I want to start a conversation on this site about a matter before the Senate that has been troubling me. I’d like to hear how my constituents feel about Senate 1225 which would require the state’s pension fund to sell all stocks in oil, coal and gas companies (fossil fuel companies).
My initial reaction to the bill was positive — divesting from fossil fuel stocks seems like a way to emphasize public support for clean energy — the bill is consistent with my long-term efforts on this issue.
However, I have to confess that the more I’ve thought about the bill, the more ambivalent I have become. Here are some of the questions that have come to trouble me:
First, what is the end game? Every President from Nixon to Obama has sought to reduce dependence on energy imports because of the economic and military vulnerability that they create. We aren’t about to sell off our national control over fossil fuel resources.
Second, if we are merely hoping to sell enough control to send a message, what is the message we expect to send? How would divestment by blue state public pension funds and select universities move us towards green transformation of our economy? I think we send a leadership message when we make personal sacrifices, for example when we increase our own energy rate costs to support conservation efforts and renewables — as we did in the Green Communities Act of 2008. Causing our pension funds to sell the fossil fuel stocks in their portfolios might or might not cause any financial loss. But if selling energy stocks does result in pension fund losses, those losses will be born to a large degree by future taxpayers and conceivably by retirees. I’m concerned that divestment might be perceived as a comforting gesture at the expense of people with no culpability.
Along the same lines, what message does it send to divest from fossil fuel stocks, but not to divest from the stocks of companies that encourage wasteful uses of fossil fuels? The bill does not propose divestment from manufacturers of big cars, big houses or luxury air travel. Granted, if we tried to divest from all the companies that are selling unnecessary use of fossil fuels, we’d divest from much of the economy and I’m not suggesting that makes sense. But if we are looking for moral clarity, that’s where we need to go. Why should we attack fossil fuel producers only and give a pass to the many industries who are encouraging overuse of fossil fuels?
Third, I’m somewhat concerned about the practicalities of the bill. There are some specialized investment firms that are managing some relatively small green endowments, but I am unaware of any large fund that has embraced a full divestment from fossil-fuels (Stanford has announced its plans to divest but only from coal.) Big players like our state pension fund have to diversify their investments across a lot of money managers. It isn’t really clear that big players will find enough good quality money managers that embrace a green approach. There are also a number of technical challenges in the bill — many terms that are hard to define.
Some have argued that there is a carbon bubble, that now is the time to get out of fossil fuels, that most of the value in fossil stocks is soon to vanish when governments around the world wake up to the need to control carbon emissions. May it be so, but I don’t think it is for the legislature to guess where the stock market is headed. We’ve created an entity to manage state pension funds professionally and, while the legislature might decide to divest based on policy concerns, I do not think it is for us to make a decision for or against divestment based on stock forecasts.
So, those are some of the questions that have been troubling me about this legislation. How do you feel about it? The bill is still in committee, but I may need to vote on it before the end of the session.
Supplemental Comments on May 23
Thanks to all who have weighed in below. I’ve read all the comments through this date. Just a couple of thoughts in response.
- Some have made moral arguments along the lines of:
Polluting and profiting from it is indefensible.
One “has a feeling like the clinching of the fist” when one speaks those words. And I share that feeling about climate change. But it just doesn’t take hold of me as I contemplate the divestment issue. We could stop smoking. We could boycott South African goods. And, we could tell ourselves with at least some truth that we don’t have apartheid in America. But we are all going to continue our dependence on fossil fuels even after divestment. Divesting would not change the deeply uncomfortable fact that our own consumption is much of the problem.
- Divestment should not be mistaken for new investment in clean energy. One commenter said:
It really boils down to a simple question – Do you want a future with clean air, clean water, and a healthy climate? If so, put your money where your mouth is.
However, the legislation doesn’t even call for investment in renewables. Managers could sell oil stocks and buy automobile and utility stocks. Even if the legislation were modified to add a renewable investment requirement, it’s not like we are going to sell the stocks and use the proceeds to make more grants to subsidize insulation or solar panel installation. At best, we might shift our holdings into renewable companies and that might or might not actually give those companies any more capital to work with. Under the legislation, our pension fund managers would still have a fiduciary duty to pensioners that would compel them to buy stocks at market price just like any other profit-maximizing investor.
- A more interesting possibility is that divestment fits into a larger political strategy:
The fossil fuel industry needs to make way for sustainables – just as the whale oil industry and the slave industry – and they will not do so until their political and financial dominance is ended. Divestment is a historically validated method for getting that done.
But, in the same ways that the earlier examples of divestment are morally distinct, so they are historically distinct. I find it very implausible that divestment will exert meaningful political or economic pressure on fossil fuel companies.
I guess I’m still open to hearing an argument that divestment fits into some kind of global political strategy, but I can’t really see that coming together. I certainly haven’t heard it yet.
As a result of the legislation that we passed in 2008, the Commonwealth is annually plowing between $500 million and $1 billion per year of ratepayer and taxpayer money into subsidization of energy conservation and renewables — insulation and solar panel installation, etc. Those subsidies are leveraging much larger private investments. Changing the assets we hold in our employee pension fund would add little or nothing to that huge investment. I don’t suffer from the illusion that our 2008 legislation will stop global warming, but those investments are real as opposed to symbolic.
Supplemental Comments on June 6
I continue to appreciate the thoughts that people are offering in this thread. One particularly interesting alternative to divestment offered below is that, instead of divesting, we could be using our ownership positions to push for more disclosure of climate risks, climate-related lobbying, etc.
I agree with your reconsideration on this. If there is somewhere the legislature can help with getting our society off fossil fuels, it is supporting efforts to work our market economy by making fossil fuel use reflect the true cost of using it. Maybe a carbon tax is an answer, but there may be other and/or additional ways (how did we get most people to stop smoking?)
I would encourage you to strongly support S 1225.
The Faculty of Harvard University published the following thoughts on divestment on May 5, 2014.
Christiana Figueres, Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC), warned that “Institutional investors” would be “blatantly in breach of their fiduciary duty” if they failed to accelerate the greening of their portfolios. She said, “Investment decisions need to reflect the clear scientific evidence, and fiduciary responsibility needs to grasp the intergenerational reality . . . unchecked climate change has the potential to impact and eventually devastate the lives, livelihoods and savings of many, now and well into the future.”
