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.