Rhetoric Without Reason: The Dangers of Divestment

Over the past several years, PACE has reported on the energy stock divestment movement, noting this misguided social activism’s potential to weaken university endowments and spread misinformation about energy. Today, we are releasing a new paper describing a renewed and expanded divestment push, now also aimed at pension funds and financial institutions. Today’s PACE blog is the white paper’s Executive Summary; please take a look and share this with colleagues and on social media.

Simply put, divestment is the selling of stocks deemed by an individual or institution as unworthy of holding. Over the past several years, a small but vocal faction of environmental advocates has seized on the idea of energy stock divestment. Reports earlier this year showed 701 global institutions managing assets estimated at $5.46 trillion divesting energy holdings.

While energy divestment first targeted university endowments, it soon spread to public pension funds. As the U.S. continues to back away from the Paris Climate Accord, and oil and gas pipeline projects continue to develop to serve growing demand, divestment activists have begun to target specific projects. In spring 2017, USBancorp issued a lengthy public statement announcing it would no longer finance oil and gas pipelines.

Cloaked in grassroots populism, energy divestment is one of the most anti-democratic social movements afoot today, gambling with the retirement security and education costs of untold numbers of U.S citizens. Arguments against divestment are clear and compelling:

• University endowments are meant to support students’ education now and for the long haul. Endowments are not intended to be political vehicles.
• Similarly, pension funds are created and maintained to support employees and their families in retirement. Employees deserve the most financially rewarding retirement possible; divestment advocates should not be allowed to use other people’s money to advance social causes.
• When divestment targets specific banks and energy projects, costs rise for millions of consumers as much-needed energy may be delayed in coming to markets. This in turn may slow economic growth or recovery.
• Divestment fails to accept the fact that fossil fuel-based energy is needed now and will be for decades to come, until technology enables widespread, viable alternatives.

In response to these trends, PACE has expanded our own examination of divestment. It is critical for regulators, lawmakers and consumers to understand that the spread of energy divestment isn’t a smarter way forward for pensioners, investors, or even for clean energy proponents. On the contrary, divestment threatens pension beneficiaries, investors, and may even deter leading energy companies from pursuing sustainable energy projects.