The executive director of Maine’s largest pension fund questioned the effectiveness of a new state law that requires public held funds to be divested from fossil fuels. Sandy Matheson leads the Maine Public Employee Retirement System (MainePERS), one of the state’s largest pension programs with $17.6 billion in assets under management and about $1.3 billion invested in fossil fuels, and told Bloomberg News that the move “does nothing to address climate change” and risks her fiduciary duty to pensioners.
While pension funds across the U.S. have faced growing pressures from divestment proponents to liquidate, indiscriminately, all fossil fuel investments, financial experts and fund managers argue that divestment does little to combat climate change. Instead, they say engaging fossil fuel companies is the preferred route forward.
“Just selling does nothing to address climate change, as ownership of the funds are just being transferred to someone else. That’s true, both in the private and public markets,” Matheson said.
“Selling fossil fuel stocks doesn’t change the demand or use of fossil fuels in the same way that selling Apple doesn’t change the use or increase in sales of iPhones.”
As pension managers are tasked with a fiduciary responsibility, immediate divestment – as expected by its proponents – would put pension holders’ assets in danger, Matheson explained:
“If MainePERS were to sell its stakes in these private investments on the secondary market, it would likely only be able to do so at a loss, Matheson said. That’s because sales of limited partnership interests almost always take place at a discount. But there’s a bigger point about the downsides of quick divestment.”
Matheson’s comments are similar to those from fund managers around the country. Thomas DiNapoli, who leads and manages New York’s $207 billion New York State Common Retirement Fund advocates for using financial assets to drive change in the private sector:
“…there is no evidence that divesting the Fund from owners of fossil fuel reserves would do anything to actually mitigate climate change.”
[the Fund] has earned over $4 billion over the last 10 years from the same ‘fossil fuels’ companies identified in the 2018 Corporate Knights Study.
… an investment decision such as divestment requires a financial and economic analysis demonstrating that divesting would not have a negative economic impact on the Fund.”
Even the California Public Employees’ Retirement System (CalPERS) expressed strong concerns with a 2017 state divestment proposal.
“[Bill]AB 20 would impede CalPERS ability to maximize risk-adjusted returns, and minimize risk through diversification, potentially imposing additional costs on California’s public employers and agencies, civil servants, and impairing CalPERS’ ability to pay promised benefits.”
Bottom line: Finding green solutions to address climate change requires an all hands on deck approach. That includes energy companies that understand the energy space and have the capabilities and resources to invest in the development of innovate green technologies. Thus, by trying to curtail investments in energy companies, divestment does more damage to the overall climate transition conversation than good in advancing carbon reduction goals.