Pressed from All Sides
The many problems posed by climate change are pressures on the University. Warming threatens all of the University’s funding sources in many ways. Falling returns on investment can be expected, while infrastructure costs will demand a larger percentage of the Quebec government expenditures. Alumni and parents will be less able to give. These three founding sources comprise the vast majority of McGill University’s annual budget.
Government funding will be more difficult to come by. 48% of the University’s annual budget comes from provincial subsidies (McGill University Office of the Provost), a huge source of funding that would be hard to replace. As the claims on government revenue rise due to global climate change—new public infrastructure will need to be built, old infrastructure will need to be replaced more often, emergency disaster spending will be needed more often, and income support programs might need to be expanded—it is clear that the money will have to come from either increased taxes or savings in other parts of the budget. Tax increases ultimately either fall on individuals or shareholders, hitting McGill at both ends. The former Liberal government and the current PQ government have both shown themselves willing to reduce the relative government contribution to higher education, and the MELS grants to public universities in Quebec might shoulder some of the burden of government cutbacks. Continued public subsidies are not guaranteed to remain at a sustainable level—although there are many of us students who want to see them increased greatly—and global climate change threatens the continued public investment in higher education.
The economic costs of global warming threaten the return on investment for McGill University’s endowment. All sectors of the economy will face rising costs that will be factored into either profits or consumer prices. The rise of extreme weather events like flooding and hurricanes means that businesses must purchase more, and more expensive insurance and will have to replace capital faster. Vancouver, New York, and other large, coastal North American cities—in which the University has large investments—could see entire neighborhoods engulfed by the ocean. According to the IPCC, infrastructure across the coast is impacted by many effects of global warming, including temperature rise, extreme weather and ocean events, flooding, erosion, and salt water intrusion (M.L. Parry 6.4.2, 14.2.3; Sinoski). These factors mean that transportation costs will rise, and that capital might have to be moved inland, and that shipping and pipeline infrastructure will be less secure.
Appendix 1.1 details the direct and indirect impacts on the built environment, infrastructure industries, and natural resource infrastructures. Many of these costs will be born by governments, and others will be born by individuals and corporations. Governments across the world will have to levy taxes to raise seawalls, expand sewers, and respond to disasters. That government money will come from corporations, either through direct corporate taxes or through increased taxes on labour, and those corporations will likely pass some of those costs on to their shareholders. Corporations will pay higher operating costs, including heating, cooling and building maintenance, and increased prices for inputs due to mitigation efforts and scarcity will have to be born by either consumers or shareholders. Backing up this analysis are the predictions of global capitalist investors. One in three surveyed told Bloomberg News that they expected corporate profits to fall due to action to limit pollution (only 38% believe that global warming is a major threat to the environment, while 40% believe it is a minor threat) (Efstathiou). If shareholder returns fall as the Consumer Price Index, a measure of inflation, rises, then the return on McGill’s endowment will be less secure and will provide less financial support for the University’s future operations.
Thus decreased corporate profits seem likely, as do decreased real incomes for families, some of whom will send their children to McGill University. Individuals will pay higher taxes and higher prices for goods. All of the drivers of lower shareholder returns are also drivers of higher output prices, and markets can expect price increases across the board. Those price increases could result from mitigation efforts or from scarcity. Regardless, the growth rate in real family incomes will be negatively impacted by higher prices, and that could affect McGill in two main ways. Lower real parental income may force many talented students, especially out-of-province and international students paying higher tuition rates, to choose an alternative school or go deeply into debt, requiring more students to work longer hours. When students work more than 15 hours a week, their academics suffer, as does their ability to participate in the McGill community (BC Teachers Federation). Even more, the ability of alumni and parents to give back to school through financial donations is threatened by the fall in real incomes. If graduates have less disposable income at all stages of their life, the frequency and size of gifts can be expected to fall. Decreased real incomes due to climate change would seem to impose real costs on the University.
Climate change clearly poses a risk to the continued financial health of the University. Responsible governance requires Board members to put the University in a position to help tackle the problem of climate change. Some researchers at McGill University are already working towards solutions, but McGill can do more than research. If we are serious about mitigating global warming, divestment is the best option.
