Guy Page: Divestment was never supported by pension beneficiaries

Editor’s note: This commentary is by Guy Page, who is principal of Page Communications in Berlin and a consultant to the Divestment Facts Campaign.

This spring, advocates of divestment of fossil fuel stocks by public pensions, led by Gov. Peter Shumlin, pushed the Legislature to legally change the Vermont Public Investment Committee (VPIC) mandate from maximizing returns for beneficiaries to making toothless political statements with public assets. Thankfully the administrators of Vermont’s public pension, who have studied divestment thoroughly, determined that making politically reflexive decisions is not a responsible way to manage public workers’ retirement security.

In the course of this debate several pensioner groups, including the Vermont State Employees Association and the Vermont Troopers Association, expressed their opposition to divestment and passed resolutions indicating that investment decisions should remain with VPIC, and not with the Legislature.

These pensioner organizations acted with good reason. The Vermont treasurer’s own study found that divestment would cost pension funds nearly $10 million per year in forgone returns and $8.5 million in implementation costs.

And now, thanks to a new survey, it’s clear that pensioners themselves agree that divestment is a bad idea. The survey captures the views of nearly 800 pension beneficiaries from across the United States on fossil fuel divestment. Respondents included pensioners such as retired municipal government personnel, teachers, fire and police officers.

Not only is divestment unpopular with pensioners, it is also costly and would fail to deliver lower carbon emissions.


When directly asked if they would support divestment if doing so could lead to lower returns, nearly two out of three respondents said they would not. Pensioners also overwhelming indicated that a well-diversified portfolio of stocks was “very important” to 74 percent of respondents, with the majority indicating that “energy” stocks are key to a well-diversified portfolio.

Not only is divestment unpopular with pensioners, it is also costly and would fail to deliver lower carbon emissions. Chris Ailman, the chief investment officer for the California State Teachers’ Retirement System (CalSTRS), one of the largest public pensions in the world recently stated that, “I’ve been involved in five divestments for our fund. All five of them we’ve lost money, and all five of them have not brought about social change.”

Recent studies by academic confirm Ailman’s opinion. Last year Caltech professor Bradford Cornell released a report finding divestment could cost the nation’s leading universities millions, while having no tangible impact on targeted companies or carbon reductions. Similarly, a new report from Hendrik Bessembinder of Arizona State University found that “frictional costs” – that is transaction and management fees – from divestment have a large impact on overall fund returns. According to his research, these costs have the potential to rob endowment funds of as much as 12 percent of their total value over a 20-year timeframe. These fees includes the onetime immediate transaction costs an endowment must endure, and ongoing annual management fees to stay in line with the changing definition of “fossil free.”

With these finding echoing those from the Vermont Treasurer’s Office, it’s abundantly clear that any action to divest comes with a hefty price tag, and one the pensioners are not willing to pay. Given the costs it’s no surprise that the people directly impacted by the performance of their retirement funds have no interest in having their pensions politicized in an effort to tarnish the fossil fuel industry.

So far Vermont has taken the responsible path by not rushing to divest from fossil fuels in a symbolic and costly gesture. Treasurer Beth Pearce and VPIC have been careful to hear all voices during a debate that began in earnest in February and is likely to continue for several months, aided by monthly stakeholder discussion meetings and an independent consultant study commissioned by Pearce’s office. As the VPIC continues its analysis of divestment, it should continue to bear in mind the latest economic studies on the costs of divestment and the will of pensioners themselves.

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