The current issue of the British Medical Journal (26 March 2014) states the case directly: “This is an emergency. Immediate and transformative action is needed at every level: individual, local, and national; personal, political, and financial.”
I’m sympathetic to the goals of the bill but it’s whistling in the wind. Unlike the apartheid government of South Africa, a financial boycott of an industry as massive and integral to the world economy as fossil fuel can’t possibly have any effect. It’d make more sense for the Commonwealth to pledge to wean itself from fossil fuel *use* within 30 years — that, at least, would have its own positive benefits to offset the negative.
Then there’s Section 5 of the bill. It doesn’t have the courage of its own convictions, but instead says that if this action harms the return on our investments, we’ll abandon our lofty principles and buy ExxonMobil again (and by definition, and ironically, having ‘sold low’, we’d have to ‘buy high’, at a time when the fossil stocks have performed especially well, and therefore are less likely to perform as well in the short term future). It’s also utterly unmanageable — who’s going to do the hypothetical calculation of returns had we not divested, and what fossil stocks will they assume we’d have owned?
The divestment bill may be well intended, but is very wrong headed. Will, you are listing exactly the reasons why it is so, and you are making a pretty good case.
What’s needed instead is more transparency in consumption. We need to have regulations forcing utilities to open up their books publicly and to disclose how much is each customer consuming and at what cost.
I’ve attempted to do that for Lexington based on assessment data, more as an illustration – here is the spreadsheet.
Problem is, assessors do not maintain very accurate records in regards to private home heating type (oil, natural gas), and no records for governmental building heating.
But this gives a hint to the type of analysis needed here. Only it should be done based on customer-specific data from utility companies, and if possible it should be extended to automobile and air plane fuel consumption for a fuller picture.
For that to be possible, the legislature needs to pass regulations forcing transparency in consumption.
Once the data becomes available, people may be surprised to find out that the suburbs, where environmentalism has most political support, are also the areas with the largest per capita energy consumption.
Andrei Radulescu-Banu, Lexington, MA
In answer to your question about “how did we get most people to stop smoking?”
One of the actions we took here in Massachusetts was to divest our pension funds (in 1997) from tobacco stocks. The legislature decided that it was a violation of their responsibilities to their constituents for the Commonwealth to own companies whose profits were generated as a direct result of causing the death and illness of their constituents.
The legislature also realized that it didn’t make any sense to own stock in a company that we were suing to recover damages from the injuries their products caused.
We are just starting to realize that the same is true for fossil fuel companies today.
You suggest – quite wisely – that one of the most effective things we could do to make a difference on climate would be to implement a carbon tax.
Do you think it would make sense to invest in a company that you are simultaneously taxing to discourage the use of its products?
Do you think it might be difficult to pass a carbon tax if 5 to 10% of your investments are currently tied up in fossil fuel stocks?
While I am also sympathetic to the divest-fossil-fuel-stocks bill, we are faced with the hypocrisy of the government and people of the State of Massachusetts continuing to use and be dependent on fossil fuels. Shouldn’t we, as Brian Rehrig suggests, focus on a time table of weaning off of fossil fuels? For instance, we need a viable plan for phasing homes from oil/gas heating in the winters to heating via renewable resources. A strong impetus for the transition would be slapping on the price tags of fossil fuels the environmental costs of their usage.
I agree with your belief that not much will be accomplished simply by a symbolic gesture, an extreme one at that. Particularly when that gesture, pulling out of fossil fuel investments, may result in new problems. A slow, thoughtful, change in investment choices — with some publicity about that change — should please both those who agree with the idea of divesting and those who want careful maintenance of their pension funds.
Yes. Please support the bill. The effort to change our energy use has to start somewhere and I don’t foresee a time when all the ducks will be in a row, it will be no-brainer and/or it will not be painful.
Your concern about practicality of divestiture is entirely appropriate. Divestiture is, at best, a symbolic gesture, and at worst will have a negative impact on the state’s economy. The proper approach to the problem, as suggested by some of the respondents, is to reduce the consumption of carbon-based fuels.
Last week I attended a State DOT Expo on clean energy. Various arms of state government are already making strides in adoption of solar energy, in excess of the initial goals. From a legislative standpoint it would be more useful to remove the caps on how much the state agencies are allow to produce.
Right now the system works well. Flip a switch and the lights come on——99.99 percent of the time. Significant outages (save for those that result from natural disasters), are rare. Consumers think little, if at all, about how and why that is the case. But behind the scenes is a complex and delicately-balanced system.
Moving to distributed renewable resources can bring significant social and economic benefits, but this also changes both the physical and the socio-political dynamics of that system in ways that will affect all of the interest groups——providers, distributors, and consumers. Some of the potential issues, including privacy and security, are barely on the table. The desired evolution towards distributed renewable energy presents a “wicked problem” where seemingly benign changes—even symbolic ones, such as divestiture—can have suprising unintended consequences. It is import to proceed cautiously as you are doing.
30 years ago, in college, I heard similar divestments debates on 2 issues: apartheid in South Africa and economic democracy here at home (unions and workers gaining, rather than ceding, control over pension funds). Here, the latter is more relevant.
The advantage of using pension funds is they’re a huge stick; such funds have enormous amounts of money which are invested for the long term. The disadvantage is that they create a potential conflict between what is best for future pensioners and what is best for society as a whole. Similarly, they create intergenerational conflict, between current and future retirees within a fund, and between younger and older members of society. Also, the stick is smaller now, as many employers have replaced defined-benefit pension plans for defined-contribution plans, shifting all risk (and much of the contribution) from employers to employees.
The original Mass. pension fund legislation tried to balance these two by ensuring that divestment would not be required if it would cause a loss of more than 5% of a fund’s value. If I was a pensioner, I wouldn’t feel comfortable with this. Why should my future retirement be sacrificed even this much in pursuit of a greater social good? And this criteria is met in part by economic modeling, hardly an accurate, robust means of making big decisions.
Stock divestment is similarly limited. Once a stock is issued, for every seller, there is a buyer. Yes, reputational damage lowers stock price, but that is not a business fundamental like supply, demand, cost, or price for whatever good or service is involved, so the effect is limited.
