Citing concerns about cost and ineffectiveness, Pennsylvanians across the state have been actively pushing back on fossil fuel divestment. Just this week, University of Pennsylvania’s trustees reaffirmed their 2016 rejection of fossil duel divestment and Pittsburgh’s newspapers strongly criticized Mayor Bill Peduto’s newfound desire to divest the city’s pension funds.
For those who have been following the fossil fuel divestment movement closely this reaction is probably unsurprising. Across the globe universities and pension funds have swiftly rejected divestment policies that would wreck financial havoc on endowments and retirement investments.
In the case of Pittsburgh’s retirement funds, the City of Pittsburgh’s finance director and head of the city’s pension fund, Paul Leger, believes that only 5 percent of Pittsburgh’s $415 million in mutual funds is invested in fossil fuels. But according to economist Chris Fiore, whose analysis was featured in the Pittsburgh Business Times and the Pittsburgh Tribune, the impact of divesting wouldn’t be limited to that 5 percent because of the loss in diversification benefit – in total the Pittsburgh pension fund could be looking at losses anywhere between $358,000 to $478,000 a year. From the Pittsburgh Tribune:
Researchers say that Pittsburgh’s pension funds could lose nearly $500,000 a year if the city stops investing in fossil fuel-related companies — as Pittsburgh Mayor Bill Peduto has said he is committed to doing. While that loss would be damaging for Pittsburgh’s underfunded pension funds, it wouldn’t do much to change the behavior of fossil fuel companies, the researchers suggest.
“It’s purely a symbolic move that has no impact on the climate,” said Chris Fiore of the Chicago-based economic consulting firm Compass Lexecon. Fiore co-authored a report released this month that says the nation’s top 11 public pension funds could lose trillions of dollars if they divested from fossil fuel-related investments. “The percentage sounds small, but when you realize these pension funds are quite large, that can be quite substantial,” Fiore said.
These costs are not to be ignored – and universities in the state agree. This week at UPenn, the university reasserted a previous unanimous 2016 decision to reject fossil fuel divestment. The university previously found that investing in fossil fuels is not a “moral evil implicating a core University value” and therefore does not meet the established UPenn criteria for divestment. In the words of the Board Chair David L. Cohen:
“Despite the continued entreaties from Fossil Free Penn, the Trustees see no change in circumstances that would justify the reconsideration of the initial, well-reasoned, and fully communicated decision [not to divest] made by the Trustees last September.”
This decision will likely be welcomed on campus as many students were vocally opposed to fossil fuel divestment the first time it was voted on by the Board. In fact, in an opinion piece in The Statesman last year a student pleaded with the Administration not to divest, arguing:
“Divesting would not be beneficial for Penn… the money that Penn receives from investing in fossil fuel companies is significant. All of the money goes directly into the Penn endowment, which is then saved so Penn can gain greater interest. The interest helps fund scholarships, financial aid, and the top professors that give us our Ivy League education. Penn invests in fossil fuels to benefit the students’ futures.”
This student was right to be concerned about the cost of fossil fuel divestment to the University’s endowment just as Pittsburgh’s pensioners are right to be concerned about fossil fuel divestment hurting their pensions. In fact, a recent study by Dr. Hendrik Bessembinder of the W.P. Carey School of Business at Arizona State University found that adopting a fossil fuel divestment policy would result in a 15.2 percent drop in transfers from the endowment accounts to school programs and a 5-7 percent reduction in monthly benefits for a typical pensioner.
Thankfully, Pennsylvanians are smart and sticking up for their university endowments and hard earned investments and not letting them be guided by the whims of activists.