The Montgomery County Council passed a resolution yesterday pushing the county’s employee pension funds to sell stocks in fossil fuel companies with one big caveat: the pension funds can retain these stocks if their sale would hurt the funds’ return on investment. In other words, none of these funds are actually going to divest.
The cost of divesting, in conjunction with the fact that the resolution carries no legal weight, renders the council’s divestment resolution entirely meaningless. Not surprisingly, this reality seems to be completely lost on local activists, like 350 Montgomery, which hailed the vote as a “huge victory for #fossilfree.”
The watered-down-to-nothing resolution is the outcome of a sustained effort from a handful of council-members who initially pushed for a divestment law that would drive the county’s employee pension funds to divest from all fossil fuel holdings in five years. When introduced back in October, the bill was met with a wall of resistance and Montgomery County Executive Ike Leggett requested the county council convert the bill into a non-binding resolution that wouldn’t force divestment, but rather “encourage” the board to stop investing in fossil fuels. Leggett reasoned:
“The right response for our county is to continue to strengthen our own climate initiatives and press for adoption of federal measures that will make a difference to the planet. It is not to take actions that would have no practical effect and could harm the investment returns of our retirement funds.”
In reality, numerous studies (which can be found here, here and here) show fossil fuel divestment would not only “harm the investment returns” but in fact be extremely costly for pension funds, imposing new transaction and compliance costs, and reducing diversification benefits. It is these costs, and the impact they would have on the fund’s beneficiaries, that pushed Montgomery County retirees and the two bodies that oversee their pensions — the Employees’ Retirement System and the Consolidated Retiree Health Benefits Trust—to vigorously protest against the proposed divestment bill since it was introduced.
At the time, Montgomery County’s thirteen-member Board of Investment Trustees had regarded draft bills to divest as “unwarranted interference with the panel’s legal obligation to maximize returns.” Their objections centered around one unavoidable fact: the fund would be shirking from its fiduciary duty to maximize returns and shortchanging those who had paid into the system throughout their careers. This sentiment was echoed in a Washington Post editorial on the topic, which noted that fossil fuel divestment was:
“Not a suitable project for a public pension fund, whose trustees have a fiduciary duty to maximize earnings for the benefit of tens of thousands of present and future retirees, not plunge into complex philosophical or scientific examinations of corporate fossil fuel consumption. “
If this argument sounds familiar it’s because both Vermont’s and Hawaii’s pensioners noted the same thing in resistance to divestment and universities across the country have made similar points when it comes to divesting their endowments. In Maryland specifically, the University System of Maryland Foundation (USMF) tried to pull a fast one by pledging to divest its direct holdings from fossil fuels even though it “has no direct investments in coal, tar sands or any companies on the Carbon Underground 200 list,” according to its own student newspaper.
Perhaps it’s time to recognize pensioners’ and universities’ very real concerns about fossil fuel divestment and stop trying to force county and state-level retirement funds, as well as schools across the country to make costly, and ultimately ineffective, divestment decisions.