Where you can’t get rid of an environmental problem by banning a substance (e.g. as we did with CFC refrigerants), the best ways to solve a problem are to 1) develop substitutes and 2) to build the environmental cost into the price. Here, that means developing renewable energy and taxing carbon emissions. Those affect everyone, not just a limited subset of the population.
Want Canadian tar sands? Then pay a higher carbon tax that reflects just how dirty that source is. Wanna drive? Pay for carbon at the pump. (Ditto electric car owners, whose electric costs will also include a carbon tax.)
Finally, we should have lots more public research on this, which specifically state that private companies cannot patent new technological inventions based on public research.
We have extracted the low-hanging fruit of fossil fuel supplies, and are now going for the more damaging and expensive stuff (Arctic drilling, deeper drilling, mountaintop removal). Atmospheric CO2 is increasing and we’re causing climate change. Ultimately we need to run on renewables and get away from fossil fuels. The faster we do it, the better off we’ll all be.
Churchill and JFK used “We will pay any price” rhetoric to defeat Hitler and communism, respectively. We need to be willing to pay any price to reverse climate change.
1) The state pension funds need to be protected. We should not divest in coal until the stock price exceeds the 200 day moving average( when coal is in demand). We are at a bottom now and it does not make sense to sell low. Forcing a sale at a low price creates free money for those who would profit during a forced sale.
2) While coal is so cheap it will continue to dominated in energy production. Recently natural gas has been displacing coal. This reduces green house gasses at a slower rate. This is Progress. The trick is to make wind and solar competitive with fossil fuels. Since we cannot lower the cost of wind and solar we need to increase the price of fossil fuels to the point where wind and solar are cheap. Tough medicine to swallow.
3) Green house gas bubble? Who is going to stop the Chinese? Without a global effort we are wasting out time. We can slow them down by reducing consumption of their products.
Thanks for opening up the discussion. I’d like to answer your points…
What is the end game? What was the end game when we decided to end slavery? What was the end game when we decided to end apartheid? There is no “end game” in morality, in the healthy future of our children. Simply because it is not a game.
Sending “leadership” messages as individuals puts the entire burden on the conscientious ones. While we’re going without and making sacrifices, others are blithely spewing emissions without a care in the world. Yes we must live according to our beliefs however the system needs changing and promptly.
You want to send a leadership message that rings? Be the first to call for divestment, not because it is safe, not because it saves money, but because it saves lives, because it is the right thing to do, because polluting and profiting from it is indefensible. Do it for the future, do it for history. Do it because you believe it.
You talk about practicalities. But they are the practicalities of the destruction of our environment and our climate. Change the paradigm – the practicalities will find their way. There will be no kudos for fence-sitting. That’s the coward’s way. Are you for getting off fossil fuels or are you for spouting platitudes? What are you waiting for? No other politician has had the boldness to come right out and say it – “Anyone who invests in fossil fuels tells us that they support disaster and care more about profit than people”. Therefore replace the money managers that are not up to it. We’ve all had to move with the times. I am sure when we declare our morality, the money managers that care about sustainability will come from everywhere. People are literally dying to change this abusive paradigm. Doing nothing is making a decision as much as doing something extraordinary.
“we tried to divest from all the companies that are selling unnecessary use of fossil fuels, we’d divest from much of the economy and I’m not suggesting that makes sense.”
Will, just for the sake of argument, how sure can you be that it does not make sense? Some of the we-think-it’s-unlikely-but-can’t-rule-it-out climate scenarios for the next hundred years or so are considerably more awful than anything we’ve ever faced.
I’m not sure I can help you, because I’m just as stuck as you are on this. We do hire money managers, they’re supposed to be wary of stranded assets. But at the same time, you and a lot of other people ought to be voting for things (in particular, carbon taxes) that would strand those assets.
I also see this as a moral issue in a peculiar sense — we don’t have to get to zero GHG emissions, we merely have to get them down to a certain level (I’ve heard that an 80% reduction is the goal). Doing nothing is quite bad, but stopping after we pass 80% is just fine (we don’t take this attitude towards any other moral issues — we might recognize the difficult of getting to 0% hunger, 0% unemployment, 0% disease, 0% crime, but we still try and if we could find a way, we would).
I don’t think I want you to vote for this, but I want you to vote for everything else related to actual GHG emissions reduction — the investment result should be the same, because the pension fund managers should see that the assets will be stranded and unload them anyway. We should be thinking about a carbon tax. I’m not sure how we work it as just one state with neighbors who lack such a tax, but I think that’s where we have to go.
I would also suggest that the fear-of-the-new lawsuits and legislation need to be seriously damped down.
Some new good points were brought up that makes sense. I cleaned out the known fossil fuel equities and sent them packing out of my IRA (a rather easy task). There will always be some “contaminants” in the portfolio to deal with. But a personal portfolio has a different time horizon that a pension fund. Boiling it down, it is a reflection of my ethos and maybe that is what a society will ultimately be doing with public money. Don’t get hung up on the “nuts and bolts” part of the process. That is a route task for a fund manager. I think the monitary consequences will not be a big deal in either direction.
You are correct that the push to divest is a feel good measure with real potential for harm. It conflicts with the government’s fiduciary duties regarding pension investments. If divestment is coupled with a push to tax, cap, or otherwise negatively influence the businesses it also something that would be illegal in the private sector, dumping a stock in advance of adverse legislation which you control.
Legislatures interfering in investments is a recipe for trouble.
The primary purpose of divestment is to expose the harmful business practices of the fossil fuel industry for the purpose of greatly diminishing its political standing. This is necessary to allow us as a society to garner the political wherewithal to regulate carbon emissions in the way we must do to preserve a livable planet for our children.
If we allow the fossil fuel industry’s stranglehold on our government to continue unabated we will have defaulted on our moral obligation to do everything we can to prevent runaway climate disruption.
As you know well, there are safeguards in S. 1225 to protect against financial loss to pensioners.
As a proud Hess stockholder I think you’re trying to shoot the voters in the foot. Please find some other cause to occupy your time.
