At my 15th Yale reunion, my husband Geremy and I attended a talk by the university’s chief investment officer, David Swensen. In the largest lecture room of Linsly-Chittenden Hall, stained-glass angels representing music, science, religion, and art beamed on Yale’s “eight-billion-dollar man” as he ascended the podium. Clad in a white suit blazoned with broad blue stripes, a Yale man’s outfit circa 1920, Swensen launched into a jaunty lecture about the Yale Model, his signature approach to endowment investing, which has yielded unparalleled 13 percent returns per annum over the past 30 years for the $29.4 billion endowment.
The audience was made up of alumni working in finance, engaged in animated side-chatter about hedge funds. My husband and I, though, are climate activists, and we were there because we want Yale’s endowment, the second-largest in the world, to divest fully from its fossil fuel holdings. If it did, it would join cities like New York and Berlin, institutions like the World Bank and the American Medical Association, and schools like Queens College, Cambridge, and Middlebury College. We wanted to understand the perspective of a renowned investor, one whose actions and attitudes are closely watched and often mirrored in the broader world of institutional investing, on taking this important symbolic action.
While Swensen supports a carbon tax and has limited Yale’s fossil fuel investments to businesses that would be viable after such a tax is implemented, he opposes full divestment. While he acknowledges that climate change poses a serious threat, he believes that divestment unfairly targets producers of fossil fuels rather than consumers, an argument commonly leveled against the movement. At a lecture at Clare College, Cambridge, Swensen stated that modern society depends on fossil fuels, and “if we stopped producing fossil fuels today, we would all die … the real problem is the consumption of fossil fuels, and every one of us in the room is a consumer. And I guess it’s a little harder to look in the mirror and say I’m part of the problem.” Swensen’s statement is a gibe at unrealistic activists. He seems to be saying, climate change is a threat, but are you really not going to board your next flight to Miami?
At its essence, divestment is a symbolic, culturally punitive act. Yale’s divestment would not subtract from the supply of fossil fuels available to burn. Nobody’s respirator would get turned off if Yale divested, and I could still march into my nearest H&M and buy a $3 T-shirt made of petroleum, whizzed around global supply chains in carbon-intensive production and transportation. What Swensen argues, though, is that our dependency on fossil fuels makes it both inappropriate and ineffectual to stigmatize suppliers. He equates dependency on an industry with a free pass to invest in that industry.
But using dependence on fossil fuels as an argument against divestment misrepresents the role of the investor. When you invest in a company, particularly with the long-term horizons of private equity fundamental to Swensen’s strategies, you support the growth of that company. In the fossil fuel industry, growth means new oil and gas wells, pipelines, and power plants—infrastructure meant to last for decades. It means selling the entire contents of a company’s reserves while continuing to accrue new ones, exactly at a time when scientists warn we must keep the majority of reserves in the ground to prevent catastrophic warming. Contrary to what Swensen’s “we would all die” statement might suggest, curbing emissions calls not for a cessation of fossil fuel use but rather for a managed, structural decline. And structural decline is unlikely if we continue to inject ballooning amounts of capital into the industry.
Perhaps most importantly, “we would all die” neutralizes the possibility of bold action. In climate policy, what we envision as possible becomes self-fulfilling prophecy: California has committed to generating 100 percent carbon-free electricity by 2045; on the other hand, ExxonMobil proposes a vision that, especially in light of the latest IPCC report, is woefully timid, envisioning the U.S. growing from its current 17 percent renewable electricity generation to around 33 percent by 2040, with natural gas remaining the dominant energy source. With the emergence of the Green New Deal resolution, endorsed by most of the major 2020 Democratic presidential candidates, the prospect of mobilizing the U.S. to generate 100 percent of its electricity from clean, renewable, and zero-emission sources by 2030 is now a topic of serious discussion. Unquestionably, our dependence on fossil fuels travels in lockstep with the scale of our ambition to wean ourselves off of them.
