The impact of university divestment from Israel

Across North America, pro Palestinian encampments have popped up on university campuses, with students demanding that their institutions divest from Israeli companies and those doing business with Israel. But what would this entail? And would it have an impact if the students got their way? For more on this, I’m joined by a senior markets columnist from the Wall Street Journal, James McIntosh. James, we appreciate this. We appreciate as welcome to the program. Hi, Ansi. All right. Interesting stuff, because this is where the politics and the business intersect, don’t they? And you just wrote a piece for the Journal saying this is focusing on Columbia University, but really it applies to most schools. It says, dear Columbia students, divestment from Israel won’t work. Explain your thesis if you could. So the basic principle of what they’re demanding, as you say, they want the endowments of the universities which are big, these are multi billion dollar endowments. They want them to sell the stock in Israeli companies or in companies doing business with Israel, which includes Microsoft, one of the world’s biggest companies, depending on the precise day currently number two. I think the problem with that is that of course what happens is the companies are entirely unaffected. They sell the stock to somebody else. So if you buy some shares off me in Microsoft, that doesn’t make any difference to Microsoft. They don’t care one way or the other. So the impact of it is close to negligible to the extent it has some impact. If you go out and sell a bunch of shares, supply and demand, you make the share price go down a tiny, tiny bit. So if you were selling shares in Microsoft, you sell them very slightly lower in order that someone else who might buy them is then tempted to come in and buy them because they’re a slightly lower price. So I might go in and buy them. Microsoft itself a slight change in their share price, neither here nor there. So it doesn’t make any difference to their decision to invest in Israel or not to invest in Israel, purely in financial terms. So in terms of finance, it’s just not a relevant issue here. And the irony of it is, if it did work, of course, what it would be is a transfer from Columbia and the other universities who would be selling their shares slightly cheaper, to the people who don’t care about taking action against Israel, who would have bought those shares more cheaply, but they still make just as much money. So they got a bargain. That is an intriguing element to this story. But you wonder too, in many ways, universities across North America see themselves perhaps as the tip of the spear, and you wonder if the symbolic divestment has enough value. And perhaps that they would just, you know, their argument would be that it would inspire other people and other companies to do the same. Does that have an effect? That could have an effect? Obviously, that’s not a financial effect. That’s, as you say, symbolic politics. I mean, clearly already you’re having the the protests are having impacts within the Democratic Party. It could have an impact. Nobody really knows. The parallel would be with the academic boycott of South Africa. So the South African universities were cut out from lots and lots of international organisations, from international cooperation with other academics, and even from subscriptions to academic journals. So there’s a really severe boycott of apartheid South Africa in the late 70s and early 80s, and that of course did affect South African academics. But according to at least some of the studies of the effect of this, mostly they managed to get around it. And of course, academics tend to be the most liberal in many countries. And if you are taking, trying to persuade the country to be more liberal in South Africa, for example, punishing the very people who were the spearhead of the internal, the country’s internal campaigns might not necessarily be the best way to achieve your aims. But as I say, these are questions of politics, not pure finance, So it’s very easy for people to disagree on things like this. And we don’t have a lot of time, unfortunately, but one of the most recent divestment campaigns, if you will, and some universities, including McGill University here in Canada, doing so regarding the fossil fuel business. So in some ways, whether that’s having an impact or not, what’s your impression on that? So the the fossil fuels is the most interesting parallel here because of course it takes a lot of the the sort of contentious politics out of it. And you can look more purely at the finance and it’s very clear that what drives the share prices and what drives the profits of the company is the supply and demand for the fossil fuels, not the willingness of people to buy the shares. So coal is the most obvious here, where almost every ESG fund, very many of the endowments that have had pressure from students, have cut out coal from their portfolios. And since the start of 2020, the impact has been, I mean, if you look at it, it would appear massively the opposite of what they wanted. Coal had soared. The share prices of companies involved in coal have soared. They far outperform the market. So again, there’s been this transfer of wealth from the endowments that sold and from the funds investors that sold to the people who bought them, who presumably don’t care very much about climate, which is again, the exact opposite of the effect that the protesters would like to have. So James, even if the universities look into the books and ultimately make the decision of divesting, it would lead to the bigger debate as well of the universities taking a position in the war. Would you agree? Yes, of course. I mean that would be them taking a position in the war, which of course is an is an odd thing when you think about it, that an American University should have a view on foreign policy of a of a, you know, another country entirely. On the other hand, that’s clearly been the direction that the world has been going in the last 10 or 15 years, that universities have increasingly been pushed to take positions on all sorts of things and many of them have been willing to do that. Some have resisted. There are a bunch that sign up to explicit free speech principles and say that’s part of their foundation and they won’t be moved from it. But some of the universities now are in a bit of trouble because in the past they have taken positions on things and they’re being pushed to take a position here as well, which they absolutely don’t want to do because whatever position they take, they alienate large numbers of people. Well, that’s it. Free speech goes both ways, doesn’t it? So where do you see all of this going right now? You mean on Israel? I, I really don’t know the encampments and the push to divest the schools because obviously it’s not just the schools When we talk about the individuals and the business ties with Israel and it it it’s widespread. I mean we’re talking even smartphone technology has a connection with Israel in so many ways and so many other companies around the world. So yes you can get universities to do what what they what they’re being asked to do but the individual companies, individual products around the world, it’s it’s it’s a big, big topic. I mean, it would be very hard to cut out any developed country from someone’s supply chains because there’s a huge web of interconnections. And Israel in particular has an awful lot of high tech supplies. And in a lot of those areas, the company may be the, you know, probably not the only supplier, but the best supplier if it is successful. And a lot of them have been very successful. So it’d be hard to cut them out. But aside from that, I would say that a very large chunk of the US population wouldn’t want to cut them out, will be absolutely furious. If if a big company tried to impose its own sort of personal sanctions on on Israel, I think that would upset an awful lot of people as well. So the companies here, a bit like with the the sort of campaigns that’s been going on around DI and things like this ESG with some of the Republican states, the big companies are desperate to distance themselves from the politics and to try and get back to the business of selling stuff to people, which is, which is really what they want to do. And they’re, they’re constantly getting dragged into the politics. And it’s not a place where CEOs feel very comfortable, incredibly complicated. It’s obviously a big debate as well and it won’t end anytime soon. We appreciate your insight, Sir. Thank you so much. That is James McIntosh from the Wall Street Journal. Thank you again. Get it?