative screen. That there must be, for instance, a transition to electric forms of transportation is clear. Whether Tesla or GM or Toyota will dominate that space is not clear. Similarly, that we need significant shift to decarbonize our energy production is clear, but whether SolarCity will dominate the space or another company not yet founded is unclear. It would be risky to put too many of our eggs in one basket. The divestment campaign would, in principle, support setting aside a small portion of the endowment to positively invest in renewables or pursue impact investing. However, that some positive screens might be warranted does not obviate the need to stop seeking to profit from the sale of fossil fuels.

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Some may say: “Why just the top 200 most carbon-intensive companies?”
A targeted, narrow screen has the largest affect at the least risk.
The Carbon Underground 200 is an annually updated listing of the top 100 public coal companies globally and the top 100 public oil and gas companies globally, ranked by the potential carbon emissions content of their reported reserves. The list is produced and maintained by Fossil Free Indexes, LLC. Divestment campaigns across the globe are using this list as the definition for “fossil fuel companies” in their divestment ask. Why? In part, the goal is to avoid a “slippery slope” argument where we are calling for the divestment from all fossil fuel-related activities, which is currently impossible. There is nothing magical about the top 200. In many ways we are really only talking about the top 100 oil companies because few people are still investing in the top 100 coal companies, due to the advent of fracked natural gas. The point is to target the problem, which in this case is the carbon in the ground. The carbon needs to stay in the ground to avoid catastrophic climate change, so we need to target those who own the carbon.
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Some may say: “Divesting from the 200 most carbon-intensive companies creates a moving target, making divestment impractical.”
There is significant implementation flexibility & targeting those who hold the carbon is better than creating a black-list. 
The Carbon Underground 200 (CU200) is an annually updated listing of the top 100 public coal companies globally and the top 100 public oil and gas companies globally, ranked by the potential carbon emissions content of their reported reserves. The list is produced and maintained by Fossil Free Indexes, LLC.

Some express concern that targeting the CU 200 creates a moving target, making divestment impractical. There are three responses to this:

  1. The CU 200 is a list of the companies that own the largest stores of carbon (oil & coal). This is far preferable to creating a “black list” of companies. The goal is not to vilify certain companies but to keep the carbon in the ground. For instance, we aren’t targeting Exxon, unless Exxon holds a lot of carbon (which they currently do). If they move away from high-carbon fuels, then there is no reason we couldn’t invest in them. In other words, the CU 200 keeps the focus on the problem (high-carbon fuels), not on certain companies. The CU creates a positive incentive for companies to eliminate holdings of fossil fuels so as to get off the list and be open for investment.
  2. To list or target certain companies also creates a game of “whack-a-mole.” It is too easy for companies to rename, spin-off, or create subsidiaries to avoid divestment. The CU200 keeps the focus on the problem: keeping the carbon in the ground to avoid catastrophic climate change.
  3. The CU200 is not a burdensome moving target and does not create an undue implementation burden. As the Stuart Braman, Founder and Chairman of Fossil Free Indexes, put it:

    Universities, endowments and individuals divesting their portfolios have the right to be as flexible as they choose in implementation in order to minimize costs as they divest. FFI clients update their CU200 screens at a variety of frequencies – quarterly, semiannually and annually.  There may even be some who update every two years –  the point is the details and logistics of any decision to divest lie with the divesting institution and cost minimization can always be a dimension of the approach.

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Some may say: “Divesting could cost the University an estimated $1.3 million dollars.”
However, the $1.3 million figure postulated is misleading. There are no inherent costs of divestment.

At a recent meeting of the Faculty Senate, the claim was introduced that divesting could cost the University an estimated $1.3 million dollars. At the time it was not given any context or explanation. Subsequent inquiries yielded the following information about how this figure was derived:

“The University has not commissioned a study, internally or externally, to measure the cost of transition to fossil fuel divestment. … In lieu of a more exhaustive divestment study, a reasonable starting point for such an estimate, in very rough terms, is to look to the market of active fund managers that provide negative screens. It is not uncommon for such funds to charge 20 to 50 basis points (0.20% to 0.50%) annually for the administration of such a program. This also does not include any internal costs to administer or any frictional costs of making the transition.

So, for conversational measurement of the cost of implementation, a working estimate is .50% x $250,000,000 (our pooled endowment figure), which approximates $1.3M. The actual figure … could be lower or higher. This analysis also does not factor in the opportunity cost of what such fees could have earned over time had they not been charged annually to the portfolio. Assuredly, there are additional costs required to administer such a portfolio.”

There are several responses to this claim.