The Yale Corporation Committee on Investor Responsibility (CCIR) has claimed that climate change is “more appropriately corrected by government action.” Yet how is a government choked by the money of the powerful fossil fuel lobby supposed to enact a carbon tax? Jonny Jones, founder and chairman of Jones Energy, a company of which Yale (via Luxiver LP) owned over 6 percent of Class A common shares as of December 18, is also chairman of the Texas Oil & Gas Association, a group whose “primary objective” is to combat governmental regulation and taxation of its industry, dodging, according to its website, “false claims of ‘peak oil’ and junk science about air and water quality.” (The Texas Oil & Gas Association also merchandises; they sell bumper stickers with silhouettes of oil rigs and the slogan “COME AND TAKE IT,” if you’re interested.)
We were reminded recently of the fossil fuel industry’s formidable political clout when Washington state’s landmark Initiative 1631, set to enact a modest carbon tax, failed to pass on November 6. Nearly all of the $31 million that was spent in opposition to Initiative 1631 came from oil companies, with BP the largest of these donors, despite the company’s stated support of carbon pricing on its website. To put responsibility for addressing global warming solely on the demand side ignores the systems-level dynamics at play, where the supply side fights to ensure that demand is high, resisting regulation by lobbying for favorable governmental policies and promoting disinformation campaigns. Research published in Proceedings of the National Academy of Sciences by Yale sociologist Justin Farrell details the extent to which corporate funding has fueled the “ecosystem of influence” these disinformation campaigns represent.
Even if a carbon tax is eventually passed, it is unlikely to be sufficient to address climate change. A recent paper by Fergus Green of the London School of Economics and Richard Denniss of the Australia Institute calls into question the efficacy of using demand-side policy alone and suggests that there has been an “unwarranted neglect” of supply-side climate policies, like eliminating fossil fuel subsidies or enacting moratoria/quotas on its production.
Supply-side policies would counterbalance the falling prices caused by demand-side policies. If the United States introduces a carbon tax, domestic use may fall due to decrease in demand. But exports to and consumption within other countries, sparked by falling prices, would escalate, thereby lessening or canceling out emissions reductions. Supply-side policies also address infrastructure lock-in, which causes fossil fuel companies to maintain production even as prices fall. According to Denniss and Green, even if the supplier cannot recover the large, up-front costs of a port or pipeline, “the bankruptcy of the owner will not prevent subsequent owners of the fixed asset from production, so long as the market price covers the marginal cost of production.” It’s clear that a robust array of both demand and supply-side policies are needed to effectively redress climate change.
Toward the end of the Yale reunion lecture, Swensen smilingly espoused the idea that “winners get to tell history.” A quick look at droughts in Africa, devastation in Puerto Rico, or island nations disappearing into the sea seems to corroborate his worldview. After hearing him speak, Geremy and I looked at each other in dismay. What would it take for our alma mater to possess the moral imagination to see that profiting from fossil fuels implicates it in the horrifying damage wrought by the cumulative impact of carbon emissions?
The fact that divestment is symbolic is often used as an argument against it, as a sign of impotence. But symbols are powerful, and they shape the narratives we espouse as a culture. As Roy Scranton recently put it in his essay “Raising My Child in a Doomed World”: “Society is not simply an aggregate of millions or billions of individual choices but a complex, recursive dynamic in which choices are made within institutions and ideologies that change over time as these choices feed back into the structures that frame what we consider possible.” (The italics are ours.) By stigmatizing suppliers, divestment promotes a cultural atmosphere in which both supply and demand-side policies can more easily be enacted. And it is precisely because climate change is a complicated, cumulative problem, riddled with crippling societal inertia, that prominent institutions should be at the forefront of the cultural signaling necessary to address it.
Yale students and community members have repeatedly staged sit-ins at the Yale Investments Office to demand both fossil fuel and Puerto Rican debt divestment, with 48 arrested in December and 17 arrested on March 4. Will Swensen and the Yale Corporation buckle? We hope so, because Yale’s divestment would be an act of courage on the part of the well-coiffed status quo, an implicit acknowledgment of our need to transition away from fossil fuels, as well as a political move that would shift the urgency to act on climate change to a more centrist position. Above all, Yale’s divestment would create shock waves, and, with global greenhouse gas emissions continuing to rise in spite of the IPCC’s recent grim report, the shock waves of change cannot come soon enough.
This article has been updated.