July 3, 2019

Pittsburgh’s Largest Paper Rejects Mayor’s Divestment Push

Pittsburgh Mayor Bill Peduto has made no secret of his desire to divest the city’s pension funds from investments in companies dealing in fossil fuels, firearms and for-profit prisons.

The push began in 2017 when Mayor Peduto signed an executive order affirming the city’s commitment to the Paris Accord and included a pledge to divest from fossil-fuel related companies.  Just last month he wrote a letter to the Comprehensive Municipal Trust Fund board requesting divestment from the three aforementioned sectors.

In response, the Pittsburgh Post-Gazette—which happens to be the region’s largest paper—wrote an editorial outlining why divestment is not the right policy for Pittsburgh.  Titled “Try this, Mr. Mayor: Activist investing is better than dumping stocks,” the editorial board instead implored Mayor Peduto to opt for engagement rather than divestment.

First off, the editorial board notes that the city’s main responsibility is to the fund’s beneficiaries and the taxpayers that fund worker benefits.

“The proposal is a poor one for various reasons, not least of which is the pension board’s duty to maximize investment returns so retirees get all of the benefits they’ve been promised without undue burden on taxpayers.”

To change company behavior, the editorial board argues, it makes more sense to become an engaged investor since selling off stakes in said companies eliminates the ability to influence. From the piece:

“There’s a better way for Mr. Peduto to advocate for more responsible corporate behavior. He and other pension board members can keep the controversial stocks in the pension fund and become high-profile activist shareholders who push for change from the inside.”

…

“If the Pittsburgh pension fund were to be divested of gunmaker, fossil-fuel and for-profit prison stocks, Mr. Peduto might call attention to social issues important to him and constituents. But he’d spend all his capital with that one announcement. Then what?”

The Pittsburgh Post-Gazette is not the only voice speaking out against the Mayor’s ill-conceived plan.

Mid-Atlantic director at the Consumer Energy Alliance Mike Butler wrote a recent Op-Ed that echoed many of the same sentiments and pointed out the importance of the energy industry on Pennsylvania’s economy.

“A more accurate word (for divestment) is disinvestment — disinvestment in workers, communities and businesses in Pittsburgh and America.”

Divestment has been shown to be all cost for the entity selling off fossil fuel stocks, with no environmental benefit to show for it. In fact, according to economist Chris Fiore, whose analysis was featured in the Pittsburgh Business Times and the Pittsburgh Tribune when the topic was first broached in 2017, Pittsburgh stands to miss out on millions over the long term if they were to divest.

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.

The divestment discussion is not limited to Pittsburgh’s City Hall.  Remember, the University of Pennsylvania faced a high-profile divestment campaign that culminated in the school rejecting the policy in 2016.  The administration has reiterated that stance since.

The growing number of voices speaking out against divestment should give Mayor Peduto pause about the merits of the policy.  Hopefully for pensioners, he will pursue other avenues that won’t impact their retirement.