Public Pensions and the Siren Song of Environmental Activism
Retirement funds are being urged to sell off their investments in traditional energy producers. That's bad for retirees, and it wouldn't help the environment.
In America and around the globe, there are signs that consumers are becoming more socially conscious. In a 2015 report, 84 percent of the citizens of the 10 largest countries who were surveyed indicated that corporate responsibility would guide their decisions about product purchases.
But while few would argue against heightened public awareness of social accountability, those attitudes should not supersede the welfare of workers counting on their pensions to help provide them with a comfortable retirement. Ideological causes should be accessory to that fundamental obligation; they should not come at a cost to it.
Regrettably, however, some would now put dogma grounded in a false narrative ahead of the financial livelihood of our nation's public employees. These activists are pressuring state and local government pension funds, along with university endowments and other institutional investors, to sell off their holdings in traditional energy producers. Such divestment, the activists argue, will destabilize fossil-fuel production, which they blame for much of the destruction of our environment.
Not only does that position make pawns of our teachers and other civil servants, but it is built on a faulty premise. While activists paint oil and gas producers as the enemies of clean-energy initiatives, the industry is in fact leading the charge, working to bring new technologies to market, improve efficiencies and cut harmful emissions. The five largest American energy companies have invested more than $20 billion in research and development of alternative and sustainable energy resources.
In his 2014 State of the Union Address, President Obama identified natural gas as a "bridge fuel" that is better positioning policymakers to address climate realities. That has proved remarkably true. Gas-fired electricity production increased by 4 percent last year, marking a record high and surpassing the amount of power produced by coal. In 2015, according to the federal Energy Information Administration, energy-related carbon dioxide emissions in the United States fell to 12 percent below 2005 levels.
Nevertheless, public pension funds continue to face pressure from activists seeking to impose their social agendas at the expense of the livelihoods of the public employees who serve our states and communities. The California State Teachers' Retirement System, the nation's largest teachers' pension fund, is among those being pushed by elites and academics to sell its investments in traditional energy producers.
The same thing is happening at the local-government level: The Montgomery County, Md., council, for example, is considering legislation introduced by three council members to sell its pension fund's $65 million in holdings in fossil-fuel companies. The Washington Post has called the proposal "no more than a feel-good gesture" that would impose "very real costs" on the suburban Washington county's retirement fund.
While the impact of divestment on energy producers is questionable -- after all, the selling of those holdings will simply open opportunities to new investors -- it unquestionably hurts the funds. A study last year by Daniel Fischel, a law professor at the University of Chicago, found that divestment of traditional energy equities by pension funds, college endowments and other investors reduced investment-portfolio returns by 0.7 percent annually. That's a number that public pensions, many of them already struggling to achieve the investment returns they need to meet their obligations to retirees, should take to heart.
In the end, it is impossible to square the costs of divestment -- and the very tangible consequences it would impose on retirees -- with its goal of destabilizing energy producers. Efforts by energy companies to reduce emissions is a cause that activists should champion, not oppose. And our public pension funds should put pragmatism ahead of dogma and resist the siren song of those who would squander our civil servants' pensions on social activism that contradicts itself.