Oakland pension fund considers divestment

oakland 324Almost two years ago, the Oakland City Council voted to divest, prohibiting the city “from having any financial holdings or investments in fossil fuel companies.” The City of Oakland has begun that process with its own investments, but the Oakland Police and Fire Retirement System (PFRS), as a separate entity, is not bound by the city’s resolution. Last week, the PFRS board held hearings to consider divesting the pension fund’s assets, weighing both moral and financial concerns.

Darwin BondGraham has more in the East Bay Express:

Proponents of divestment claim that fossil fuel companies are an increasingly risky investment and that divestment is also a productive way to address climate change and other environmental harms. But some members of the PFRS board, and their outside consultant, are resistant to the idea of divestment, fearing it could reduce the pension’s investment returns and possibly force the city to bail it out in future years with tax dollars meant for city services.

Several people spoke in favor of divestment. Brett Fleishman of 350.org said, “A pension trustee’s job is to minimize risk and maximize returns. Fossil fuels today present a very clear risk, so if you don’t swallow the moral argument at all, there’s a strong financial argument for investors to take a look.”

It is true that an investor might miss a potential small upside correction in oil and gas stocks by divesting. But a far more likely financial risk is the severe losses incurred by holding onto fossil fuel investments too long. The value of these investments is based on assets—oil, gas, and coal deposits owned by the fossil fuel companies. Since the Paris accords point toward the necessity for significant restrictions on carbon emissions, 80 percent of these assets must be left in the ground, and the carbon bubble will burst, a disaster for those still holding these investments.

PFRS board member Steven Wilkinson, who runs a wealth management business in Oakland, agreed that oil, gas, and coal stocks do not have long-term growth prospects. He added, “Socially responsible investing is about investing with a conscience and a belief you can do just as well without holding certain things.”

BondGraham reports that other board members were wary of the proposal. John Speakman, a retired firefighter, said, “The city is obliged to fund [PFRS], so when the fund is short on money, the city must fund it with tax dollars.”

Speakman’s concern was stoked by David Sancewich of the Pension Consulting Alliance, who repeated the usual discredited arguments about the value of shareholder engagement over divestment:

In a report presented to the PFRS trustees last week, he told trustees that the risk of divesting from fossil fuels is that the fund would earn “suboptimal returns.” Instead of divesting, Sancewich said that the key policy for trustees to adopt would be engagement to ask that companies become more environmentally sustainable.

Janet Cox of Fossil Free California pointed out the futility of shareholder engagement with a company when its core business is fossil fuels:

What’s the ask here? Are we asking Chevron to get out of the oil business? Engagement just gives the oil companies longer to do what they’re doing. They’re not going to change their basic business models until the government tells them they have to.

The next PFRS board meeting will be on April 27.