Remembering the Reasons for the Protests

Protesters making their demands clear on Monday, April 29 (Photo by Lina Fisher)

Student protesters nationwide, including those at UT-Austin, aren’t just calling for a cease-fire in Gaza. They’re also asking for their respective universities to divest from Israeli interests and weapons manufacturers whose products have killed 34,000 Palestinians since October.

Some colleges are considering it. Tuesday, Brown University’s corporate board announced it would hold a vote on divestment from Israeli interests. The company managing UT’s endowment is a lot bigger than Brown’s. The University of Texas/Texas A&M Investment Management Company (UTIMCO) held roughly $52.5 million worth of weapon manufacturers’ debt and equity securities in 2020, according to a 2021 report from Women for Weapons Trade Transparency. (UTIMCO did not respond to our requests for comment).

UTIMCO doesn’t partake in socially conscious ESG investing (environmental, social, and governance). As a result, in 2023, Amnesty International gave UTIMCO a failing grade on human rights due diligence, noting the company had not engaged in any socially conscious divestment.

But does divestment work? Most finance experts agree that divestment doesn’t cause companies to change their behavior. Jonathan Berk at Stanford and Jules H. van Binsbergen at University of Pennsylvania studied the impact of divestment strategies in 2021. They found that unless 86% of investors divest from a certain company, the impact is “too small to meaningfully affect real investment decisions.”

There are a few reasons for that. “If I sell my stock, I have to sell it to somebody,” Berk explained on the researchers’ shared podcast in 2022. “So the total holdings of stock has not changed. All that’s changed is who owns the stock. And why would the people who own the stock have any effect on the strategy of the company? In fact, you might think it goes the other way.” Divestment can be counterproductive: ethically minded shareholders give up their votes, which could have helped pressure companies to change their practices.

But even an activist investment strategy, rather than divestment, has its limits. If shareholders pressured a company to stop producing a certain unethical weapon type, competitors could take the opportunity to produce that same weapon. “Not only does the company itself need to change, but it needs to be an industry where nobody else can do what the company is doing,” Berk said. “And it seems to me, that’s a reasonably rare case.”

So, ultimately, government action (bans, regulations) is more effective. That doesn’t mean socially conscious ESG investing is useless. Texas enacted new anti-ESG laws in 2021. In the first few months, these laws cost the state between $300 million and $500 million in interest, per a study from University of Pennsylvania’s Daniel Garrett. That’s because investing for social good is also about risk mitigation: Companies “don’t want to be exposed to businesses that are likely to be regulated or boycotted,” Garrett told the Chronicle.

Women for Weapons Trade Transparency, a group of recent UT graduates, made this risk argument when they recommended potential weapons divestments to UTIMCO staff in 2021.

“We advocated that they screen out any companies that manufacture nuclear weapons, cluster munitions, autonomous weapons, landmines, white phosphorus, and any company that gets 60% or more of its revenue from weapons,” the group told the Chronicle. They pointed out that all six companies they find most concerning ethically (including Lockheed Martin and General Dynamics) had five-year annualized returns worse than the S&P 500 or the Dow Jones. “There is no reason to cling to investments in any company when they are underperforming or merely average,” the nonprofit told the Chronicle.

UTIMCO staff told them divestment wouldn’t be possible, partly because the Permanent University Fund investment policy blocks UTIMCO from investing in a way that “advance[s] social or political purposes.” UTIMCO also contracts out much of its asset management. And there lies another wrinkle: 2021’s Senate Bill 19 made it illegal for government entities to contract with entities that avoid investment in firearm businesses based “solely on [their] status as a firearm entity.”

But there’s another, more personal, impact of protests. In Rafah – where hundreds of thousands of Gazans are sheltering – tents are spray-painted with messages to students: “Thank you students in solidarity with Gaza. Your message has reached.”