Divestment of fossil fuels is a bad policy
Since January Governor Peter Shumlin has been pressuring state pension fund managers and lawmakers to sell off coal and Exxon/Mobil holdings. The Governor says (now) this policy is necessary to combat climate change. If enacted, however, divestment will do virtually nothing to reduce carbon emissions — but could cost Vermont taxpayers millions. Because state pension funds are overwhelmingly "defined benefit," meaning the payout is guaranteed regardless of how well the pensions' investments do, it is once again the Vermont taxpayers who will be put on the hook for a worthless program that will have no impact on the environment.
Let's look at the facts. Vermont Treasurer Beth Pearce calculated that fossil fuel divestment would cost the state pension funds approximately $10 million per year in foregone returns and $8.5 million in implementation fees. Even a less ambitious sell-off of investments would result in financial loss. Money contributed by and meant to benefit Vermont's nearly 50,000 retirees would vanish, and taxpayers would ultimately be on the hook to make up the difference. (Keep in mind that our state pensions have already been mismanaged by Montpelier to the point where they are facing a $3.8 billion unfunded liability. Divestment just adds fuel to this fire.)
Divestment is a bad policy that politicizes what should be the non-political function of funding state pensions in the most efficient and effective way possible. It is kowtowing to a small, loud group of activists, well funded by out of state sources and pushing an agenda that has nothing to do with state workers' retirement benefits. Most notable among this crowd is Bill McKibben of 350.org.
Governor Shumlin very recently rejected the concept of divestment. In fact, less than two years ago the governor argued that " owning the stocks and having a seat at the table with the oil companies — is a good place to be." Even McKibben and other divestment activists have even acknowledged the fact that divestment does nothing to directly reduce carbon emissions. So why the Governor's flip-flop? He had it right the first time!
Fortunately Treasurer Pearce and other responsible officials have dutifully warned that handing over investment decisions to legislators and political leaders undermines the prudent process put in place by statute. It is the mission of the Vermont Pension Investment Committee (VPIC) to manage investments of the retirement systems, "with integrity, prudence, and skill to meet or exceed the financial objectives of the beneficiaries of the funds," VPIC says. In short, it is VPIC's sole fiduciary responsibility to protect the financial interests of Vermont's hard working pensioners while maximizing returns and minimizing risks.
Allowing politicians to meddle with investment funds to fan the flames of unrelated political agendas is not a recipe for financial success. Treasurer Pearce is not alone in upholding these statutes in Vermont. In 2013 then-President Ron Liebowitz of Middlebury College firmly rejected divestment on the basis of the board's fiduciary responsibilities. At the University of Vermont, Finance and Investment Committee Member David Daigle announced UVM's rejection of divestment in a similar vein, saying, "Our primary responsibility is to protect the endowment and my continuing fear is that this proposal would have a significant impact on the ability to balance the risks and rewards within the endowment by cutting out a substantial portion of the economy."
It is wrong, and costly, to violate fiduciary responsibility to pensioners, students, and Vermont's citizens in general. It is even worse to cloak a political agenda under the guise of environmental responsibility, when it is clear that divestment will not address climate change. Vermonters deserve a real debate about the immediate and long-term environmental impacts of generating the power we need to drive our economy. Divestment, as a strategy for economic and environmental success, it's a dead end.
Rob Roper is president of the Ethan Allen Institute. He lives in Stowe.
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