Divestment: McGill as a World Leader
Divestment is an effective tool in the arsenal of socially responsible Universities to affect wide-reaching, deep change. If McGill University takes bold decisive action by publicly divesting from fossil fuels, it will attract global attention as a world leader in sustainability and environmental governance. It is also the only responsible course of action for fulfilling the Board of Governor’s fiduciary obligation to the financial wellbeing of the school.
Movements at comparable universities across North America have taken hold in the last three years, starting at Harvard University and spreading to Amherst College, Boston University, Brown University, Tufts University, and Yale University (Divest for Our Future). Furthermore a growing political consensus, especially in Quebec, recognizes that we will eventually end our reliance on fossil fuels. We will put an end to fossil fuels; the only question is when?
If McGill University goes first, it will raise the political capital of the University. McGill will be a world leader in responsible governance, attracting headlines across the globe—universities like Harvard and Yale will be forced to play catch-up, or be forever remembered as the schools that refused to act. For many students entering university, this global environmental crisis is of the utmost importance, and talented, driven young people considering undergraduate or graduate school are looking for a university that can springboard their future careers, provide for their personal growth, and where they can live their values. Leadership on this issue would both expand the cachet of the University and the quality of the applicant pool.
Alumni donations can also reasonably be expected to rise. Many studies have shown that alumni with a positive emotional attachment to their university are more likely to donate, and they have also shown a strong positive relationship between the capacity to give and donor status (Hoyt). Alumni share the broad societal concern over global warming, and seeing McGill University take bold action to mitigate climate change would raise the frequency and intensity of positive emotional attachments to the school for most. By precipitating a broader social move away from fossil fuels, McGill’s actions would also ensure that the real incomes of alumni do not fall due to carbon emissions. Thus action on climate change raises both the likelihood that alumni would want to give, and the ability of alumni to give.
Divestment can also push entire governments to action. In the latest national election, concern over climate change spanned all of the parties, including the Parti Québécois, which formed the present minority government; the PQ has banned fracking to wide public acclaim. There is social support for strong action to mitigate climate change, and the historical record of divestment shows that one university can spur broader action.
Michigan State University was one of the first schools in North America to divest from South Africa, passing its resolution in 1977. Its leadership encouraged the state of Michigan to require all public universities in the state to divest their holdings in South Africa. While that law was eventually struck down by a court, Michigan State’s courageous stewardship not only presaged but brought about broader social change. Michigan State will always be remembered for taking a stand against apartheid, while schools that failed to respect human rights can never obviate that mark against them. If McGill University makes the right choices, it will always be remembered as a world leader in socially responsible governance, and given the willingness of Quebec to engage with the issue of climate change, divestment could precipitate national action.
Further, this is a positive financial decision for the rate of return of the University’s endowment. Across the world governments have passed or are considering legislation to regulate fossil fuels and carbon emissions. Europe already has cap-and-trade legislation, and California is considering one as well, while Sweden has put in place a carbon tax, and U.S. President Obama delayed the Keystone XL pipeline carrying bitumen and other products of the tar sands from Canada down to Texas. Worldwide, pressure is building to replace the Kyoto Protocol with a more effective version. Fossil fuels only make profits when the full cost of their use is not born by the producers. Once more stringent, wide-reaching measures are in place that force companies to pay the full social costs of their products, fossil fuel companies’ rates of return will drop—there is no way around that.
Any major announcement of effective climate change mitigation legislation will cause the values of these stocks to drop; when BP garnered international attention for the huge spill in the Gulf of Mexico two years ago, its share price fell dramatically. By shifting out of these stocks to safer, more stable assets, McGill University can ensure the value of its portfolio. Investing in fossil fuel companies is a risk to McGill’s financial security, and the University can find similar returns from safer stocks.
Divestment is the best course of action. By divesting from fossil fuel companies and the financial institutions that fund them, McGill University will be internationally recognized for its progressive environmental citizenship and will be rewarded by alumni, parents, prospective students, and prospective faculty. It reduces the uncertainty in the value of the endowment that comes from major policy changes.
And ultimately, it is the right thing to do. We need to move to a carbon-neutral future, and McGill University has an obligation to its students and staff, to the people of Quebec and Canada, and to the planet.
Time is of the essence. We need immediate action to keep this planet livable, and McGill University is in a position to act. Climate change threatens the Canadian people and it jeopardizes the future of McGill’s financial stability.