“Disclose, divest, we will not stop, we will not rest” is a frequent chant ringing through pro-Palestinian college protests. Of all the actions one could advocate in the war between Israel and Hamas, protesters at Columbia listed, as their first demand, that it divest from companies and institutions that, in their view, “profit from Israeli apartheid.”
Israeli companies aren’t the only target. A proposal Columbia students put forward in December calls for divestment from Microsoft, Airbnb, Amazon and Alphabet, among others. Microsoft is tagged for supplying cloud software services to Israel; Airbnb is targeted for posting rentals in Israeli settlements in the West Bank, listings the platform said it would remove in 2018. The company reversed this policy months later to settle lawsuits.
Administrators at some universities, including Brown and Northwestern, have agreed to talks with students about divestment as part of agreements to end campus encampments. Other schools have said point blank that they will not accede. The University of Michigan Regents, for one, in March reaffirmed “its longstanding policy to shield the endowment from political pressures and base investment decisions on financial factors such as risk and return.”
“Longstanding” is a debatable term, as it was only three years ago that the regents decided the endowment should stop investing in funds focused on certain fossil fuels (which affected the firm I work at). Before the war in Gaza, it had been pretty easy for universities to make compromises around divestment demands, but those expedient choices are haunting them now. Every investment in elite schools’ endowments is up for debate.
College endowment managers no doubt feel beleaguered that pressing moral questions regularly end up on their desks. For that desk is already covered with spreadsheets on another question: how to generate returns for universities that are nonprofits, unfathomably expensive, and desperate to not be just finishing schools for the rich. Last fiscal year, endowments over $5 billion provided 17.7 percent of their university’s budgets. This school year, Williams College charged $81,200 in tuition and fees. But spending per student was $135,600. The endowment helps make up the difference.
Yet activists view endowments with a sense of ownership. They are part of a community that owns this money. They also go after endowments because they lack better targets. It says something about the authority of ideas in our age that students lobby institutions dedicated to the advancement and propagation of knowledge mainly over what they do with their excess cash.
The mother to all divestment movements was the one that aimed at apartheid in South Africa in the 1970s and ’80s. (In 1981, Barack Obama gave his first public speech at a divestment rally at Occidental College.) It largely worked: Over 100 colleges in the U.S. eventually agreed to at least partly divest from companies that did business in the country. Years later, many believe divestment played some role in ending apartheid in South Africa.
From 2020 to 2022, as evidence of climate change grew increasingly unavoidable, student demands for divestment from fossil fuels claimed more victories, especially at the Ivy League and other colleges with large endowments — and not coincidentally large groups of activist students telling them what to do with them. Schools’ exposure to oil and gas investments was often less than 5 percent of their endowment, so finding a way to wind down investing, in some form, in the sector was easy to do.
Every divesting institution found its own path, some more logically consistent and sincere than others. I watched some of this unfold firsthand as some schools stopped investing in our oil and gas funds while others invested in our clean energy funds. But almost all the schools succeeded in minimizing real disruption to the endowment and inducing student activists to move on.
Unlike the effects of the South Africa 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 capital, and hostility to the divestment movement has led Republican-led such as Florida states to restrict E.S.G. investing, which focuses on environmental, social and governance factors. (Note that Florida’s State Board of Administration manages almost exactly the same amount of money as the 10 largest private college endowments combined.)
What the fossil fuel divestiture did establish, however, was that university leaders can be made to concede that their endowments will, in certain circumstances, be guided by the school’s collective values, and that current students can shape those values. And by getting endowments to not invest in the sector in some way, the protesters hardened an abstract moral judgment: that the oil and gas business, and the faceless bureaucrats who work for it, are wrong. Divestment champions hope the symbolic removal of an industry’s “social license” can take on its own power, emboldening government policymakers to regulate that industry or dissuading students from seeking jobs in it.
Now the reason for divestment is Israel rather than oil. For many students it’s part of the same conversation, as I saw in a scrawled word salad sign on display at Tulane’s pro-Palestinian encampment: “From the Gulf to the sea, no genocide for oil greed.”
University leaders could follow the same playbook as they did on fossil fuels and find ways to symbolically divest without disrupting their endowments in any notable way. Based on the size of G.D.P., not investing is Israel directly would be like not investing in Colorado. And despite the chants that charge otherwise, many endowments appear to have little to no direct exposure to Israel or to many of the American companies protesters want to blacklist.
But there’s a key difference between avoiding fossil fuels and shunning Israel. The institutions that divested from oil and gas made sure to describe it as financially prudent, albeit sometimes with shallow investment logic. This time, Israel’s social license is the only thing that is on the table. And if Israel is on the table, what other countries should lose their social license? How many years must pass since what some believe to be a country’s settler colonialist period or messy wars that kill innocent civilians to make it investable?
And if divestment against Israel is carried out, when should it end? Oil and gas divesting is meant never to end; oil and gas consumption is meant to end. Divestment from South Africa ended with apartheid. So university leaders will be forced to ask an often heterogeneous group of students what would earn Israel its social license back. A cease-fire? 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 find information only on pocket-change-size ownership of certain companies, such as $69,000 of Microsoft stock. So protesters are also demanding that colleges disclose all their investments, presumably so students can research the morality of each one. However, some firms that manage parts of an endowment’s money, particularly hedge funds, don’t report individual holdings to investors: asking them for it is like asking for the secret recipe for Coke.
But even if an endowment could provide a list of every underlying investment, it would likely then be inundated for more calls to divest, for more discovered connections — however small — to Israel, and for reasons related to other offenses discoverable with an online search. Why would there not be a Taiwanese student group demanding divestment from China, to dissuade an invasion? Other students demanding divestment from Big Tech, citing students’ mental health? Others demanding divestment from all of it, the hedge funds and private equity funds whose asset managers are not exactly healing American income inequality?
The answer, of course, is that endowments can’t be in the moral adjudication business — and they should never have headed this way. This does not mean that investing should be a returns-at-any-cost exercise. But it does mean that the real world does not always provide objective answers to how to balance 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 Microsoft saying it won’t sell software to Israel would displease others — and probably get itself banned from working with New York State agencies.
Listen to the protesters on divestment. They will not stop. They will not rest.
But neither will the markets. They open every morning, Monday through Friday, and university budgets’ demands on endowments never go away. Tuitions are rising. Costs always go up. Colleges should debate deep moral issues and discuss the hard compromises to solve the world’s ills. But we should move those efforts to the lecture halls, away from the investment offices. Divesting is an easy chant. Investing is hard enough as it is.
Gary Sernovitz is a managing director 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 travails of a university chief investment officer.
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