The fossil fuel divestment boom has turned into a serious bust. Most recently we saw this at the University of Denver where the administration determined that the future health of their endowment was worth far more than any political points scored through satisfying the demands of some environmentalist students. We’ve seen this in a number of other schools but the trend is continuing in areas outside the academic realm. Even state governments have been forced by activists to take a look at the possibility of divestment. This most recently happened in Vermont where the state pension plan was considering similar demands.
Much as in universities around the country, the results were pretty much the same. (Divestment Facts)
A new report conducted by an independent consulting firm for the state of Vermont confirms what economists, pension fund managers and academics have long said about fossil fuel divestment: it’s costly, hurts pension fund returns, and has no tangible impact on climate change.
For over a year, Vermont has been a battleground state for divestment with prominent activists like 350.org founder Bill McKibben urging schools and pension funds to divest, and former Governor Peter Shumlin making divestment a signature issue in 2016. Yet at every turn, efforts to divest have been rejected by everyone from the Treasurer’s office to pensioners – the same sentiments reached by colleges and funds across the nation.
After legislative proposals to mandate state pension divestment failed in March 2016, a subcommittee of the Vermont Pension Investment Committee (VPIC) was assembled to study the issue. The result of that process is a new report, released today by the Pension Consulting Alliance (PCA), analyzing several fossil fuel divestment scenarios for the Vermont pension fund at the request of the VPIC. Across all scenarios studied, PCA concluded that divestment would have adverse impacts for pension beneficiaries.
The study by the committee determined that fossil fuel divestment would result in increased costs, reduced versatility in the portfolio and potential long-term losses. As with previous university studies, the report also indicated that any such risky divestment strategy would produce no real impact on the fossil fuel companies. Further echoing what the colleges had already determined, the committee concluded that such a strategy would open the door to a slippery slope wherein the fund could be forced to divest from other politically unpopular positions.
The bottom line for the state pension fund was indeed the bottom line in a very literal sense. They need to operate in a profitable fashion and cutting their own throats for the sake of pleasing a small but vocal minority of green warriors was simply not feasible in the long run. If these activists truly wish to strike a blow against the fossil fuel industry they’re going to need to come up with a better investment strategy to replace the existing model. Considering the fact that fossil fuels still represent one of the most consistently profitable investments available, particularly when compared to renewable energy, that’s going to be quite the trick.