Kendrick Baker: Fossil fuel divestment could cause financial instability

Kendrick Baker, a junior double majoring in political science and economics, is a Hatchet columnist. 

Students across the country have been calling on their universities’ boards of trustees to stop investing in the fossil fuel industry, including students at GW.

The calls for divestment by student groups often fail to consider the full implications of divestment, and they ignore potential financial damage to the University. GW’s endowment isn’t as big as some better-known universities, like Stanford University or Harvard College, so divestment would have a more severe impact on the University’s financial well-being.

We shouldn’t blindly call for divestment without knowing how much it will affect us. Only by studying the impacts of divestment first can we ensure that divestment would not severely harm GW’s budget.

Before groups continue to advocate for divestment, the managers of GW’s endowment fund should conduct and publish a study investigating the financial impact of divestment. Because GW’s endowment breakdown isn’t public, commissioning an in-depth study by GW’s fund managers is the only way to determine whether divestment would have a significant negative impact on the school’s finances. The results of such a study should be made public to students, so they can fully understand the financial implications of divestment.

Although some smaller universities have divested their endowments from all fossil fuels, these early adopters tend to be institutions that do not have or do not heavily depend on large endowments for salaries, scholarships and other institutional costs. GW’s per-pupil endowment is too small to take the hit to funding that Stanford University and Harvard College can. GW is far more dependent on endowment funding than smaller schools that have divested, yet does not have a large enough endowment to absorb potential losses on its rate of return.

At GW, 11.6 percent and 13 percent of endowment income goes toward student aid and professorships, respectively. Although these figures are not outliers compared to institutions like GW, they demonstrate that our endowment still represents a vital funding stream for the University.  We cannot afford to miscalculate or ignore the financial costs of divestmentbecause our endowment has an impact on our financial aid and our professors’ jobs.

For the environmentally conscious, GW retaining a portfolio that contains fossil fuel-invested stocks may feel morally irresponsible, but based on similar endowments at businesses and other universities, GW probably only invests a small fraction of its over $1 billion endowment in fossil fuel stocks. That means that the small fraction of $1 billion that would actually be divested from the fossil-fuel industry would not have a substantial direct effect on oil company profits. But losing even a fraction of one percent of the endowment could have an effect on students in the short run and on GW’s finances in the long run.

Students need to question what’s more important: moving ahead with an aggressive divestment strategy without complete information or wait a while longer to commission a study and ensure that the future health of the University.

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