Shifting away from fossil fuel resources is one of our most effective tools for successfully transitioning our economy away from dirty, emissions-based energy sources.
Many large national and state-wide institutions are already on board. A 2021 Divest/Invest report found that $39.2 trillion in assets was invested in some form of fossil fuel divestment — a figure comparable to the combined annual gross domestic product of the United States and China .
The Massachusetts Pension Reserves Investment Management Board – which oversees the state’s $104.1 billion pension fund – recently introduced a new policy requiring state pension fund managers to vote against directors of companies in which the fund is invested invests when they have no plan to meet the Paris Climate Agreement targets or reach net-zero emissions.
These new guidelines are a positive step, but they don’t go far enough.
Actual divestment is the action that sends a powerful message in corporate boardrooms. PRIM board policy simply requires companies to have a plan to achieve decarbonization goals, without mandating real progress.
Many global companies have “plans,” but a recent report, Corporate Climate Responsibility Monitor 2022, shows few are making real commitments to net-zero emissions. It found that 25 large multinational companies — which collectively accounted for 5 percent of global greenhouse gas emissions in 2019 — have climate plans that fall far short of their stated net-zero targets. Divestment is a more effective way to ensure transparency and demand real change.
Divestment is also a smart investment decision. In 2017, Somerville’s Retirement Board voted to divest $9.5 million of its assets from a portfolio containing fossil fuels, but the action was opposed by the Public Employee Retirement Administration Commission. A case study by MassDivest found that a Somerville portfolio that divested of fossil fuels would have returned 22 percent more than the standard S&P 500 portfolio if the fund had divested in 2014.
Hard-working Massachusetts employees who pay into various state and local pension funds deserve the flexibility to protect their hard-earned pension contributions from long-term obligations in a dirty fossil-fuel industry. Investors are quick to realize that they would get a higher return by investing in a clean energy economy rather than one that is completely unsustainable. The state should do the same.
Michael S. Giaimo
Director, Northeast Region, American Petroleum Institute; Residents of Andover
Forcing pension funds to divest energy companies makes no sense and ignores two important facts. First, energy companies help lead the way in innovation and the energy transition. Second, oil and natural gas are important ingredients in almost every element of our lives. For a century and counting, these fuels have been a key factor in improving our quality of life.
The oil and natural gas industry believes in a lower-carbon future, and its engineers and scientists are collaborating with other experts on advanced technologies such as carbon capture, utilization and storage, hydrogen and lower-carbon intensity fuels.
Norway’s state pension fund predicted in 2019 that 90 percent of the world’s renewable energy investments would come from integrated oil companies by 2030. In our experience, this link between fossil fuels and renewable developments has led many investors to choose against exiting their holdings.
It is likely that several oil and gas producers will continue to produce significant commercial scale renewable energy development. Local oil companies, for example, are now investing in wind projects off the Massachusetts coast.
Pension systems have a fiduciary duty to create value for workers, and ignoring the advances and great potential of innovative energy products and solutions would be unwise and could even slow down the energy transition.
It is ironic that oil and natural gas are vilified and investments in these energy sources are attacked. Natural gas and oil play a crucial role in the development and production of products such as fertilizers, electric vehicles and wind turbines.
Today, in our work and personal lives, we are surrounded by thousands of everyday products derived from petroleum. Plastic usually comes from petroleum — and plastic is everywhere — in cars, homes, computers, smartphones, medical devices, clothing, textiles, water and power lines, power lines, and furniture. Petroleum-based products are also used in personal protective equipment, which became so important during the pandemic.
Individuals and pension funds should invest in companies that make these things possible. The biggest and brightest investors are partnering with the natural gas and oil industries to collectively achieve ambitious climate goals. This is a prudent investment approach that Massachusetts state legislators should follow when considering divestment legislation.
As reported to Globe correspondent John Laidler. For topic suggestions, please contact [email protected].