Jon Erickson: The economic case for divestment

Editor’s note: This commentary is by Jon D. Erickson, of South Burlington, who is professor of ecological economics at the Rubenstein School of Environment and Natural Resources at the University of Vermont.

Gov. Peter Shumlin and a majority in Vermont’s House and Senate have called for divestment of state pension funds from coal and ExxonMobil.

The environment and economy are so often seen in conflict, that it may be shocking for many to learn that on divestment, our ecological and economic bottom lines are in full alignment. Coal becomes a worse investment every day.

The environmental case for divestment is clear. The Intergovernmental Panel on Climate Change estimates $30 billion per year would need to be divested from fossil fuels worldwide over the coming decades in order to meet climate stability goals. Given recent revelations that ExxonMobil executives knew the human causes and consequences of climate change for decades, even the fossil fuel industry can no longer deny the environmental benefits of divestment.

But for many, divestment is an economic issue. If we want to talk about the risk of fossil fuel stocks losing value as the global community moves away from burning carbon, coal is exhibit A.

In recent years, some generous UVM donors have made their support conditional on investing in a portfolio free of fossil fuel or nuclear power corporations.


President Barack Obama has halted new coal mining on federal lands, and coal’s share of electric generation nationwide has plummeted. Many large coal companies have gone belly up, and last week the world’s largest, Peabody, filed for bankruptcy. The Dow Jones Coal Index has free-fallen from nearly 750 eight years ago to the low 30s today. Even China is closing thousands of coal mines.

Chiza Vitta, a metals and mining analyst with the credit rating firm Standard & Poor’s, noted in a March 20 New York Times article that: “There are always going to be periods of boom and bust. But what is happening in coal is a downward shift that is permanent.” Norway has dumped at least $1 billion in coal stocks from the largest sovereign wealth fund in the world. Even the Rockefeller Family Fund announced last month a plan to fully divest from fossil fuels, with specific reference to “eliminate holdings” of ExxonMobil stocks, the source of the family’s fortune, for the company’s “morally reprehensible conduct.”

The other economic argument used against divestment by some members of Vermont’s Pension Investment Committee is a fear of exorbitant fees to sell ExxonMobil and our few coal stocks. Our experience at the University of Vermont tells a different story. In recent years, some generous UVM donors have made their support conditional on investing in a portfolio free of fossil fuel or nuclear power corporations. Not only did fund managers identify a Green Fund at normal costs, but it has far outperformed the university’s broader portfolio.

The good news is that following action in the Legislature, VPIC and state Treasurer Beth Pearce have agreed to revisit these issues since rejecting earlier appeals for broad divestment. At the University of Vermont, we had a similar movement for broad fossil fuel divestment that was ultimately rejected. Recently, Gov. Peter Shumlin visited UVM to talk with students, staff, and faculty about the merits of divesting the state pension fund, and pledged to use his position on the UVM Board of Trustees to push for our state university to do the same.

As someone who works with students daily, I fear they see our leaders speak to the crisis of climate change in one breath, but delay taking action in the next. With divestment we have the opportunity to show our children, the nation – and indeed the world – that Vermont takes climate change seriously by putting our money where our mouth is. This targeted divestment is a modest step in the right direction.

Our state treasurer’s recommendations on divestment are due to the Legislature on May 3. I trust that Treasurer Pearce and Vermont’s Pension Investment Committee will rise to the occasion and protect the value of public pension funds, uphold our commitment to transition away from fossil fuels, and send a message to other states and nations that it’s high time to divest.

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