I am in sympathy with your quandary. It’s unlikely that divestment will affect the fossil fuel industry or the climate, but it may affect the state’s pension plans. It would make more sense to do something direct like a carbon tax or raising the gas tax or similar measures. Without that, divestment is empty symbolism.
My father taught me that with ownership comes responsibility.
My stockbroker taught me that no decision “is” a decision.
There can be no neutral position on this issue.
If the Commonwealth maintains ownership in a fossil fuel company, we are making a decision to support that company in its business plan to convert their fossil fuel reserves into greenhouse gases and other pollutants. And as an owner of that company we should consider our responsibility and liability for the resulting effects.
If we divest our ownership in a fossil fuel company, we are now able to put those resources and support into investments that encourage a cleaner, safer, and healthier world.
It really boils down to a simple question – Do you want a future with clean air, clean water, and a healthy climate? If so, put your money where your mouth is.
I have been undecided on this issue and you have explained the concerns I had very clearly. Thank you for that. I agree with you on all points you made.
I understand your arguments and think they have merit. But I would like to see MA set an example for the nation with some kind of fossil fuel divestment bill even if it’s full of loopholes.
Will, I agree with Brian. This is feel-good legislation and will have zero impact on the real issues
I urge you in the strongest possible terms not to back away from your support of fossil fuel divestment.
In response to the concerns listed in your post of May 17:
1) First: the end game will require that we all, as citizens, recognize that with sufficient reinvestment dedicated to sustainable energy, our country can with certainty develop a strong domestic infrastructure based on said sustainables. Beyond this, any reasonably literate observer recognizes that “energy independence” is a falsehood. There is no inherent security in owning all sources of energy – and in fact, our country’s foreign policy adventures in the name of this goal have made us significantly less, not more, secure. In other words: the end game is not energy independence. The end game is sustainable energy. And reaching this goal requires an end to the political and economic domination currently enjoyed by the petrochemical industry.
2) Second: divestment by blue state public pension funds and universities will make a much stronger political statement than anything individuals can effect on their own. And there is strong historical evidence that public pension and university divestment actually promote divestment and related (pro-renewable, in this case) behavior on the part of individual citizens and families. This occurred during apartheid and tobacco divestments and there is little reason to doubt it would happen now. Individuals don’t lead the way here — public institutions, universities, and religious institutions do.
Along the same lines, the point of divestment is not to punish any individual manufacturer or even any industry. The point of divestment is to break the political and economic dominance of the largest fossil fuel corporations. “Manufacturers of big cars, big houses or luxury air travel” do not currently possess this sort of overwhelming political power and they are therefore not the targets of divestment.
3) The practicalities of the bill may be challenging but they are clearly solvable. In regard to investment diversification, there are already a number of well-respected, proven money managers in this field, and there is every indication that the financial industry is moving toward increasing options for sustainable reinvestment.
4) Your argument against the so-called “carbon bubble” is reasonable. But again, this has never been the central issue. The central issue is political and financial domination by an industry whose product can no longer be thought of as the foundation of our energy infrastructure. The fossil fuel industry needs to make way for sustainables – just as the whale oil industry and the slave industry – and they will not do so until their political and financial dominance is ended. Divestment is a historically validated method for getting that done.
To me, it just seems a bit silly. As a tool to move us toward clean energy, I don’t think divestment would do one bit of good. Instead it just causes those who might be sympathetic towards that goal to roll their eyes a bit and perhaps be a bit less so. Those advocating this continue to power up their iphones and watch TV, and use mass transit, or (worse) cars, all of which use fossil fuels (OK, maybe a few use solar chargers for their iPhone, but I doubt it is very many). If you want to make a difference use less of the stuff, make the personal sacrifice, but advocating for divestment is the easy way to feel like you are doing something, when in fact you aren’t.
The arguments for fossil fuel divestment are as strong as the arguments for divestment from South Africa thirty-five years ago. I was part of MassDivest, and we encountered the same economic/financial doubts as we advocated for that bill in the Mass. Senate and House. As it turned out, Massachusetts was the first U.S. state to pass a South Africa divestment bill, which Nelson Mandela personally acknowledged and thanked us for on his trip to Boston in the early 1990s.
We now have a chance to be the first state to pass a fossil fuel divestment bill, and while there may be no equivalent international iconic personality to thank us, at least we can rest assured that our grandchildren will not curse us in our graves for the climate catastrophe from which they may be suffering. I urge you to stay the course and support S. 1225 through passage and enactment.
I agree with Mr. Sandeen. The divestment decision is both moral and practical. It is moral due to the overwhelming evidence of the crisis on our hands. It is practical because sooner or later we will have to stop removing fossil fuels from the earth or the sustainability of human life on earth will be severely damaged or ended. If we maintain investments in fossil fuel companies whose stocks tank because their reserves become valueless, as they will sooner or later, it is the future retirees and taxpayers who will bear the burden. There are other stocks available that do not carry that risk.
I agree it is a sticky conundrum…years ago I tried nobly to invest in companies that were socially responsible and lost quite a bit of money as these companies were not well managed…..I now have a few stocks that aren’t but they are more stable investments so I can provide for myself in the future. and I try to personally do everything I can as an individual to support all green/ecological causes and in the way I live my life….(I am even considering a green burial!)
This has given me some sense of balance in my approach to change. Perhaps, instead of total divestments, a percentage can be chosen for reductions each year with a window of total divestment to be accomplished within 10-20 years when green energy is fully operational along with a yearly increase in green investments.
I think the climate changes that we are being warned about will help to accelerate the turnover.
Thank you for taking the time to discuss the Divestiture Bill S.1225. It as admirable that you are doing this, and it is indicative of your thoughtful approach and ecological stance.
I hope that this same thoughtfulness will lead you to realize that supporting S.1225, though not perfect, nor a panacea, is essential at this time. It is one weapon in what must ultimately be an arsenal of approaches to mitigating the greatest potential threat humanity has known. Now it the time for leadership, not nuanced equivocation.
