Forget everything you thought you knew about why Middlebury College must divest. It is not about abandoning profitable investments for moral reasons. It is about abandoning investments with little hope of future growth. It is about getting out of a bubble that is about to burst.
Last year, we watched as the movement grew from a niche concern into the mainstream of campus dialogue. The rationale initially focused on the need to send a signal to the oil companies and to the world that we will not profit – that it is abhorrent to profit – from their conscious engineering of a warmer, more dangerous planet. It was moral crusade and, so, a quixotic one; in a world driven by quarterly or even hourly investment numbers, concern over the bottom line usually wins out. Early on in the divestment movement, even the most diehard supporters conceded that there had to be some financial cost to sustainable investment paradigms. This concession was based on a consensus belief about the absurd profitability of the oil industry.
This belief does not hold up to reality.
Research done by Standard and Poors, MCSI, the Associated Press, and other respected sources has shown that fossil fuel companies were mediocre investments all along. They do well in boom times but are extremely volatile, too connected to the whims of dictators, the news of the day, or even the weather. An endowment that excluded the stocks of oil majors over the last decade would have grown by a larger amount than one that included them.
Instead of peak supply, the world is running towards peak demand. The oil majors – ExxonMobil, Shell, BP, etc. – are paying progressively more for the oil that they draw from the ground, while demand in the developed world is flat due to improved technology and the growth of alternative energy. The remaining growth in demand is driven almost entirely by a Chinese economy that looks increasingly like a well-greased house of cards built on a lending boom and a real estate bubble that dwarfs the scale of our own. Deustche Bank says it best: “for big oil companies, the writing is on the wall. Shrink and liquidate over the coming five years, before it is too late.”
As for coal – if the Middlebury College endowment even holds coal company stocks at this point, Investure should be fired immediately. The stock value of Peabody coal fell ten percent in the amount of time it took President Obama to read a speech about energy policy on a sweltering Tuesday. This caps off a year in which that company lost half its stock value. By way of contrast, electric car company Tesla motors is up 300 percent during the same period.
So why would we invest in fossil energy companies? Is it because they make us a lot of money? They do not. Is it because they are a stable hedge against risk? They are not. Is it because we so believe in their mission that we want to back them with capital? We do not. Is it because there are not other worthy and profitable investment opportunities? There are: Bloomberg New Energy Finance forecasts that yearly investment in renewable energy technology will increase from $189 billion to nearly $900 billion by 2030.
The bottom line is that while some oil and coal companies may continue making money for a couple years, their room for growth is gone. Without growth their stocks will stagnate. There are much better opportunities out there to make a lot of money while doing good – or at least not actively doing harm. Divestment is a financial opportunity. We have a chance to avoid the bubble bursting. It also still happens to be the right thing to do.
In five months, I will have graduated. In six, Middlebury will start asking me to give back. I would love to – eventually. But I won’t give one dollar until we have divested from companies like Severstal, which by itself holds a quarter of the carbon needed to warm the planet past two degrees. I ask that you join myself and others in this pledge, and let the administration know of your commitment. Promises of more transparency and the creation of new funds are less than half measures. If the administration’s concern about divestment is merely the bottom line, then this is the only show of support that will change their minds.