Going into my third term as a board member of the University of Toronto Students’ Union (UTSU), I have become accustomed to the various tactics that student activists have employed over the years. 

I think U of T students are some of the most passionate and studious in Canada, and many of us develop an itch to apply the theories we learn in class to the unfortunate realities of society. But, perhaps, we undergraduates are not the most careful beings. I worry that our most passionate peers make waste in their haste to better the world by advancing wrongheaded solutions. 

A solution I will discuss is one you have certainly heard of in the past few months: divestment. Student protesters have been calling on U of T to divest from companies involved either with Israel’s occupation of Palestinian territories or its military operations against Palestine. News headlines and social media posts publicized the students’ protests, but I find that few stop and consider if divestment is really the best way forward. 

Two sides of divestment 

One goal of divestment campaigns is to deprive supposedly unethical industries of capital, publicly pressuring them to change their business policies. 

Over the past decade, numerous universities, foundations, and pension funds have divested from fossil fuel companies, citing climate change concerns. Last year, environmental activist group Climate Justice UofT staged a sit-in at Victoria College, culminating in the college agreeing to divest from fossil fuels by 2030. Student activists have also commonly pointed to international divestment campaigns against South Africa in the 1980s as a successful example of combatting apartheid. 

However, investments are not simply bank accounts one can withdraw money from. When one investor sells, another must buy. Student activists must consider who the new buyers of the companies committing undesirable activities are if the original investor — the university in this case — divests from fossil fuel companies or those on the Boycott, Divest, and Sanctions (BDS) list against Israel. 

For some time now, climate activists have been raising awareness on how new buyers of fossil fuel stocks, such as hedge funds and private equity firms, are simply replacing the public companies that  have divested from fossil fuels. These new buyers’ investment patterns show little regard for the ethical implications of their investments, as they are focused solely on financial returns, seizing investment opportunities when the previous stock owners divest from the fossil fuels industry.

Even worse, these private investors commonly have far less oversight and regulation compared to the run-of-the-mill publicly listed corporations. Some of these private equity firms investing in fossil fuels have already been found to be underreporting their greenhouse gas emissions, and their private status allows them to continue hiding the environmental damage they’re doing.

While I support students pushing the university to advocate for socially conscious changes, the university as an institution would forfeit its stake in the companies that are targeted by student protesters if it divests. If we follow the trends in the fossil fuel industry, the new private investors — which I believe students probably have less of an influence over than their school — will likely focus on maximizing profit rather than sustainability, social justice, or corporate governance reform. Thus, I think the divestment movement will only allow fossil fuel companies and their continued harmful practices to go unchecked. 

Without the public investors being part of the discussion, I imagine that the targeted companies will feel less pressure to change. In some cases, these new investors may even intensify their unethical practices to ensure profitability, and students thus lose what little leverage they had to enact change from within. 

The receipts of previous campaigns

Consider the fossil fuel industry. According to researchers at The Wharton School, original investors who advocate for ethical practices essentially forfeit their leverage in exchange for a negligible effect on the climate. The researchers estimate that an industry’s cost of capital is raised by a measly one per cent when at least 80 per cent of all investable wealth in the world is divested from the given industry. The researchers conclude that, “given the low likelihood of achieving such a high participation rate” for such a small effect, their paper “questions the effectiveness” of divestment. 

U of T’s student unions have recently criticized the school for being one of the last Canadian universities to divest from South Africa in the 1980s, and urged it to avoid the same mistake with Israel today. However, according to the University of Chicago’s Journal of Business article from 1996, the divestment movements did not have as major of a financial impact on the South African economy as many may assume. As the paper summarizes, “the sanctions may have been effective in raising the public moral standards of public awareness of South African repression,” but the financial markets were left relatively undamaged.

Likewise, according to thinktank Brookings Institution, despite the BDS movement, divestment is unlikely to have a significant effect on the Israeli economy. Israel boasts a developed economy more concentrated in research and development in proportion to its GDP than any other country in the world; it’s different from South Africa, which had a comparatively weaker economy. 

So what do we do? 

Instead of pushing for divestment, I believe activists should push for alternative strategies that allow them to maintain influence over the equity in the industries they target and aim to drive positive changes in. 

One such approach is active ownership, which U of T’s Asset Management Corporation (UTAM) — the school’s investment manager — has pledged to practice. Activists should continue to encourage the university to practice active ownership by using its shareholder rights to advocate for ethical practices and hold companies accountable. This could involve pushing the university to file shareholder resolutions to disclose information and provide reports on the company’s impacts, vote on key issues, and engage directly with company management to promote policy reform. For example, UTAM is part of a coalition called Climate Action 100+, which successfully pressured a mining company in May to commit to publishing their emissions. 

Some activists may nevertheless persist with divestment demands. In this case, I still contend that it would be far more impactful to pressure the university to direct the profits towards the advocacy causes in combination with practicing active ownership, rather than just telling the school to take their ball and go home. 

Only by maintaining influence can socially conscious students truly advocate for a better, more equitable world.

Ron Ulitsky is a fourth-year computer science specialist at Victoria College. He is a Member-at-Large of the UTSU’s Board of Directors.

Editor’s Note (August 27, 3:13pm): A previous version of this story incorrectly stated that Victoria College pledged to divest from fossil fuels by 2023. In fact, the College will be divesting from fossil fuels by 2030.