We can never know the full ripple effects of a legislative measure, no matter how “symbolic”. The anti-Apartheid measures never really hurt the economy of South Africa, but they changed the social climate which brought about reform. One remembers, only too clearly, Reagan’s reticence to divest from South Africa, speaking, instead, for “constructive engagement” long after the mood of the nation was already clearly on the side of Divestiture. Let’s not let this get to that point. Other measures, such as energy consumption targets are complementary not competitive. The only either-or choice is between a livable climate or runaway global warming – if, in fact, such as choice is even still within our control. On the chance that it is, your position on S.1225 should be clear and resolute. Support S.1225 as the leadership piece of legislation that it is, and take a role, as needed, in future improvements to it. History is being written. Let’s be on the right side.
I agree with Mark Sandeen’s admonition based on the United Nations Framework Convention on Climate Change (UNFCCC) report.
I heard Steve Grossman express his support for this bill since it includes some revenue generation baseline assurances.
This is a directional issue. Let’s put the money where it will do good. The devil is not in the details. The details are administrative and will need to be managed, but the devil is in the big picture.
I tend to agree with both Mark Sandeen and Seth Itzkan regarding the Divestment from Fossil Fuels bill despite the rational arguments you have presented for opposing divestment. I have both a Series 7 and 66 securities license and was a socially responsible investment broker at Progressive Asset Management for several years where we systematically sold off shares in fossil fuel companies and replaced them with renewable energy and environmentally oriented stocks that performed relatively well, eg Tesla,Solar City, First Solar; Some did not do so well (Evergreen,American Superconductor but represented a very small portion of the portfolio so as not to cause any serious deterioration to the overall return. There are many alternative investments today that can perform equally well with less risk and lower carbon footprint than Exxon Mobil and Peabody coal. Why should the state be profiting from what it does not believe to be morally justified? If there is in fact a carbon bubble and a carbon fee or carbon tax comes into play, these investments will be worth less and less into the future. The real risk is holding them past the point of no return. Lastly, think of the moral lesson we are telling our children if we continue to profit from that which is harmful to their future. Please reconsider your position and support S. 1225. Haskell Werlin
I agree with Senator Brownsberger’s thoughts. What we need is a carbon tax. I am not opposed to divestment, but it really doesn’t touch the issue of slowing our use of fossil fuels, whereas a carbon tax does just that.
I don’t feel this bill will have a direct impact on your target.
I like what this bill is trying to achieve, but it is way too ideological.
A more practical proposal I could have is:
To levy a slightly higher energy consumption surcharge on gas/oil companies profit, as well as at every gas pump. This will naturally give people incentives for fossil fuel conservation and decrease the percepted value of oil/gas related project investments.
However, it will bring painful adjustment to everyone. But that adjustment is necessary if we all agree that planet earth cannot support the consumption pattern of Billion’s of American consumers.
Thanks to all who have commented through this point — I really do appreciate your weighing in. The conversation is helpful. I’ve posted some thoughts in response in the main post under the heading “Supplemental Comments on May 23”.
I applaud your rational approach to this issue. Would divesting from fossil fuel companies make us feel better about ourselves in the short term? Sure. It would give people the fleeting satisfaction that they’ve actually done something to help us become more energy independent. However, in reality, it does not make sense on so many levels. First, the public pension fund is way underfunded, so eliminating potentially high-yielding investments would be a situation of “cutting our nose off to spite our face”. Secondly, the transition away from fossil fuels is not going to happen overnight. It will take decades for us to transition effectively, so trying to force this transition faster by knee-jerk, feel-good public policy will not help. I work in the alternative energy sector and can tell you that there are hundreds of innovative companies out there that will change our world in a positive way… but it will take time. Our elected leaders should look to ways to help incentivize these innovations, not via handouts, but by creating public grants that go out to public bid for various municipal projects. For instance, my company won an award from the UK Technology Strategy Board where we are implementing smart, connected systems at the London City Airport. A very positive side effect of that award was that it helped fund our company for about 15 months. With these funds, we’ve been able to continue to innovate and develop products and now have a pipeline of several large customers in Brazil, the Middle East and Europe. I’d love to see more of this public / private partnership in the US. and feel our politicians can lead the way here in a way that makes sense for all.
Living PlanIT SA
Perhaps S1225 should be modified to ensure that funds are moved from fossil fuel stocks to renewables, but that might also be going to far in the direction of micromanagement by the legislature. Nevertheless, I believe that the legislature has itself a duty (moral if not fiduciary) to direct the State’s investments into safer havens when their financial advisors are clearly not reading the writing on the wall.
We may not know just when everyone is going to “jump ship”, but trying to time the market is not a prudent approach to asset management. You seem to be arguing we should just trust the financial experts to do what’s best, and ignoring the fact that almost all of them have made big mistakes in the not so distant past! Please support S1225 for the sake of Massachusetts employees (including yourself, incidentally).
As for “making a statement”, we’ll never really know how big of an effect such an action had, but we do know that it can only help move us in the right direction. A national price-on-carbon would of course be a beter way to do that, but since that’s not going to happen soon, states need to step up and lead by example. Massachusetts is already ahead in that regard, but that’s no reason not to do more. Make us proud!
Assuming that global warming is occurring, I have looked in vain on the Internet for solutions.
The population of the world is over 7billion people and still growing, many in deep poverty. What fuels are available to solve global warming and supply ample energy to increase their lot? Harold
Thanks for raising some of the complexities of these divestment options. The number of firms entrenched in a high-carbon fuel economy goes beyond the ones you have mentioned. Many primary materials industries are energy-intensive, and compete with recovered materials often found in our waste stream. Should they be on the divestment list? What about products that used to be made in the US, but migrated to Asian factories over the past few decades, where their production often uses more energy and emits more pollution than when they were made here? Though made in Asia, the US remains a major consumer of the items — meaning we have displaced the emissions rather than eliminated them.
And when the state or the pensions sell these stocks, all sorts of opportunistic investors — from hedge funds to sovereign wealth funds — will snap them up. The signal to the overall market will be diffuse, indeed.
Does that mean that these funds should do nothing? No. I think a more focused use of their financial leverage could be quite effective. They could support elimination of special tax breaks to polluting fuels — Master Limited Partnerships, for example, that are 80-90% fossil fuel companies and allow the firms to entirely escape corporate level income taxes. They could identify the firms within the fossil fuel sector that are the most problematic, and divest from them in a public way. This could include firms in particularly dirty fuel streams (coal, tar sands, natural gas firms with high fugitive releases or fracking firms such as many of those in North Dakota with really high flaring of natural gas).
