“Disclose, divest, we will not stop, we will not rest' is a common chant heard during pro-Palestinian university protests. Of all the actions one could advocate in the war between Israel and Hamas, the first demand the protesters in Columbia cited was for the country to divest of companies and institutions that, in their opinion, 'profit from Israeli apartheid'.
Israeli companies are not the only targets. A proposal that Columbia students put forward in December calls for divestment from Microsoft, Airbnb, Amazon and Alphabet, among others. Microsoft is tagged for providing cloud software services to Israel; Airbnb is being targeted for listing rental properties in Israeli settlements in the West Bank the platform said it would be removed in 2018. The company has reversed this policy months later settle lawsuits.
Administrators of some universities, including Brown And Northwest, have agreed to divestment talks with students as part of agreements to end campus camps. Other schools have said outright that they will not join. For example, in March the regents of the University of Michigan “affirmed its long-standing policy to protect capital against political pressure and base investment decisions on financial factors such as risk and return.”
“Long-standing” is a controversial term, as it used to be three years ago that the regents decided the endowment should stop investing in funds that focus on certain fossil fuels (which affected the company I work for). Before the war in Gaza, it had been quite easy for universities to compromise on divestment demands, but those opportunistic choices are now coming back to haunt them. Any investment in the endowments of elite schools is in question.
University capital managers undoubtedly feel under attack because pressing moral questions regularly land on their desks. Because that desk is already full of spreadsheets on another question: how to generate returns for colleges that are nonprofits, unfathomably expensive, and desperate to not just finish schools for the rich. Last financial year, endowments of more than $5 billion provided 17.7 percent of their university budgets. This school year, Williams College $81,200 in tuition and fees charged. But spending per student was $135,600. The donation helps make up the difference.
Still, activists view donations with a sense of ownership. They are part of a community that owns this money. They also pursue donations because they have no better causes. It says something about the authority of ideas in our time that students lobby institutions that focus on the promotion and dissemination of knowledge, especially about what they do with their surplus money.
The mother of all divestment movements was the one that focused on apartheid in South Africa in the 1970s and 1980s. (In 1981, Barack Obama ggave his first public speech at a divestment meeting at Occidental College.) It worked for the most part: More than 100 colleges in the US ultimately agreed to at least partially divest of companies doing business in the country. Years later, many believe in divestment played a role in ending apartheid in South Africa.
From 2020 to 2022, as evidence of climate change became increasingly unavoidable, student demands to quit fossil fuels claimed more victories, especially at the Ivy League and other colleges with large endowments—and, not coincidentally, large groups of activist students who told them what to do. with them. Schools' exposure to oil and gas investments was often less than 5 percent of their capital, so finding a way to reduce investment in any form in the sector was easy to do.
Each divestment institution found its own path, some more logically consistent and sincere than others. I saw some of this happen firsthand as some schools stopped investing in our oil and gas funds, while others invested in our clean energy funds. But almost all schools managed to minimize the real disruption to the donations and push student activists to go further.
In contrast to the effects of the South African movement, the early impact of oil and gas divestment by colleges and others has been negligible or even counterproductive: Oil and gas companies have needed little external financial capitalHostility toward the divestment movement has led Republican-led states, such as Florida, to impose restrictions ESG investing, which focuses on environmental, social and governance factors. (Note that Florida's State Board of Administration administers almost exactly the same amount as the ten largest private university endowments combined.)
What fossil fuel divestment has shown, however, is that university leaders can be led to admit that their giving will, in certain circumstances, be guided by the school's collective values, and that current students can shape those values. And by receiving donations not to invest in the sector in a waythe protesters hardened an abstract moral judgment: that the oil and gas industry, and the faceless bureaucrats who work for it, his mistake. Divestment advocates hope for the symbolic removal of an industry's interests “social license” can usurp its own power, encouraging government policymakers to regulate that sector or deterring students from seeking employment in it.
Now the reason for the divestment is Israel and not oil. For many students it is part of the same conversationas I saw on a scribbled word salad board on display at Tulane's pro-Palestinian encampment: “From the Gulf to the sea, no genocide because of oil greed.”
University leaders could follow the same playbook they did on fossil fuels and find ways to symbolically divest without disrupting their endowments in any significant way. Based on the size of its GDP, not investing directly in Israel would be the same as not investing in Colorado. And despite the chants that say otherwise, many endowments seem to have little to no direct exposure to Israel or to many of the American companies that want to blacklist protesters.
But there is an important difference between avoiding fossil fuels and avoiding Israel. The institutions that divested themselves from oil and gas ensured that this country was described as financially sensible, albeit sometimes with a superficial investment logic. This time, Israel's social license is the only thing on the table. And if Israel comes to the table, which other countries should lose their social license? How many years must pass since what some consider a country's settler era, or the messy wars that kill innocent civilians to make the country siegeable?
And if a divestment is carried out against Israel, when should it end? The intention is that the divestment of oil and gas will never end; The intention is to put an end to oil and gas consumption. Disinvestment from South Africa ended with apartheid. University leaders will therefore be forced to ask an often heterogeneous group of students how Israel could earn back its social license. A ceasefire? A new Israeli government? A two-state solution? The end of Israel as a Jewish state?
The effort to identify every investment with ties to Israel is also fraught. Columbia activists could only find information about ownership of certain companies, such as $69,000 worth of Microsoft stock. Protesters are therefore also demanding that colleges make all their investments public, presumably so that students can examine the morality of each investment. However, some companies that manage portions of an endowment's money, especially hedge funds, don't report their individual holdings to investors: Asking them about it is like asking for the secret recipe for Coke.
But even if a donation could provide a list of all underlying investments, it would likely be swamped by more calls for divestment, by more discovered connections – however small – to Israel, and for reasons related to other violations that could be discovered be done with an online search. Why wouldn't there be a Taiwanese student group demanding divestment from China to deter invasion? Other students demanding divestment from Big Tech, citing student mental health? Others are calling for divestment from everything from the hedge funds and private equity funds whose asset managers aren't exactly curing America's income inequality?
The answer, of course, is that endowments cannot play a role in the world of moral judgment—and that they should never have gone this way. This doesn't mean that investing has to be an at-all-costs exercise. But it does mean that the real world does not always provide objective answers to how to balance the benefits and consequences of companies providing products and services: carbon emissions are bad, but energy consumption is necessary. Microsoft software for the Israeli government may displease you, but if Microsoft says it won't sell software to Israel, it would displease others—and probably self-banned of working with New York state agencies.
Listen to the protesters about divestment. They won't stop. They will not rest.
But neither will the markets. They are open every morning, Monday through Friday, and the demands of university budgets for donations never go away. Tuition fees are rising. Costs always go up. Colleges must discuss deep moral issues and discuss the tough trade-offs to solve the world's ills. But we need to move these efforts into the classrooms, away from the investment firms. Repulsion is an easy saying. Investing is difficult enough.
Gary Sernovitz is president of Lime Rock Management, a private equity firm that invests in oil and gas and clean energy companies and whose investors include colleges and universities. He is also the author of “The Counting House,” a novel about the trials and tribulations of a university Chief Investment Officer.
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