As students across the United States and around the world continue to push for their universities to disclose and divest their exposure to Israel, it is important to understand the technical details and implications of divestment. While there are moral dimensions to these situations, this article takes a technocratic approach to the issue. Divestment is often seen as an effective tool for social change, but the conventional wisdom that it led to the end of apartheid in South Africa and drove decarbonization in 2016 is challenged.
Research shows that strategic engagement is a more reliable form of responsible investing for investors seeking impact. Negative screening, such as divestment, is considered a less effective way to have impact as it may not directly affect the investees in the near term. University endowments operate within certain parameters set by their investment policy statements, leading to minimal exposure to countries like Israel in most portfolios. Divesting from Israel may not have a significant impact on most university endowments due to these constraints.
University endowments primarily invest through external asset managers, who may not follow clients’ negative screens in commingled funds that include assets from other clients. Divestment can also hurt investment returns by constraining portfolios and limiting opportunities for higher returns. The impact of divestment may also be watered down by complexities such as indirect exposure through commingled funds or sin budgets that allow a low percentage of assets to be out of compliance.
In order for divestment to be effective, the conditions must be right. The combination of unrest, civil disobedience, corporate activism, boycotts, and divestment led to the end of apartheid in South Africa. However, divesting from Israeli companies may not be sufficient to end the conflict due to deeply entrenched positions on both sides. It is important for students to understand the complexities of divestment and make more rational decisions about their activism.
Ultimately, the college years are a time of idealism and energy for many students. By empowering students with more specific information about divestment, university investment offices and sustainable impact faculty can help students channel their energy and idealism into more productive avenues. As students move forward, they must consider how they plan to make use of their one wild and precious life and work towards creating a better future as institutional investors and leaders in society.
