What does divesting from Israel really mean?

A core demand at the heart of the protests over the war in Gaza currently roiling college campuses across the US and around the world: that universities divest from Israel. That means withdrawing funds their endowments have invested in companies that are linked to Israel.

Their demands have revived a long-running debate about whether universities should even consider ethics in their investment decisions and whether there is an ethical approach to divestment from Israel, or if these institutions should simply maximize returns. There is also a question of whether these divestment demands, which have been criticized by some pundits as overly broad, are feasible to meet or will even be effective.

Their demands come as the Palestinian death toll (now over 34,000 people) only keeps rising and as full-blown famine breaks out in northern Gaza, with the rest of the territory remaining at risk.

The US Student Movement for Palestinian Liberation released a statement April 21 indicative of what the protests are broadly calling for; it asked universities to “completely divest our tuition dollars from — and to cut all institutional ties to — the zionist entity as well as all companies complicit in the colonization of Palestine.”

But students on some campuses have articulated more specific demands, seeking to focus their efforts on divesting from major weapons manufacturers that universities have invested in, ensuring that their universities no longer accept research funding from the Israeli military, or ending academic partnerships with Israeli institutions.

Some universities, including Columbia University, have already rejected those calls and have swiftly called the police on protesters, prompting further escalation. Others — including Brown University, Northwestern University, and the University of Minnesota — have agreed to consider them. On Thursday, Evergreen State College became one of the first to approve an effort to divest.

Divestment has been a tactic embraced by protesters in previous student movements opposing the South African apartheid regime and fossil fuel companies contributing to climate change. Those calls for divestment have had varying degrees of success — to what degree depends on how you define that success in terms of their financial or political impact.

The movement to divest from Israel borrows from the traditions of those historical movements. But will it work the same way?

What is divestment?

Divestment is, essentially, reversing an investment. And the goal of divestment movements generally is “generating social and political pressure on the companies that are targets of divestment — stigmatizing behavior,” said Cutler Cleveland, a Boston University sustainability professor who was involved in the decade-long fossil fuel divestment campaign there.

Current calls for divestment from Israel are an outgrowth of the broader Boycott, Divestment, Sanctions (BDS) movement, which originated in 2005 among Palestinian civil society groups after several failures in the two-state peace process and was inspired by the movement to divest from South African apartheid.

The BDS movement’s website argues that, since Israel’s founding in 1948 when it forced 700,000 Palestinians to flee their homes, the country has “denied Palestinians their fundamental rights and has refused to comply with international law” while maintaining a “regime of settler colonialism, apartheid and occupation over the Palestinian people.”

The BDS movement has therefore called on banks, local councils, churches, pension funds, and universities to “withdraw investments from the State of Israel and all Israeli and international companies that sustain Israeli apartheid.”

However, critics of BDS say that it is inherently antisemitic in that it “effectively reject[s] or ignore[s] the Jewish people’s right of self-determination” and that if implemented, it “would result in the eradication of the world’s only Jewish state,” according to the Anti-Defamation League.

Student groups behind the recent protests on college campuses have denounced antisemitism, which they do not equate with opposing Israel. But there have been incidents of antisemitism, and some Jewish students say they feel unsafe on their own campuses as the target of threatening behavior and rhetoric.

The BDS movement has recently notched new wins: Evergreen State College’s announcement last week, and one from Ireland’s sovereign investment fund in April stating that it will divest from six Israeli companies, including some of its biggest banks, based on their operations in the Palestinian territories.

How endowments work

Understanding whether it’s feasible for universities to divest from Israel requires understanding how their endowments work.

Endowments are basically large rainy day investment funds whose returns far outpace growth from new donations, allowing universities to supplement tuition dollars and fees in supporting their daily operations. Harvard University has the largest endowment, at $49.5 billion in fiscal year 2023 — bigger than the GDP of more than 120 countries — but US university endowments average about $1.6 billion.

Most universities are “very wary or averse to using the endowment as a political tool,” said Georges Dyer, executive director of the Intentional Endowments Network.

That’s because university endowments have both a financial interest in maximizing returns — and a legal duty to serve the financial health of their institutions.

Today, the vast majority of universities manage their endowments through external investment management companies, Dyer said.

They might invest in private equity funds, hedge funds, or public companies, usually via index funds where they are one of many investors putting their money into a pool that is invested in a portfolio of stocks and bonds designed to track a certain financial market index such as the S&P 500. The portfolios of these funds are not tailored to the preferences of a particular university, which may make it difficult to divest from particular causes.

These funds also present challenges in terms of transparency. The companies included in index funds are publicly reported. But hedge funds or private equity funds may not even disclose to their own clients where their investments lie, which is part of their competitive advantage. Universities with larger endowments tend to allocate more of their investments to these private investments, Dyer said. And that can make divestment difficult.

What we can learn from past divestment movements

Two major divestment movements have laid the groundwork for the current protests.

In the 1980s, student activists pushed their universities to divest from firms that supported or profited from South African apartheid. Politically, they were effective: 155 universities ultimately divested. And in 1986, the US government also bowed to pressure from protesters and enacted a divestment policy.

