Campaign to divest from fossil fuels.
IN 2013, Seattle gained a stellar reputation among climate-change advocates for its bold decision to become the first city to divest its cash pool from fossil fuels (which was later cemented by unanimous adoption of my legislation for Seattle to pursue socially responsible banking practices).
Since then, advocates have built a campaign to make the Seattle City Employees’ Retirement System the first pension fund in the country to divest some portion of the 5 percent of the pension portfolio made up of Carbon Underground 200 companies. Regrettably, that victory has not yet come.
The fossil-fuel divestment movement is the fastest growing divestment movement in history, according to a study from the University of Oxford. Divestment seeks to fight climate change as well as protect investors from potential losses associated with an industry in potentially deep trouble. The fossil-fuel industry is planning for a future that is incompatible with the organized global community because its success requires burning up to five times more fossil fuels than can be burned while ensuring a safe future.
Mark Lewis, one of Europe’s leading financial analysts, estimates that if we are to keep global temperatures within the internationally agreed-upon target of two degrees Celsius (above preindustrial levels), that the fossil-fuel industry would face losses over 20 years of about $28 trillion. Despite this, more than $600 billion is spent annually on developing even more new reserves.
The growing multi-trillion-dollar contradiction between what the fossil-fuel industry wants to burn and what world leaders have agreed to burn is known as “the carbon bubble.”
As highlighted in a citizen report to the retirement board investment consultants, the possibility of losses of this magnitude is made more likely by a number of factors that includes: rapidly growing competitiveness of alternative energy, increasing cost of fossil-fuel extraction, oil price volatility, increasing energy efficiency, conservation, environmental regulation, suppressed growth in key economies and a changing political landscape, as best embodied by a recent U.S.-China climate agreement.
What is good news for the climate is not good news for pension funds invested in fossil-fuel companies. The U.K. energy secretary has warned that fossil fuels could be “the subprime assets of the future” and the Bank of England is set to investigate whether the carbon bubble poses systemic risks to the global financial system.
Recognizing the risks, a number of institutions, such as the Rockefeller Brother Fund, Stanford University and Sweden’s largest pension fund, have divested from fossil fuels — especially from coal and tar sands, which are the most harmful and most financially risky forms of fossil fuel.
As part of last year’s review for Seattle city employees’ pensions, advice was sought of NEPC, an investment consultant. NEPC’s report echoes the industry’s refrain that divestment would result in increased risk and reduced returns. They even based findings upon an industry lobby group in their initial report. NEPC has arguably discounted evidence and cherry-picked financial theories to create a narrative against divestment.
Recognizing that NEPC’s advice held weight with the retirement board, I proposed a policy showing preference for non-fossil fuel investments only when fiscally prudent. The new proposal countered some of NEPC’s advice by requesting about as cautious an approach to divestment as could be imagined. However, the rest of the retirement board deferred to NEPC and did not support the motion.
Importantly, the book is not yet closed. The retirement board passed a final resolution to increase investments in clean energy, use investment positions for shareholder engagement and continue to study the question of carbon risk. For the sake of the Seattle city employees’ retirement and the climate, let’s hope that the retirement board receives future analysis that fairly represents the risks and opportunities at hand.