In recent years, student protests calling for universities to divest from Israel have sparked debates on the effectiveness of divestment as a tool for social change. While divestment is often seen as a powerful way to drive impact, research suggests that it may not be as effective as other forms of responsible investing, such as strategic engagement with asset managers or companies in the portfolio. Negative screening, which includes divestment, may not directly impact investees and can even hurt investment returns by constraining portfolios.
University endowments operate within specific parameters set by their investment policy statements, which dictate their exposure to different asset classes. Deviating from benchmarks, such as the MSCI All Country World Index or S&P 500, to divest from Israel may only eliminate minimal exposure from most portfolios. Furthermore, most university endowments invest through external asset managers, who may not be obligated to follow negative screens in commingled funds.
Divestment can also have a limited impact on the conflict in the Middle East, as public opinion on the issue is already deeply divided. While student protests may lead to universities agreeing to divest, the actual impact of these decisions can be watered down by complex institutional constraints. Students may find other forms of advocacy, such as engaging with Congress or advocating against shared grants that aid military efforts, to be more productive in addressing the conflict.
In light of these complexities, a more informed discussion on divestment and responsible investing is needed to empower students to make rational decisions about their activism. By engaging with university investment offices and sustainable impact faculty, students can better understand the implications of divestment and work towards impactful change in a more strategic manner. Ultimately, as students navigate their idealistic college years and consider their future paths, they must be equipped with the knowledge and information to make a meaningful impact in their world.
In a year marked by social unrest and challenges, it is crucial for institutional investors and investment faculty to educate students about the complexities of divestment and dispel harmful misconceptions. By empowering the next generation of leaders with the tools to navigate complex investment decisions with a focus on impact, we can work towards a more just and sustainable future for all.