Along with increasing protests within South Africa led by organizations including the African National Congress, the Pan Africanist Congress, and trade unions, that kind of international pressure helped force the white South African government to begin negotiations that ultimately ended apartheid, at least officially.

A few things helped make this movement successful. For one, protesters faced little pushback at the time given that much of the political establishment was embarrassed by the US’s ties to apartheid. Investments in commingled funds that are now favored by universities were not as widely used back then. And the interconnected, global economy as we know it today had not yet taken shape, making it practicable to isolate companies based in South Africa or with major South African interests.

Currently, there is an ongoing movement to push universities to divest from fossil fuels, popularized by climate activist and Middlebury professor Bill McKibben. About 250 universities have at least committed to do so after years of campus activism, though this has overall had a negligible impact on the finances of fossil fuel companies (with the exception of coal companies), suggesting that it may not have yet had the impact hoped.

Cleveland said that part of what helped persuade his university to divest in 2021 is the undeniable fact that fossil fuel companies have driven the climate crisis, which provided “a basis to argue that the university has a responsibility to align its investment decisions with its educational research.”

Practically, fossil fuel divestment was also feasible. Though there are some quibbles about what constitutes a fossil fuel company — for example, do power plants that use fossil fuels count? — it’s a generally easy-to-define group.

It’s also become easier to disentangle fossil fuel investments from an endowment’s portfolio because fund managers have started to offer purportedly fossil fuel-free funds, seemingly in response to external pressure.

And finally, there’s a financial argument for divestment from fossil fuels: “If and when society moves toward a low-carbon economy, those investments in the fossil fuel companies will become worth less because much of their value is based on the fossil fuel reserves that won’t be used,” Dyer said.

Can divestment work in the context of Israel?

Universities divesting broadly from Israeli companies or companies that do business in Israel might not have much of a financial impact.

“The data suggests that, economically, anything short of official sanctions by important economic partners such as the United States or European Union would be unlikely to produce anything near the kind of economic pressure BDS supporters envision,” researchers at the Brookings Institution concluded.

Broad divestment from Israel would also be practically very difficult. Israel has many research and development partnerships with US entities, and is also a major player in industries such as computer technology, medical devices, and pharmaceuticals. Many major multinational companies do business in Israel or with Israel, such as Google and Cisco. To exclude them entirely would require withdrawing from many kinds of commingled investment funds.

It might be more practicable for protesters to target a specific list of companies, as students at Brown University are doing. They are seeking divestment from 11 companies that Brown directly invests in, accounting for less the 10 percent of its endowment: AB Volvo, Airbus, Boeing, DXC, General Dynamics, General Electric, Motorola, Northrop Grumman, Oaktree Capital, Raytheon, and United Technologies.

The question, however, is where universities would draw the line.

“There’s the very subjective nature of the assessment of the war in Gaza that I think puts you in a very different terrain than the fossil fuel divestment debate,” Cleveland said. “It will just be so arbitrary about who you’re going to include and not include.”

And even with more piecemeal efforts to divest, universities and students would need to weigh any financial hit to the endowment that would hurt the university community and its mission. “Students need to be confronted with moral questions, such as whether Columbia being associated with defense contractors is worth the tuition discount,” Oliver Hart, an economics professor at Harvard, and Luigi Zingales, a professor of entrepreneurship and finance at the University of Chicago Booth School of Business, write in Compact.

It’s hard to know exactly what the costs of divestment to universities might be in the context of Israel. Chris Marsicano, an assistant professor of education studies at Davidson College, told PBS that research including his own has shown that divestment in the fossil fuel context had “at worst, a negligible effect for institutions like Stanford and Dayton and Syracuse and, in many cases, may have had a positive effect.”

What would make divestment successful?

Calls for divestment at universities have always been a means to a greater end, whether it be bringing down an apartheid regime or reversing climate change.

In the current context, what student protesters really want is an end to the fighting in Gaza, which has killed more than 34,000 Palestinians, and the end of what they see as the injustices Israel, as the biggest cumulative beneficiary of US foreign aid, has exacted on Palestinians for decades. Whether universities ultimately divest and whether that has any material financial impact on Israel might be less important to the protesters than whether their calls for divestment alone can make the status quo politically untenable.

The question is whether the political impact of the protests is lining up with that goal.

Republicans, including former President Donald Trump, have already latched on to the protests as an example of America’s need for their brand of “law and order.”

“The movements themselves become a potent symbol for the other side,” said Matthew Nisbet, a professor of communication, public policy, and urban affairs at Northeastern University.

Both US President Joe Biden and Israeli Prime Minister Benjamin Netanyahu have publicly addressed the protests on US college campuses, suggesting that they are feeling at least some pressure to react — but are not bowing to it yet.

Biden said Thursday that the protests had not caused him to reconsider his strategy in the Middle East, and his aides remain confident that the protests will not overshadow his case for reelection in 2024. But young people leading the protests represent an important constituency for Biden.

“Demanding financial disclosure and asking US universities to break their financial ties has proven to be very powerful and threatening,” said Jennie Stephens, a professor of sustainability science and policy at Northeastern University who has written a forthcoming book about climate justice on campus.

How powerful and threatening, however, remains to be seen.

A version of the story appeared in Today, Explained, Vox’s flagship daily newsletter. Sign up here for future editions.