They could target firms operating in particularly environmentally sensitive areas (often only viable as a result of large subsidies), such as drilling in the Arctic Circle, biodiversity hot spots, or fracking in arid regions. They could target firms that have undergone “corporate inversions” to relocate outside of the US in order to avoid US taxation, though their operations and emissions remain large here. TransOcean, the maker of the offshore rig that blew up and caused the massive Gulf Oil spill a couple of years ago is an example of this.
The beauty of this approach is that both large universities and pension funds now hold a great deal of “alternative” investments — in private equity, hedge, and specialized commodities funds. This gives them much greater leverage to tag and flag problematic investments even if they are not publicly traded — leverage that is likely to be increasingly powerful against less well capitalized firms or higher risk fossil fuel ventures.
I like your line of thinking, but I think that the very sophisticated micro-targeted divestment/investment strategies you are urging is something for agencies other than the pension fund to undertake.
The pension fund has to operate in a clear legal framework and what you are urging requires a host of ongoing policy tradeoffs that pension fund managers are not equipped to undertake.
We should be channeling our energies into more direct measures at the policy level, killing the bad tax subsidies, etc., rather than asking our pension funds to serve multiple goals.
Good point about the limited bandwidth of pension funds. How this has worked in the past is that the larger pension funds (California, for example) have done the research, or teamed up with independent firms that screen investment opportunities.
I suspect this is what would happen with any new screening of fossil fuel investments as well. It may not be as large a reach for the pension fund managers as you fear: if MA is investing in private equities or hedge now, they are likely already relying on third parties to help screen investments for an assortment of structural,fiduciary, and managerial factors. Similar dynamics may be at play with real estate or some international equities as well. The only difference would be the mandate these firms have — i.e., to start integrating the climate impact as one of the criteria.
My main points though are that:
(1) Firms to divest from to address climate change are not a “bright line” and so better targeting becomes essential. Simply tagging oil, gas, and coal firms does not seem an optimal approach.
2) Targeting can pick up less liquid, less visible firms. Thus, it should be able to provide tremendous leverage in changing behavior and expectations in the marketplace, particularly should multiple investment pools adopt a similar approach to vetting investment options.
Totally agree with your comment on legislative opportunities.
Very much agree that, as you say:
Also agree that there may be opportunities to make a difference through investment in the right green firms — but I think that should be done through a specialized investment fund capitalized for that purpose, as opposed to the pension funds whose purpose is to make money. Funds have to have a clear mission. We wall off the pension funds as much as possible from politics and give them a single clear mission — to support future pensions through sound investing.
Even when we create a separate green investment fund, like the Massachusetts Clean Energy Center, I tend to be uncomfortable — with taxpayer money, there is always a risk that we will choose particular companies for political reasons as opposed to sound economic or environmental reasons. I tend to feel most comfortable leaving corporate investment to corporate investors, but I recognize that for important public purposes we may need to blur those lines.
At my investment company we have taken the view that divestment is a process rather than an either/or situation. While this might not be helpful for tackling the bill under discussion, it is undoubtable that both fossil fuel companies and most investors have adopted, at best, a tokenistic approach to something that seriously threatens human civilization. The divestment campaign is helpful in that it has started to sow uncertainty about the viability of the fossil fuel industry’s business model.
Companies are spending huge amount of capital searching for reserves even thought listed reserves are already much more than what the world can burn if we are to limit climate warming to 2 degrees C. If regulation starts to bite there is a big risk that these stocks are hugely overvalued. This is the stranded assets argument you referred to. The fossil fuel industry is trying its hardest to maintain the status quo and make sure that its assets to not get revalued down. And they do this by lobbying and political contributions. Perhaps the bill could insist that Massachusetts and its investment managers press fossil fuel companies to evaluate their public policy positions and lobbying on climate change and fully disclose the results.
Fossil fuel companies need to be encouraged by their owners to change course to publicly support legislation that reduces GHG emissions and helps our country adapt to the impacts of changes in climate. This year, investors are directly pressing companies to change their public policy advocacy on climate change through a new set of resolutions that opens the door to a public policy debate. Five fossil fuel companies and major energy producers are being pressed to conduct a Board-level review of their public policy positions and lobbying activities related to energy policy and climate change – American Electric Power, Chevron, Conoco, Devon Energy, and Exxon Mobil. The resolutions address both direct public policy advocacy by the companies as well as their advocacy through third-party trade associations such as the U.S. Chamber of Commerce, American Petroleum Institute, and National Association of Manufacturers (NAM). The Chamber and NAM have aggressively campaigned against climate change legislation and regulation, going so far as to sue (unsuccessfully) the EPA in an attempt to block it from exercising its authority over greenhouse gas emissions.
Most managers are focused on short term investment results but need to be more proactive in figuring out how to correctly value climate change to better align asset allocation to the most economically and environmentally productive activity. To that end, Massachusetts should ask its managers to ask more questions and engage all companies (not just companies in the energy space) in the discussion to better understand where they should be allocating capital. Many other State pension funds regularly file shareholder resolutions at companies to encourage more disclosure – embarrassingly Massachusetts is far behind its peers on this.
The capital markets must adapt to the evolving reality of climate change – so far they have been rather slow on the uptake because they don’t believe that legislation will bite. The Obama administration’s proposal on existing power plants continues an ongoing trend of increasing restrictions on greenhouse gas emissions, whose implications are not fully captured by the financial markets. In short, Massachusetts should take increased responsibility for its ownership in fossil fuel companies whether through this bill or otherwise. It has the power to change the behavior of its managers and thus by extension the companies in which they invest.
Sonia, this is a helpful line of thought!
Conceivably, a bill that instructed our public pension managers to vote their shares on certain issues or to make certain inquiries might be doable and meaningful. The idea requires some development, but might make sense. I’ll share this post with other legislators.
First off, thanks for discussing this. It’s an important issue that will be with us for some time to come.
The issue of hypocrisy:
A significant amount of time is often spent in these conversations trying to figure out what is hypocritical and what is not. It’s not a waste of time, but it’s important to keep in mind that logical consistency depends on framing. For example, an anti-war protestor still pays for the war through taxes, which could be viewed as hypocritical. It is hypocritical through some framings, and it’s not hypocritical through others. Does that mean that the individual should not protest? No.
