As campaigns targeting energy-related investments continue to emerge across the west, officials in the region are pushing back against such policies.
Recently, Bank of the West announced it was divesting from “coal, tar sands, shale oil and artic [sic] drilling – and investing and financing the transition to more sustainable energy sources.”
Bank of the West is based in San Francisco and is a subsidiary of the French Bank, BNP Paribas.
As a part of this transition, Bank of the West says it will no longer finance fracking or oil sands development and will transition “away from relationships with companies who produce more than half of their revenue through this form of energy production and exploration.”
The bank will also cease doing business with “producers, distributors, marketers, or traders focused on oil and gas from shale or oil sands” and will no longer finance Arctic exploration.
But the move is generating pushback from energy producing communities and states, including Wyoming and Colorado.
U.S. Sen. John Barrasso (R-Wyo.) , chairman of the Senate Committee on Environment and Public Works, wrote of his “profound disappointment” with the new policy in a letter to Bank of the West CEO Nandita Bakhshi.
“This misguided and politically expedient decision is a direct attack on hardworking families in Wyoming and across the country that depend on fossil fuels for energy security, jobs and economic growth,” wrote Barrasso.
“While it may be fashionable today in San Francisco to exclude states like Wyoming from your lending plans, it will do little to discourage us from pursuing our best future on our terms.”
“It is a serious mistake to pick winners and losers in energy markets, especially to the detriment of your own customers,” the letter continued.
In response to Bank of the West’s new policy, County Commissioners in Moffat County, Colo. announced plans last week to pull accounts and transfer funds to a different bank. Commissioner Don Cook said the decision was made to show support for the community—where the coal industry is very important economically.
In Craig, Colo., which is the largest town in Moffat County, Bank of the West Branch Manager and Vice President Stacy Razzano made public her intentions to step down in protest after a 27-year tenure with the bank.
“It’s been heartbreaking for me. It’s just been really sad to watch this, however I felt that I needed to take this stance for my community and my family,” Razzano told CBS4.
The pressure is building for large institutional investors to integrate social considerations in investment decisions. The campaign to compel large funds to sell fossil fuel investments started on college campuses in 2011 and has expanded nationally to local, city, and state pension funds.
Advocates say that investing in areas like renewable energy and Environmental, Social and Governance (ESG) factors will ultimately produce better returns in the future and take a stand in the fight against climate change.
Environmental group 350.org started a petition calling on the Colorado Public Employees’ Retirement Association (PERA) to divest from fossil fuels last month.
“Not only is the public funding of the climate crisis of grave concern, so is the financial risk of fossil fuel investments to state pension beneficiaries,” the group posted on its website in July.
“The Divest-Invest movement is critical in shifting the current status quo and disrupting the social license that the fossil fuel industry currently has to continuously extract and pollute,” the message continued.
But a new economic report released this week shows that divesting from fossil fuels could cost PERA up to $50 million per year at a time when the fund is struggling to regain long term solvency.
“Our research shows that large pension funds stand to lose a substantial amount of value if they decide to adopt a divestment policy,” said Daniel Fischel, professor at the University of Chicago Law School and author of the report, in a statement.
“The energy sector plays an important role in diversifying a given portfolio, so eliminating that exposure means higher risk and reduced returns to the tune of millions if not trillions of dollars over an extended timeframe.
These types of costs leave pensions to make a hard choice: reduce pensioner benefits or increase contributions from taxpayers to the fund.”
The report, which was commissioned by the Independent Petroleum Association of America, analyzed PERA’s holdings with and without investments in oil, natural gas, coal, and utilities and compared those returns annually and over a 50-year timeframe.
The study found that if PERA sold all investments in the sectors, the fund would effectively miss out on returns ranging from $36 to $50 million per year, or 0.15 – 0.22 percent. The report’s authors also calculate that over a 50-year timeframe those losses would add up to $470 billion to $646 billion. The higher estimates include all divested fossil fuel equities, plus utilities.
According to the report’s authors, the losses are due to reduced diversification in the portfolio.
“When we look at how one would manage a portfolio, one thinks about the risk that one has to take on versus the returns that one gets in return,” Christopher Fiore, vice president at Compass Lexecon and co-author of the report told Western Wire.
“When we think about divestment, divestment makes trade-off between the risk and return worse. So when one doesn’t invest in energy, so coal oil and natural gas, the return that you can get decreases for a given level of risk. Or in order to get a certain return, you have to take on a greater amount of risk.”
PERA itself has been facing steep financial shortfalls for years, with unfunded liabilities hitting $32.2 billion last fiscal year. Some estimates concluded PERA only had enough assets to cover 46 percent of all monetary commitments.
In June, Colorado Gov. John Hickenlooper signed legislation that aims to restore PERA to full funding over 30 years. To do so, SB 200 will require increased contributions from both employers and employees.
The state will also allocate $225 million in funding annually. The law also mandates a raise in the retirement age for new workers and a reduction of annual cost of living increases.
“If you think about how difficult it was to get that bill [SB 200] passed, now with an even larger gap it would have made it even more difficult,” Joshua Sharf, a fiscal policy analyst at the Independence Institute, told Western Wire.
“And then if you look at what happened in terms of the taxpayer bailout portion of it where it’s now a line item in the general fund budget, that’s $225 million a year.
So you’re looking at, in effect another $50 million on top of that. And that would have to grow, not at inflation, that would have to grow at the rate of return that they’re assuming.”
While the divestment campaign is not new to Colorado, it has failed to achieve much traction in the region. Many divestment targets have turned down repeated proposals and requests for both financial reasons and practicality concerns.
The University of Denver announced in January 2017 it would not divest after 350.org partnered up with students to campaign on campus. The Board wrote that, “divestment in fossil fuel companies, or any other industry, would not be an effective means of mitigating global warming nor would it be consistent with the endowment’s long-term purpose to provide enduring benefit to present and future students, faculty, staff and other stakeholders.”
The University of Colorado Board of Regents voted in favor of maintaining neutral investment policies in in 2015 by a tally of 7-2. Colorado College and Colorado State University have also opted not to divest.
No major state pension fund in the nation has adopted a full divestment policy, though some have removed holdings in specific sectors like coal or oil sands.
Sharf says that fossil fuel divestment could derail the recent progress made on restoring PERA’s funding and financial viability.
“You’ve now just passed that [SB 200] to get back onto the path of being funded at some point in the future. Now you’re going to turn around and make that harder,” he told Western Wire.
“You’ve made the system that much more fragile again, right after you’ve worked to try to make it robust,” Sharf added.
