A new op-ed in The Hill details the many reasons why pension funds and universities have been — and should continue to— steer clear of a fossil fuel divestment policy. Signed by Jeff Eshelman of the Independent Petroleum Association of America, the piece not only highlights how fossil fuel divestment conflicts with a manager’s fiduciary duty to maximize returns, but also the many ways in which it is counterproductive, given the billions of dollars the industry has invested into fighting climate change.
With false claims about divestment dominating the headlines in the wake of New York City Mayor de Blasio’s empty divestment announcement and divestment activists gathering tonight at a “climate resistance” event, this piece is a must read for anyone who wants the full picture on this costly, and misguided, movement.
From The Hill:
When environmentalist activist Bill McKibben and Senator Bernie Sanders (I-Vt.), among others, take to the stage the day after the State of the Union as part of a “climate resistance” event, they will no doubt claim the fossil fuel divestment movement is winning.
The facts and failures of this past year tell a very different story.
Divestment campaigns have suffered stunning defeats in cities and states across the country, including Vermont, Seattle, and most recently San Francisco. On college campuses last year, divestment chapters started to fold at several schools including Swarthmore, New York University, and the University of Colorado at Boulder. Usually, as in the case of NYU, students gave up once the university determined that divestment is inconsistent with the university’s legal duty to “invest funds in a manner that is prudent and in the University’s best interest.”
No wonder activists were so excited when New York Governor Andrew Cuomo and New York City Mayor Bill de Blasio threw their support behind the anti-fossil fuel crusade. But even these announcements were met with a dose of cold water after the TV cameras turned off. In reality, New York state continues to reject divestment and the city’s “divestment” announcement is far from a done deal.
New York Comptroller Thomas DiNapoli, who actually heads the state pension fund, has time and again voiced his opposition to divestment. Same goes for the city, where Comptroller Scott Stringer really calls the shots on divestment. Aside from the city’s lawsuit against five oil companies, which will take years to resolve, the mayor’s announcement itself was simply that two of the city’s five pension funds will “initiate a process” for how to divest within five years.
The city comptroller’s office also stated that divestment will happen if it is found to be in line with “fiscal stewardship,” i.e. fiduciary duty, which is an important exception.
These costs are nothing to joke about in light of the current health of the city’s public pension funds. Consider a new study by the American Council on Capital Formation (ACCF), which reveals that the city’s retirement systems are vastly underfunded and that, by fiscal year 2019, a staggering four-out-of-five taxpayer dollars collected from NYC’s personal income tax will go towards paying down these liabilities. The ACCF report also finds that three of the 10 worst performing private equity funds at the New York City Employees’ Retirement System (NYCERS) were focused on supporting Environment, Social and Governance (ESG), while none of the system’s top 10 performing ones were in the ESG category. Not exactly a ringing endorsement for another politically-motivated investment decision at the hands of the city comptroller.
In fact, a study we commissioned, conducted by Prof. Daniel Fischel from the University of Chicago’s Law School, found that if New York City’s public pension funds were to fully divest, it could cost the fund up to $1.5 trillion over a 50-year timeframe and up to $120 million annually. These costs will ultimately be borne by taxpayers and risk pensioner benefits.
And while New York State’s pension may be doing better financially, heeding the governor’s call for divestment would undoubtedly put this performance at jeopardy. According to the Suffolk Country Association of Municipal Employees (AME) a divestment policy would cost the state $2.8 billion over 20 years.
A 350 Action organizer has openly acknowledged their actual goal is to “restrict the social license” of energy companies to operate rather than have any material impact on the firms’ financials or tangibly support environment. That is — in a nutshell — the purpose of fossil fuel divestment: to stigmatize an industry on which the world depends for transportation to work, heating of homes, and production of countless goods and materials we all use every single day.
What’s more, energy companies across the globe have invested billions in energy efficiency and emissions reduction technologies, implemented solar panels on rig sites for improved data monitoring, established state of the art restoration plans to protect habitats, and provided an abundant, affordable supply of clean-burning natural gas for American homes and families. This innovation is driving us forward, shoring up our energy security, while helping us safeguard an environment we all care about.
As divestment activists gear up for another year, it is important to keep in mind the ineffectiveness, cost, and ultimately counterproductive nature of this strategy.
Jeff Eshelman is senior vice president for Operations and Public Affairs of Independent Petroleum Association of America (IPAA).