In general, any act of protest of a particular part of a system while being embedded in that system can be viewed as hypocritical. That does not mean the protest is not justified or not useful.
In this particular case, one could argue that using fossil fuel energy while deciding not to invest in the companies that produce it is hypocritical. This is in some ways analogous to the argument that abolitionists who wore cotton were hypocritical. Were they? Perhaps. Was their activism still justified and useful? The modern consensus is that it was.
There are important arguments that divesting while using fossil fuels is not hypocritical. One is due to differing degrees of choice in these acts. One has to use fossil fuels to participate in society. Conversely, one does not have to invest in fossil fuels to participate in society (or to have a well-balanced portfolio, as far as the evidence suggests).
Another important argument is that, when it comes to energy, pursuing symbolic actions that have political effects can be expected to be a more useful strategy than pursuing consumer choice actions that alter consumption habits. This is because fossil fuel dominance and consumer preference are only weakly coupled, while fossil fuel dominance and economic policy are strongly coupled. Consumers make very few choices in consuming energy and are generally unaware of how much or what kind of energy they consume on a day-to-day basis. Indeed, individuals’ consumption and pollutant profiles would be nearly impossible to calculate, nonetheless control (keep in mind that per-capita energy consumption goes beyond discretionary miles driven and kilowatt-hours used in the home). This is because fossil fuel consumption is not like breakfast cereal or clothing consumption; people do not repeatedly decide how much or what kind to use. Energy is a part of infrastructure, usually consumed invisibly and unconsciously, and determined fundamentally by economic policy, not by daily choices. Divestment campaigns do not always work, but when they do, they are able to affect public policy through public awareness and electoral pressure, and this is what makes divestment campaigns not only potentially justified, but also potentially useful.
Despite these arguments, one could still hold that consuming fossil fuels while divesting from them is hypocritical; again, it depends on the framing, which is ultimately a matter of values as well as logic. But one should keep in mind, too, that the status quo can be viewed as deeply hypocritical. We find fossil-fuel induced climate change to be so problematic, in terms of its destructive reality and future destructive potential, that we are willing to force an overhaul of the entire globe’s energy economy, and yet we invest in and seek to extract profit from that very source of energy we find so problematic. We know that our dependence on fossil fuels is deeply destructive as well as deeply unjust to those who bear the damages, and yet we are saying, “As long as the party’s going, why not join in the fun?” To me, that present reality is deeply hypocritical, and it is much more troubling than any inconsistency that might be seen in divesting from fossil fuels while unavoidably using them.
Worrying about the apparent hypocrisy of divestment tends to strike me as indulgent when we are willing to tolerate the very clear and present hypocrisy of choosing to profit off of a product that we know damages others and we say we want to stop using.
Divestment is not inherently about blaming others:
To me, divestment is not simply an act of “blaming” the fossil fuel industry. It is a refusal to participate in certain profitable activities. It is an admission of responsibility and an attempt at self-reform. To bemoan fossil fuel addiction while investing in it — now that, to me, seems inconsistent and indulgently convenient.
Those who say we cannot be held responsible for our investments seem to be the ones excusing themselves, not those saying we should take responsibility for those investments.
Some people present a political analysis in which the lack of legislative progress on climate change is entirely the fault of the fossil fuel industry. That is likely an oversimplification. At the same time, one should not dismiss the importance of the energy lobby. For example, there is a politically crucial divergence in public opinion on climate change between the Republican population and Republican legislators. Again, the energy lobby is not the only factor here, but it is likely a significant factor.
Why not divest from Disney and so on:
It is useful to differentiate between behaviors and entities that are integral to the problem and others that are auxiliary. In a future world that has transitioned away from fossil fuels, Disney can still exist in its present form. ExxonMobil cannot. A company like Hummer (was) could even exist (as Hummer did). Peabody Energy cannot. If these fossil fuel companies were energy companies in the broadest sense, they could continue to exist, but they are not energy companies per se, they are fossil fuel companies.
When society became aware of the climate problem decades ago, fossil fuel companies were faced with a menu of choices, choices that could either facilitate a transition away from fossil fuels, be neutral in a transition, or block such a transition, all while meeting consumer demand for energy. By and large, the industry has chosen to block this transition through 1) influencing the legislative process, 2) funding public misinformation, and 3) stockpiling an unsafe volume of fuel reserves with public money, thereby creating a financial bubble in the event of a timely transition. (And at present, fossil fuel companies have stated their intention not to transition away from fossil fuels in the foreseeable future.) These are three specific behaviors in which the industry has positioned itself in direct opposition to the public good. Each one of these behaviors obstructs a transition away from fossil fuels, and as a result each has caused and will continue to cause preventable deaths and other damaging impacts to human populations. These behaviors are extremely socially irresponsible; failing to repudiate or address them meaningfully is a continuing and severe public disservice with serious consequences.
The discussion of engagement and divestment naturally comes into play here. It may be possible to reform certain corporate behaviors through shareholder pressure, such as lobbying behavior or expansion of fuel reserves. However, it is generally not possible to change a company’s business focus through shareholder pressure, and under SEC rules, attempts to do so are generally not allowed. If engagement is the preferred route, then we must be clear about what we hope to achieve. So far the results have not been promising on the engagement front with fossil fuel companies (see, for example, ExxonMobil’s recent carbon risk “disclosure”). With a very problematic status quo that is doing real damage to real people, proposals to engage with fossil fuel companies as shareholder activists need to be serious rather than off-the-cuff. Logic and experience indicate that engagement does not work in addressing problems inherent in a company’s business plan, so proposals to engage with the fossil fuel industry as an alternative to divestment need to explain what they hope to accomplish and why they expect to succeed.
