Pro-Palestine protesters who want to cut financial ties with Israel should think again

The pro-Palestine protests that gripped many US colleges and universities last month have largely dissipated since graduation ceremonies ended a week ago. Missing class to save the world is one thing; summer vacation is another subject altogether.

As the protesters regroup for autumn campaigns, though, they should reconsider their calls for their institutions to cut financial ties with Israeli companies or ones that do business with Israel. They might benefit from some summer reading on the impact of divestment initiatives from climate activists on multinational oil companies, because, in short, it doesn’t work.

Frustrated with the lack of impact from massive protests in front of oil companies, in some cases disrupting cities, such as in the case with Extinction Rebellion in London, climate activists years ago began targeting Big Oil investors. By turning the screws on the big asset managers and pension funds that invested in oil and gas, they figured they would hit oil company share prices and force them to the negotiating table.

Many funds did in fact get rid of some or all their investments considered morally ambiguous, including those of universities pressured by their students. But years later the strategy has led to a predictable result. Rather than force the companies to their knees, the funds lost their ability to influence them. In many cases, they sold to other funds, which happily snapped them up, as oil prices soared after Russia’s invasion of Ukraine.

Over the last two weeks, shareholder climate initiatives at both Shell Plc in London and Exxon Mobil in New York failed by the widest margins yet – in Exxon’s case its directors were re-elected with a 95 per cent majority. This happened because over the years, environmentally minded shareholders gradually left the company’s list of shareholders due to divestment.

Exxon and the other oil companies, which this year are in the process of massively consolidating their industry with deals of tens of billions of dollars that will also enrich shareholders, grow ever more powerful. Both the Trump campaign and the Biden campaign are trying to reach out to them in different ways. Trump asked for $1bn in campaign contributions in exchange for his commitment to “drill baby drill” as long as possible.

Campus protesters should take note. Their endowment funds are there to make money to spend on the college and students, not to have political agendas. By forcing divestment, be it of Israel-connected companies or oil and gas companies, they are limiting that impact.

Theirs is also the question of who the funds would divest from. Companies based in Israel who are listed in the US, such as Teva Pharmaceuticals or SolarEdge Technologies? Or McDonalds and Pizza Hut, which do business in Israel? Even in the broader case, shareholdings by specific universities would be small compared to the entire float, and have little impact.

Some colleges, such as Brown University or Northwestern University, agreed early on in their protests to consider divestment and meet with student representatives. This limited the protests and now the students face the challenge of convincing endowment fund professionals why and how they should sell shares in US companies during a bull market this year.

Others stood fast, saying they wouldn’t negotiate. The protests will most certainly continue as long as Israel is in Gaza. And to the extent that they keep the issue in the headlines, the world will benefit from the extra pressure put on Israel to stop its offensive and end the war.

But divestment campaigns, as righteous and important as they might seem on campus, are proven failures against the indefatigable greed that drives the global markets.

David Callaway is founder of Callaway Climate Insights and former editor-in-chief of USA Today