Columbia University President Minouche Shafik’s testimony on Capitol Hill last week, followed by the arrest and suspension of over 100 pro-Palestine student demonstrators, has ignited a new wave of fiery campus protests across some of the country’s most reputable schools, including Yale, MIT and NYU. A cornerstone of their cause is to pressure their institutions to divest from Israel and all corporations at their aid in the events following Oct. 7.
Colleges and universities have taken various stances on whether they should share their investment portfolios with their students. Nevertheless, their commitment to financial security, complex management of robust index funds and reevaluation of institutional neutrality places leaders wishing to assuage students’ frustrations in a difficult spot.
“They are forcing these conversations to the table,” Wendy Pearlman, interim director of the Middle East and North Africa Studies program at Northwestern University, told Open Campus. “Investments can be and should be discussed and defended and are open to critique.”
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The ethical dilemma
Student calls for divestment have a significant history in higher education, and some have proved successful. In 1987, a two-year campaign by University of South Florida students and faculty calling for the end of institutional support for companies with direct ties to apartheid-era South Africa led to its successful divestment, Tampa Bay Times reports. Three years ago, university leadership at Rutgers divested from fossil fuels following similar calls for action, North Jersey reports.
Similarly, student calls for their institutions to cut ties with Israel has a storied history. The Boycott, Divest and Sanctions movement, which began over two decades ago, saw 44 U.S. college or university student governments vote on divestment resolutions in the 2014-2015 academic year, eJewish Philanthropy reports.
However, unlike apartheid or fossil fuels, the most recent conflict in Gaza represents a more complex moral conundrum that few leaders can confidently stake a claim.
“Hamas is a terrorist organization that committed a terrible atrocity; and Israel has forced the Gaza Strip to live under a blockade that has inflicted enormous suffering on the Palestinian people; and Israel has a right to defend itself; and Israel’s ground attack is unconscionably killing many innocent civilians indiscriminately; and Hamas hides among civilians, which means Israel has few good military options,” Jal Mehta, associate professor at the Harvard Graduate School of Education, wrote in an EdWeek blog.
Consequently, many prominent higher education presidents are returning to staunchly defending institutional neutrality. When the Undergraduate Council of Students at Brown University in 2019 conducted a referendum asking whether their institution should “divest all stocks, funds, endowment and other monetary instruments from companies complicit in human rights abuses in Palestine,” Brown President Christina Paxson chose not to engage.
“Brown’s endowment is not a political instrument to be used to express views on complex social and political issues, especially those over which thoughtful and intelligent people vehemently disagree,” she wrote to the Brown community.
Opaque investment portfolios
University of Michigan Regent Michael Behm told The Detroit News that “less than 1/10 of 1% of the endowment is invested indirectly in companies [connected to Israel].” Pro-Palestine activists, on the other hand, claim UM’s Israeli investments top $6 billion.
Communicating to school stakeholders how an institution directly or indirectly invests in companies aiding Israel’s military is a tall task, thanks to the sheer complexity of their robust investment portfolios and how they’re managed. Identifying specific equities or stocks tied to Israel can be challenging because investments are usually held in index or mutual funds managed by an outside company, says Bill Guerrero, vice president for finance and chief financial officer at the University of Bridgeport.
“I think the challenge for a lot of people is to understand the business models of these schools with large endowments,” he says. “They are invested in all these really, really complicated investment strategies.”
While institutions provide management companies with investment policy statements outlining their ethics and values, the interconnectivity of different index funds can create complicity.
“If you’re not allowed to invest in oil companies, then if you have any index funds that track the broader stock market that has oil companies, do you need to get out of that [index fund]?” said Robert Kelchen, a higher education researcher at the University of Tennessee, according to Open Campus.
Lastly, multinational companies that provide a multitude of services can be complicit. General Electric and Rolls-Royce provide components for fighter jets and planes, and the Toyota Corporation creates military vehicles used by Israel.
“It’s not so simple,” Guerrero says. “It’s very difficult to find companies based primarily in Israel, but some really high-performing stocks have connections.”
The consequences of divestment
Institutions have an obligation to seek a return on their investments to maintain a necessary supply of financial aid money for students. In fiscal year 2023, nearly half (47.7%) of institutions’ spending policy distributions for their endowment went to student financial aid, according to NACUBO. A large reason for FY23’s year-over-year upswing was favorable public equity markets.
By divesting from high-performing stocks and index funds, colleges and universities would be unable to fund such programs, Guerrero warns.
“We could focus on investments that meet all these types of socially responsible principles, but if they don’t return anything or keep up with inflation, it becomes really difficult to contribute to financial aid,” says Guerrero. “Without financial aid, affordability and accessibility suffer.”