Larger political strategy:
To generate electoral pressure on climate policy in the US, the following are needed generally:
1) Status quo (dependence on fossil fuels, lack of transformative energy policies) needs to be labeled as problematic, intolerable — against the public interest
2) Behaviors that aid, abet, and entrench the status quo (congressional lobbying against climate policies, funding of climate misinformation, investing shareholder money in unsafe fuel reserve volumes, unnecessary investments in fossil fuel infrastructure) need to be labeled as problematic, intolerable — against the public interest
3) A large fraction of the US population needs to conceive of climate change as a political issue
4) Some smaller but significant fraction of the US population needs to conceive of climate change as a voting issue (an issue gaining or losing votes for candidate)
The divestment movement has the potential to contribute to all four points. This is why divestment is potentially useful in the context of American democracy and why it is in alignment, rather in conflict, with legislative and executive climate change policy goals.
Symbolic and non-symbolic actions:
I would be careful of labeling non-symbolic actions as “real” and symbolic actions as “not real”. Historically we know that symbolic actions are extremely important in shifting public attitudes and changing what non-symbolic actions are eventually taken. Retrospectively, many “turning points” have historically been symbolic in nature. Furthermore, some non-symbolic actions, such as taking shorter showers or biking to work, are not effective at catalyzing the public action needed to address collective social problems (and could even be justifiably described as ineffective, “feel-good” actions). Both symbolic and non-symbolic actions are needed, and one is not necessarily effective and the other is not necessarily ineffective.
This can be quantified, both the best estimate and the uncertainty surrounding that estimate. Without some sort of quantification, it makes no sense to base decisions on this factor. Thus far, all quantitative estimates of the financial risk have indicated very low or negligible risk. Assertions to the contrary need to provide some evidence beyond simply stating a general fear of lost returns.
Ben, thanks for this thoughtful discussion. The heart of the argument for divestment is that it may have symbolic power that will spur real change. I just can’t feel that power.
The developed nations, as a collection of individuals and institutions and industries that all burn fossil fuels share responsibility for this problem.
I feel that at some level, blaming the fossil fuel industries alone for the problem allows us to comfortably externalize the problem and channels political energy away from the incredibly difficult local and national transition we need to make — a transition which the fossil fuel companies by definition cannot help us with but also can’t really stop us from making if we really wish to make it.
I don’t think we can infer too much from prior successful examples of divestment about the power of divestment as an action in this case. It might be more interesting to search out the variety of divestment proposals that have fizzled or backfired through the years, most of which have faded from public memory.
Thank you for stressing the importance of cutting consumption. I agree that is vital. But is that practical when everyone who has a car continues to depend on that transportation? It would be more practical if we invested more heavily in public transit. I am not sure the demand-side argument, precludes an attempt to “punish” those fossil fuel companies who block legislation for renewables and public
transportation through their industry lobbies.
Let’s challenge the fossil fuel companies to invest in renewables, not get in the way.
Thanks, Alice — totally agree we need to improve public transit — a central focus of mine.
Dear Senator Brownsberger:
As a volunteer with 350 Massachusetts who has been working for the passage of S.1225, I am dismayed by your post on divestment. I am glad you finished this post with a statement about still being open to an argument that divestment fits into some kind of a global political strategy, because that is precisely the point. We are trying to lessen the outsized political power of the fossil fuel industry, whose business plan is to continue to profit from the extraction of products we now know to be destroying the planet. This is an industry that like the tobacco companies before it has waged an effective campaign to confuse and misinform the public about the crisis bearing down on us. Your half-hearted argument for shareholder engagement pales in the face of this sort of behavior. Similarly, your concern that divestment could lead to losses born by pensioners omits the fact that money management professionals have expressed increasing concerns about the potential collapse of the carbon bubble. Your argument that none of the big boys have embraced full divestment is simply inaccurate: the Rockefeller Brothers Fund made quite a splash in announcing its recent decision to divest, and offering fossil free investment vehicles is no longer the sole province of excellent groups such as Trillium Asset Management, Green Century Fund, etc.
You ask, what is the end game? The goal is to leave 80% of the proven fossil fuel reserves in the ground, and to accelerate a Marshall Plan-like transition to renewables. Certainly divestment is only one tool to advance that process, but it does have a terrific track record of changing public perception (e.g. South Africa). Massachusetts has an opportunity to once again provide national leadership in what must be a comprehensive effort to combat the causes of climate change. I implore you, as a fine public servant, to do everything you can to aid this cause.
James O. Michel
Dear Senator Brownsberger,
As the chair of Follen Community Church’s Environmental Justice Task Force (EJTF), I would like to explore a perspective on divestment that you didn’t address in your blog post.
The EJTF is spearheading two initiatives this year, one is to divest Follen’s endowment from fossil fuels and the other is to help our congregational community reduce our carbon footprint by 20%. We are working along these two paths because we see the challenge of combating climate change as both a personal and community responsibility but also as a moral and ethical issue. And as a religious community we see climate change as a social justice crisis. Those who will be hit first and hardest by the effects of climate change are those who are most vulnerable and the least responsible.
We believe it is morally and ethically wrong to wreck the planet for profit. This needs to be said and divestment campaigns are a loud and clear way of publicly saying it. The point of divestment is not to hurt the fossil fuel industry financially. It is too rich and powerful for that. Unfortunately, the fossil fuel industry uses its power and wealth to bend governments to their will through killing efforts to tax carbon while blocking subsidies for sustainable energy initiatives. Divestment is a way to call attention to this unethical behavior and ultimately to revoke the industry’s social license. Divestment has been a powerful and effective tool to this end during the South Africa anti-apartheid campaign and against the tobacco companies.
Climate change is a daunting problem and no one solution will fix it. Taxing carbon is not enough. Switching to LED bulbs or lowering the thermostat 5 degrees is not enough. Investing in sustainable energy initiatives is not enough. Divestment campaigns are not enough. We have to use every tactic and tool we have and we need to work together and support these efforts.
Please keep an open mind and reconsider your position on the state divestment bill. If you are sincere about addressing climate change legislatively it seems unconscionable for you to actively block the sincere efforts of others.
I recently drew this post to the attention of 350Mass advocates. I appreciate their weighing in with additional comments below. We all share the same goal, but we have some differences on tactics.
I don’t have any major new persuasive arguments to add to what has already been said, especially after Jean’s and James’ contributions, but I just want to say that as one of your constituents, Senator Brownsberger, in this situation, I support divestment from fossil fuels. I hope you will come around and represent me and others like me in this regard, and I urge you to support S. 1225.
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