  1. This analysis seems to misrepresent the fraction of the endowment potentially affected by divestment. Less than half of the Endowment Fund is in equities. Thus, even if the analysis above were reasonable, and we do not believe that it is, the estimated cost would not be $1.3 million, but less than $650,000.
  2. As Gonzaga’s former President Fr. Robert Spitzer is fond of saying: “Arbitrarily asserted, arbitrarily denied.” The fact that this “conversational estimate” picks the high end of an arbitrary range suggests that the University is looking for excuses not to divest, rather creatively discerning responsible paths to divestment.
  3. It is important to put the proffered 0.5% number into some perspective. The challenge of managing the Endowment Fund is to achieve adequate risk adjusted returns over time. $1.3 million is not a small amount of money, but it is dwarfed by the massive market uncertainties. Historically there have been decade-long periods where the S&P 500 has lost money and decades where the returns have been in the high teens. Will the endowment be worth less than $250 Million in a decade? More than $1 Billion? These are the fundamental challenges for the Endowment Fund, not a rounding error discussion about divestment.
  4. If divestment is done over a responsible period of time, which is what we are calling for, it is possible to achieve desired risk adjusted returns while gradually shifting to fund managers willing to assist with negative screens. There is no inherent reason that a fossil free endowment would be more expensive to manage and transition costs will be negligible if done responsibly over time.
  5. Insufficient justification is given for the .5% figure. Specifically:
    • There is no mention of the costs of the existing program, either portfolio management, advisory or mutual fund, or separately managed account costs, nor is there any comparison to the costs reasonably available with an intelligent asset management strategy.
    • As we see in the discussion lead by finance expert Randy Cerf last fall, there is no reasonable justification available for this assumption of .5%.  It is not uncommon for an asset management fee to be charged whether a portfolio is fossil free or not and there is no inherent reason for it to be any different with or without divestment.
  6. Any reasonable comparison would involve actually doing the work of constructing a before and after portfolio. Anything short of that is not worth taking seriously. If one were tasked with doing so to prove that divestment was expensive, one could clearly construct portfolios that proved that divestment was costly. No doubt one could generate costs even more expensive than 0.5%. Similarly, if one wanted to prove that divestment was costless, one could construct a lower cost portfolio, perhaps with 0.5% lower costs. Neither of these are meaningful because neither approach replicates anything like reasonable portfolio strategy.  Both ignore the most important goal of maximizing returns on a risk adjusted basis after all fees.

Bottom line: there are multiple responsible paths to meaningful divestment. Gonzaga just needs to commit itself to finding one that works for us.

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Some say: “Given our current investment strategies, it isn’t possible to do negative screens like fossil fuel divestment.”
However, if negative screens aren’t possible, then our ESG policy is itself meaningless.

The discussion over fossil fuel divestment is running up against a difficult problem. At times we are being told that, given Gonzaga’s current investment strategies, it simply isn’t possible to do any negative screens for fossil fuels. Actually, it isn’t just fossil fuels. At present, we are told, there are no mechanisms by which Gonzaga could exclude or include anything, ever. This is an interesting admission. Why? If it is true that the current investment strategies are incompatible with any screening, then there are currently no conditions under which it is possible for Gonzaga to follow its own Environmental Social and Governance (ESG) Investment Policy. This would be very problematic because it would imply that Gonzaga’s ESG policy is quite literally meaningless.

Let’s look at this argument a bit more carefully from the beginning, starting with the key section of Gonzaga’s Endowment Fund Investment Policy, which was reaffirmed by the Board of Trustees in December of 2015. Section L is labeled “Environmental, Social, and Governance (ESG) Considerations” and states:

“In keeping with the Mission Statement of Gonzaga University, it is the intention of this Investment Policy to promote the basic moral values of fairness, respect for human life, defense of human rights and social justice. In the process of accomplishing a satisfactory risk adjusted return on the invested assets of the Endowment Fund, the Committee may weigh: (1) excluding from the Fund, securities of firms or managers whose policies or practices are inimical to the values the University espouses; (2) investing in securities of firms or managers that demonstrate a high level of social concern; (3) influencing the social behavior of firms invested in through the exercise of ownership rights.”

We are proud to be part of an institution that has a policy such as this. Gonzaga is right to recognize that its mission is not value neutral and that the investment of its Endowment Fund is itself a moral statement. It is right that the university should exclude or include securities or firms based on whether they are compatible with our most deeply held values. Further, we recognize that it is not always obvious which values or investments are so important that they would require action under this ESG policy. That would need to be decided on a case by case basis. What about fossil fuel divestment?

A common refrain we hear is not that climate change is not urgent but that, given how we invest our endowment, it really is not possible to do negative screens on anything, including fossil fuels. This is a very surprising claim. For, if it is true that it is not possible to do any negative screens, then there are no conditions under which it is possible to ever follow our own ESG Investment Policy. If there are no conditions under which it is possible to ever follow our ESG Investment Policy, then the ESG Policy is itself meaningless. Perhaps it makes us feel good, but it can never meaningfully inform decision-making. Put even more directly, if negative screens are not possible, then our ESG Policy is, at best, window dressing and, at worst, a sham.

But this isn’t all bad news. We believe that Gonzaga does want to have a meaningful ESG policy that can inform Endowment Fund investment. That means that it is incumbent upon Gonzaga to create the necessary mechanisms by which negative (and positive) screens could, in principle, be used by its fund managers. And this is good news. For, once those mechanisms are created, once it is possible to, in principle, follow our own ESG policy and include or exclude securities based on our fundamental mission values, then it also becomes possible to divest from the fossil fuels causing catastrophic climate change.

So there we have it. Either negative screens (and divestment) are impossible and the ESG policy is meaningless or the ESG policy is meaningful and negative screens (and divestment) are possible. In other words, the very act of affirming our ESG policy refutes the claim that it isn’t possible to divest. The ESG policy requires that divestment is, in principle, possible.

This is a very important realization because it allows us to return focus to the real issue. The real issue is not whether it is possible to divest, we now see that our ESG policy establishes that it is, but whether investing in fossil fuels is so inimical to the values of Gonzaga that any reasonable interpretation of the ESG policy entails fossil fuel divestment. In the justification for the resolution we have made the case that the answer to this question is, “Yes.” Here we make the case that the University has, in a sense, already agreed to the premises of the argument for divestment.

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If you have another argument against fossil fuel divestment, send it to us and we will try to add it to the list! Email Dr. Henning at henning@gonzaga.edu.