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Most of the hearings before the Washington, DC city council on Tuesday were sleepy affairs with only a few witnesses. The one big exception came when the council took up the question of whether the city should divest from the fossil fuel industry, which brought a flood of witnesses both for and against.
Supporters of divestment cited the looming threat of climate change driven by humanity’s fossil fuel emissions. But opponents largely avoided any climate denialism, and focused instead on a point of principle: DC’s public fund consists largely of pension and health benefit accounts for the city’s workers, and manipulating those funds with an eye to issues outside the investment’s health would be inappropriate. And outside of one or two witnesses, neither side really discussed the evidence that divestment can improve a portfolio’s finances as a practical matter over both the short and long-term.
The specific bill put forward by DC Council Chairman Phil Mendelson and some of his colleagues calls on the officials that manage the city’s public fund to determine whether companies it’s invested in are involved in fossil fuel emissions. It would then kickstart proceedings to move the money out of those investments if the companies don’t change their ways. Supporters included a number of students and activists, hailing from groups such as the DC Environmental Network and DC Divest. The latter is associated with climate activist Bill McKibben’s 350.org campaign, which is pushing at least 380 individual divestment efforts across the United States.
Critics often point out that such divestments are too small to serve as an economic incentive for the fossil fuel industries. But major corporations can be influenced by reputation and stigma as well: as Jim Dougherty of the DC branch of the Sierra Club admitted, “What this bill does is in large measure symbolic, but there’s a role for symbolism in legislative matters.”
The point is also a double-edged sword, since several opponents of divestment at yesterday’s hearing argued for engaging with the fossil fuel industry by maintaining the investments. But again, if the size of the capital in question is such a small part of the whole, it’s not clear why the industry would care.
But opponents’ main argument was that the money was not the city council’s to do with as it wished, and that the bill would inappropriately blur the District of Columbia Retirement Board’s (DCRB) authority to manage the fund, free from interference by the council. “These aren’t public funds,” said Robert Klausner, a lawyer specializing in government retirement systems. “They’re held in trust” on behalf the workers. Delroy Burton, representing the city’s police union, and Ed Smith from the firefighter’s union sounded similar notes.
Council Member David Grasso said the bill only hands the DCRB guidelines, and includes safeguards to make sure the council doesn’t wind up calling the shots. Mendelson argued the fund has divested in the past to make political points — instances include South Africa, Sudan, and Iran. He also said that the question of who the money belongs to is complicated by the outside tax dollars that have been added to make sure the fund hit its targets.
Another wrinkle is that, as Washington City Paper reported, Mendelson’s own 2012 financial disclosure form showed he has $40,700 invested in Chevron and $154,400 invested in ExxonMobil. Those companies possess the sixth- and third-largest fossil fuel reserves, respectively, giving the proceeding a “do as I say, not as I do” tinge.
But on a practical level, evidence suggests divestment poses little if any risk to the funds in the short-run, and may even improve them. When the research firm S&P Capital IQ ran the numbers through the S&P 500, for instance, they found an investment portfolio that excluded the targeted fossil fuel companies would actually have seen higher growth over the last ten years.
But the long-run may be even more important. To avoid catastrophic global warming, most of the fossil fuel reserves held by the major players in the industry must remain unburned. Should governments make serious policy moves to rein in greenhouse gas emissions, those reserves would become stranded assets, and the value of investments in those companies would drop — likely taking invested pension funds down with them.