What Caused Massachusetts’ Pension Fund To Lose Half A Billion Dollars Last Year?

CREDIT: AP Photo/Hasan Jamali, File

As Massachusetts' pension fund takes losses on fossil fuel investments, analysts and climate advocates suggest that the fossil fuel industry's long-term health is waning.

Massachusetts’ public pension fund lost more than half a billion dollars due to fossil fuel investments during the fiscal year that ended in June, according to new data analysis released Monday from Trillium Group.

The Massachusetts Pension Reserves Investment Trust Fund’s fossil fuel investments, including in coal, oil and gas, and production and exploration companies, lost 28 percent of their value — $521 million — the analysts found, using public records. The pension fund has been under scrutiny for its investments recently, and there are companion bills in the Massachusetts Senate and state House that would force the public fund to divest from all fossil fuels.

“I think sometimes divestment is assumed to be a financial mistake,” Will Lana, a partner at Trillium Asset Management, told ThinkProgress. “It’s important to stop for a moment and say, well, it hasn’t been a mistake [lately].”

Divestment has gained popularity among Massachusetts’ public sector unions. The Massachusetts Nurses Association, the Boston Teachers Union, and two other unions have come out in support of divestment. In addition, 14 Massachusetts towns and cities have passed resolutions supporting the move.

“The enthusiasm for fossil fuels is waning a bit,” Lana said. “There are a lot of challenges for the industry, and big picture, they don’t look like short-term challenges to me.”

And, in this case, investment in fossil fuels seems to run counter to the fund management’s fiduciary duty. “They have been warned over and over again, even by former Treasury Secretary Paulson,” Robert Massie, former executive director of Ceres and author of a book on the divestment movement’s success in addressing the South African apartheid, told ThinkProgress

There are essentially two key arguments for divestment, according to Massie. First, there is a political, moral argument to move away from fossil fuels that contribute to global warming and put the world’s health and well-being in jeopardy. But there is also a strict financial argument.

Fossil fuel industries are in what Massie argues is “structural decline.” In other words, the industry models are not sustainable. Several big coal companies have already declared bankruptcy, but other fossil fuel industries are also exposed to risk, as the world moves to a more and more sustainable future.

For instance, new U.S. guidelines require cars to get 40 miles per gallon by 2017, and 55 mpg by 2022, Massie said. “You can imagine what’s going to start to happen. You’re going to see a permanent drop in oil.”

The long-term prospects of fossil fuel — in a world where we already know we need to keep two-thirds of fuel reserves in the ground — are tenuous, Massie said. Fossil fuel companies spend “almost $700 billion a year in looking for new resources at a moment when we already understand that we cannot burn what we already have,” Massie told ThinkProgress.

This is not the first report of its kind intended to show lawmakers how important fossil fuel divestment is.

Trillium released a report earlier this year showing that California’s two public pension plans lost $5 billion due to their fossil fuel investments. The report may have helped spur support for a divestment bill in that state, which was approved by the state legislature earlier this month. Gov. Jerry Brown (D) is expected to sign the bill into law.

The Massachusetts report was requested by 350Mass, a state-based climate advocacy organization.