Trading Away Common Sense

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Yesterday, PACE commentary was featured in Morning Consult. The content of our op-ed, part of a continuing focus on harmful and misguided energy divestment and defunding campaigns, is below. 

Environmental activists, driven by self-interests and profoundly mistaken beliefs about financial markets and energy policy, are pressuring citizens, public officials and corporate boards to abandon profitable investments in energy companies. These activists promote divestment and claim its implementation will save the environment. The reality, though, is that divestment is a poor solution for tackling the climate challenges that lay ahead. In fact, divestment simply doesn’t work, failing virtually everywhere it’s been tried.

Environmental activist and founder Bill McKibben recently authored an op-ed laying out an extreme plan to undermine domestic energy development. One of McKibben’s proposals is for the United States to move to a 100 percent renewable energy future. He and his allies attempted to advance this far-fetched scheme yesterday at a Washington event alongside other outside-the-mainstream voices such as Sen. Bernie Sanders (I-Vt.) and Jessica Lorena Rangel of Eyes of a Dreamer.

The truth is that the environmentalist vision of abolishing fossil fuel production is not a viable path. The better path is the one traditional energy companies are already pursuing, which is investing resources in the research and development of alternative energies that will actually help meet the climate challenges that all of us, including the divestment movement, care about. For example, Duke Energy Renewables “generates about 2,300 megawatts of wind power at 19 wind farms across the country, providing enough zero-carbon energy to power more than half a million homes.” This is a real strategy, not a symbolic one, that moves the needle toward a balanced, sustainable future that works for everyone.

Regardless of what environmentalists at the fringes think about them, oil and gas will be integral parts of the U.S. energy portfolio for decades to come, for power generation, home heating, commercial applications and transportation. That’s because the energy industry is essential to the functions of our society and U.S. economic prosperity. In 2015, energy resources supported 10.3 million jobs and contributed more than $1.3 trillion to the U.S. economy. It is irresponsible of environmental activists to push an “us against them” mentality about an industry that is inextricably woven into the country’s economic fabric. Energy means jobs. Energy means progress.

Criticism of the divestment movement has been harsh in some circles. Oxford University Professor William MacAskill, for example, asserts that divestment campaigns are misguided if they intend to “reduce companies’ profitability by directly reducing their share prices.” The divestment movement has also failed to come clean about its short-sighted goal to demonize energy companies and admit to the fact that divestment will do nothing to reduce greenhouse gas emissions. That’s because divestment is more interested in symbolism than results.

When energy stocks are purged, or a bank refuses to lend, a new investor buys the assets – someone who almost certainly is not beholden to the scrutiny of a publicly held fund. MacAskill asserts, “[a]s long as there are economic incentives to invest in a certain stock, there will be individuals and groups willing to jump on the opportunity. These people will undo the good that socially conscious investors are trying to do.” In other words, you actually endanger the momentum for progress by walking away from the discussion.

It’s that application of logic and sense of social conscience that has led higher learning institutions including Stanford, Harvard, Princeton, MIT, Columbia and NYU to refuse divestment. Others in academia agree. As a Vassar trustee said, “®he problem I have found, in every instance, without exception, is that trying to use an investment portfolio to accomplish social or political causes, comes up short in every way you can imagine.”

The broadest campaign by divestment activists today targets a vulnerable population – public employee workers and retirees. Too many politicians, swayed by environmental luminaries and misguided green talking points, have attempted to force fund managers to sell off energy holdings that are intended to sustain pensioners over the long haul. However, this political rhetoric does little to comfort retirees once the truth hits home and retirement losses begin mounting. Thankfully, some pension funds have learned these lessons.

For example, California’s public employee pension fund, CALPERS, resisted pressure from state legislators, reaffirmed its fiduciary responsibilities and issued a policy in April to “generally prohibit divesting.” New York’s state comptroller has resisted proposed divestment legislation, noting that funds that shed energy stocks relinquish any voice in energy companies’ evolution.

Most recently, the San Francisco Employees’ Retirement System rejected shrill cries from activists for full-scale divestment, opting instead to follow staff recommendations against selling high-performing fossil fuel assets. Brian Stansbury, president of the Retirement Board, stated, “While the Board is committed to socially responsible investing, we must ensure that all investment decisions meet our fiduciary duties and do not negatively affect our investment returns.”

As the Partnership for Affordable Clean Energy documented in December, the evidence is clear – following the path laid out by divestment activists only defeats the long-term financial interests of universities, public employees and consumers. Divestment rhetoric and pressure doesn’t lead to increased investment in renewable energy and innovative technologies. It only causes reckless decisions that ripple across financial, policy and personal landscapes.