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January 25, 2018

SFERS Says No to Full Divestment in Another Defeat for Failing Movement

In a stunning defeat for the divestment movement, the San Francisco Employees Retirement System (SFERS) opted out of full divestment at a Retirement Board meeting this week, upsetting activists who continue to see rejections in blue cities and states.  As the San Francisco Chronicle states, the move “disappoints activists” while the San Francisco Examiner – which featured a total of three pro-divestment opinions ahead of the meeting and none on the other side of the issue – ran a headline noting the “SF Retirement Board shirks full divestment from fossil fuels.”

So what did the board vote to do instead? As E&E News summarizes, “San Francisco’s $24 billion public pension fund voted yesterday to shift a small portion of its holdings into an environmentally friendly portfolio, opting against a broader strategy of divesting from fossil fuels.”  One would think this decision to actively invest in environmental solutions instead of costly divestment would be celebrated by those looking to invest in ways that support their own environmental goals.  Unfortunately, that’s not what divestment activists are after.

350.org – the primary organization behind the divestment campaign – went to Twitter to share its disappointment, quoting a member of the Bay Area Chapter who stated, “Sadly the SF Board just asked staff to study risky assets and develop engagement plans with fossil fuel companies, rather than taking action on divesting…”  Another divest group focused on the Dakota Access Pipeline stated “Shame on SFERS Board” and the treasurer of San Francisco Berniecrats said that “to come out of here today with a plan to make a plan, is very disappointing.” 350.org Executive Director May Boeve commented, “Climate change will not pause so San Francisco’s public officials can take another year or two to gather up their nerve.”

All this frustration and you would think divestment means an immediate benefit for the environment and for retirees, yet the facts are starkly different.

Pro-divestment activists leave out the fact that divestment has no impact on the environment, nor is it a campaign that is meant to. Instead, as 350.org leadership has stated, “The purpose of divestment is to make the point that the [fossil fuel] industry is losing legitimacy. It’s about their reputation, which is less quantifiable but equally damaging.”

So while SFERS reiterated its commitment to work with companies and invest in tangible new opportunities, activists chose to complain that it wasn’t a damaging enough PR stunt.

Meanwhile, SFERS made it clear last night that a desire to support divestment or new investments cannot take precedence over the financial security of retirees. As SFERS Committee member Brian Stansbury summarized:

“I think philosophically that we all agree we want to do the right thing for the earth and the environment, but as fiduciaries we walk a fine line of doing what is right for the system. That means minimizing how much employees need to pay, and if we get this wrong this will result in a pay cut to employees. If we get this wrong it will cost employees money. If we get this wrong it will cost retirees in the form of supplemental {Cost of Living Allowances}. So as we proceed, we need to be careful that everything we do doesn’t impact those returns but still tries to fulfill the spirit of the motion. You have to be patient as we go down this road, we want to do what you want to do but we have to balance this.”

Another committee member pushed back on activist pressure to move toward divestment more immediately, noting the costs such a decision can impose. “Tobacco cost SFERS $62 million dollars over 19 years,” the member stated, continuing “That’s why supervisor Cohen and I have added the ‘prudently’ – as long as you can do this prudently and not affect the system that would require that more money I think we can do this.”  These concerns have been echoed at California and the nation’s largest public pension fund CalPERS, which recently noted that previous divestment decisions had cost the fund $8.5 billion in losses.

As SFERS own economic consultants have found, divesting from fossil fuels “prudently” will be difficult to achieve. Consultant Allan Martin told the Board, “Symbolically, using the assets that are trusted to you to make a political statement is not a good fiduciary duty.” Divesting from the full Carbon Underground 200 is estimated to impose a one-time transaction cost of $1.2 million and a performance shortfall “within a range of $5.765 million to $23.058 million per annum.” In turn, any future divestments out of SFERS will likely be limited in nature, much like the majority of divestment announcements before it.

SFERS will be back in the spotlight this spring and summer as additional plans are laid out and future divestments are considered. For now, the retirees of San Francisco can know their financial future took precedence over this empty, costly campaign.