Citing the damage caused by climate change, the city of Seattle's public employees may sell off their pension fund's holdings in some of the world's largest fossil fuel companies as part of a national campaign to divest from the dirty energy sector.
If approved, Seattle would be the first large city in the US to take such a step. Currently, the Seattle City Employees' Retirement System holds large investments in both ExxonMobil and Chevron, but Mayor Mike McGinn has led an effort in recent months to find ways that the city can transition away from such holdings.
"Climate change is one of the most important challenges we currently face as a city and as a society,” McGinn wrote in a letter last year to the two boards that oversee management of the city's employee fund, which holds close to $2 billion in overall assets. “I believe that Seattle ought to discourage these companies from extracting that fossil fuel, and divesting the pension fund from these companies is one way we can do that.”
As the Financial Times reports:
Mindy Lubber, president of the US-based Ceres investor advocacy group, agreed, saying the move underlined the mounting push for investors to acknowledge the long-term risk of investing in fossil fuel companies, as policies to curb climate change keep emerging.
"The divestment movement without question is re-raising the question of whether fossil fuel companies are the best investment and I think over time they're not going to be," she said.
Though it would be among the first cities to divest from fossil fuels, Seattle public workers would hardly be alone in the growing divestment movement which has largely been spear-headed by university students targeting school endowments with the helpful urging of environmental groups like 350.org, who launched a divestment campaign last fall called GoFossilFree. That campaign encourages state and local governments as well as colleges to shift their investing strategies away from oil, gas and coal companies.
As of Thursday and according to the campaign's website, over 234 college campuses across the country had active divestment campaigns undertaken by students.
Many of these schools, like small environmentally-minded liberal colleges like College of the Atlantic in Maine, Middlebury College in Vermont or Swarthmore College in Pennsylvania may not be surprising members of a list that also includes private heavy-weights like Harvard, Duke and Cornell, who possess multi-billion dollar endowments, as well as larger state schools like the University of Virginia and University Texas at Austin.
Though having a campaign itself is no measure of how quickly—if ever—a school will be able to divest, news this week from the investment world gave campaigners some new ammunition to bring their boards of trustees or pension fund managers.
As new report shows, there is little added risk for those that jettison fossil fuel stocks from their portfolios, despite conventional wisdom that says oil and gas stocks insulate against risk.
As the Chronicle of Higher Education reports:
An analysis released on Tuesday by the Aperio Group, an investment-management firm that offers its clients a “socially responsible index,” among other investment strategies, found that while divesting from fossil-fuel companies does not necessarily add value to a portfolio, it does not subtract value from it either, and it increases the risk to investors at such a modest level as to be negligible. [...]
The Aperio report, titled “Do the Investment Math: Building a Carbon-Free Portfolio,” examines the “tracking error” between the ordinary risk an investor faces in the stock market, as measured against the Russell 3000 Index, and the risk an investor runs when excluding the publicly traded stocks of the “Filthy 15”—a selection of companies that are involved in coal mining or burning coal to generate electricity and that a coal-divestment campaign has designated as the dirtiest. The report also analyzes the risk when excluding all fossil-fuel companies altogether.
When the “Filthy 15” companies were excluded, the additional risk to investors as factored into ordinary market risk rose by less than 0.001 percent, the analysis found. As the report’s author, Patrick Geddes, told reporters during a Web conference, “Statistically, it’s basically noise.”
When all fossil-fuel companies were excluded, and the resulting tracking error was added to overall market risk, the additional risk increased by about 0.01 percent.
And speaking to state legislators in his home state of Vermont on Wednesday, 350.org co-founder Bill McKibben said that states, too, have a role to play in the divestment effort.
"These companies are the ones spending the big lobbying bucks to make sure change never happens in DC and other capitals—please help undermine their legitimacy by removing the state’s pension funds, the UVM endowment, and other holdings from their shares," McKibben said.