Fossil fuel divestment has been become a popular rallying cry for climate change change activists over the years, but as we’ve written before, divestment can be a dangerous move.
A few months back, around 40,000 activists descended on Manhattan, marching with a goal of convincing New York State Comptroller Thomas DiNapoli to clear out $13 billion in fossil fuel investments from from New York’s $210 billion pension fund. They’re not alone in this fight either, scenarios just like this one are playing out all over the country. The logic is that if pension managers everywhere divest from fossil fuels, then fossil fuel companies would be forced to shut their doors. Makes sense right? It would certainly seem that way, but a narrow minded approach such as this would likely have little effect on fossil fuel companies. However, the people who would face troubles are retirees who’ve worked their whole lives and are now depending on a pension to get by.
Nationwide, nearly 30% of fossil fuel shares are owned by pension funds and another 20% are owned in individual retirement accounts. These high-performing stocks make up the backbone of retirement benefits for public employees such as teachers, firefighters and police officers. That’s why divestment is such a dangerous mistake. If the top 11 pension funds in the U.S. were to divest from fossil fuels, they would risk losing hundreds of millions of dollars a year in benefits for retirees. A typical retired public worker in Colorado, for example, would face a monthly benefit cut of $400. That kind of money isn’t easily replaced for someone who is on a fixed income and is no longer able to work.
To add insult to injury, retirees would face massive benefit cuts for nothing since pension fund divestment likely would not affect fossil fuel companies at all. Even if every pension fund in the U.S. divested from fossil fuels, other investors would step up to claim these high-performing shares in a heartbeat. Fossil fuel use is on the rise as the world craves more and more energy and that demand isn’t going away any time soon. In fact, despite investments in renewables and nuclear energy, fossil fuels are still expected to provide more than 70% of U.S. energy in 2050, so it’s safe to say fossil fuels remain a good investment.
Reducing emissions is an important part of securing our future, but it has to be done in a way that makes sense for everyone. Calling for fossil fuel divestment that would do little to achieve that goal without consideration for how it would affect vulnerable populations is not noble or fair for anyone. Let’s hope that pension managers see reason on this topic. Our retired public servants are depending on it.