Nine Reasons to #RejectDivestment

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Activists are seeking to rekindle interest in their flawed and extremist “Keep It in the Ground” ideology through a Global Divestment Mobilization running May 5-13.

Unfortunately for them, there is a multitude of reasons to reject divestment efforts. Below are nine of the most obvious ones:

 

1.       Divestment doesn’t help the environment

If you listen to the activists, you might believe that pressuring pensions, universities, and investors to divest from oil and natural gas will actually improve the environment. But if you examine what divestment means, you realize that it’s nothing but a meaningless symbolic gesture.

“Divesting” means that institutions sell their stocks in oil and natural gas companies to other investors who buy those traditionally well-performing stocks. Nothing has changed from an environmental perspective; the only real change is that another investor benefits from the investment, while students and pensioners suffer from a fund that is less diversified and costs more to administer.

                                                                                         

2.       Divestment is impossible

Even if you felt that a symbolic gesture was worth penalizing current and future retirees and students, there’s a fundamental problem with attempting to divest from oil and natural gas: It’s impossible.

All companies rely on oil and natural gas to heat and cool their offices; transport their employees and goods; and require goods made from petrochemicals (which range from cell phones and computers to uniforms) to function. If a fund wished to “fully divest,” as activists clamor for, they would have to withdraw from investments entirely. Our modern economy is inextricably linked to oil and natural gas. There is no way to divest from it.

 

3.       Divestment hurts pensioners

While activists are the ones who show up for protests and “lobby days” to push for pensions to divest from fossil fuels, it is the pensioners who end up paying the price.

According to a recent study by Prof. Hendrik Bessembinder of Arizona State University’s Carey School of Business, “divestment equates to a reduction in monthly pension benefits of approximately five to seven percent for a typical pensioner.” That kind of benefit cut translates into financial hardships for many retirees.

So it’s no wonder that when you ask pensioners themselves, they strongly oppose divestment. For instance, 72% of New York pensioners said they would actively oppose oil and gas divestment.

 

4.       Divestment proponents know it will cause financial losses … and they don’t care

Divestment has to be coerced or mandated because most pension and endowment managers are seeking to optimize returns, not intentionally reduce them. But sadly, divestment activists are undeterred by this resistance from the people who are best qualified to make decisions about financial investment funds.

For instance, New York has a bill to mandate the divestment of public pension funds. And the Comptroller is only allowed to make his own decisions about this divestment once the fund is losing money.

The bill:

Permits the Comptroller to cease divestment or reinvest in previously divested companies if he/she can demonstrate that as a direct result of such divestment the Fund has become or shall become: (i) equal to or less than 99.5 per cent or (ii) 100 per cent less 50 basis points of the hypothetical value of all assets under management

And lest you think that .5% isn’t a big deal, consider that most pensions are aiming to make about 7.5% annually.

Hog-tying the Comptroller from making sound investment decisions in a time of pension shortfalls is misguided and shows a true disregard for the nurses, firefighters, law enforcement, and civil service retirees who have served New York.

 

5.        Renewables depend on oil and natural gas.

Fun fact: solar panels and wind turbines are both made from petrochemicals, which are derived from oil and natural gas. That’s right—modern renewables wouldn’t exist without carbon fuels. And that doesn’t include the oil and natural gas needed to manufacture, transport, and maintain these technologies. (Turbines require lubrication, you know.) Not to mention the role of conventional fuels in generating power when the sun isn’t shining or the wind isn’t blowing.

So the effort to shut down the oil and natural gas industries through divestment would shut down the renewables industry if it actually worked. (Good thing it won’t!)

 

6.       Divestment hurts students

Here’s some irony for you: student activists are vocal advocates for divestment, pushing their universities to alter their investing practices to match this college fad. Though most colleges and universities have wisely resisted, some cave and pledge to divest. The resulting hit to the endowment means that long after the original activists have graduated, future students pay the price for their predecessors’ actions. And since endowments are used to offset tuition and offer scholarships, that price is literal.

A study released last month found:

[T]he costs of divestment are equivalent to annual tuition increases (or equivalent reductions in tuition scholarships) of approximately $123 to $385 at a representative public university or $1,043 to $3,265 at a representative private university. [Emphasis added]

In a time where student debt is a major economic hindrance for young adults, the cost of divestment—which falls well outside universities’ missions to educate—is far too high.

 

7.        Divestment is the result of an extremist ideology

Behind the push to divest from oil and natural gas is the extremist “Keep It in the Ground” movement. Their motto is clear: they believe that oil and natural gas should be kept in the ground. But what does that mean in real life?

It means:

  •  No gasoline for personal driving, transport of goods, or emergency vehicles
  •  Unaffordable heating, cooling and electricity that disproportionately affect poorer citizens
  • The end of petrochemical-based products—which include cell phones, seat belts, IVs, prosthetic limbs, and solar panels, among millions of other items

Do you really want to “divest” from these things?

 

8.       Divestment hurts taxpayers

Taxpayers have a vested interest in keeping public institutions from divesting.  Less-diversified, lower-returning, and expensively administered funds end up with shortfalls. And those shortfalls are almost always met through increased taxes of one form or another.

 

9.       Divestment activists deliberately mischaracterize the importance of oil and natural gas

Would you consider investing in child safety seats, medical IVs, recyclable packaging, or protective clothing for firefighters to be a worthwhile endeavor? Surprise: all of those things are made from petrochemicals (which come from oil and natural gas).

As a report from the Frontier Centre for Public Policy noted, “[D]ivestment manifestos are silent on the economic, social and environmental benefits of carbon fuels and petrochemical products for which there are currently no better substitutes.”

Not only are oil and natural gas irreplaceable parts of modern life, but they help create millions of products—from childproof locks to crutches to bike tires to cell phones—that make lives safer, healthier, and better.

But even as divestment activists use oil and natural gas products to drive to protests, make signs, organize online, and protect themselves from the elements, they seek to demonize these industries … and the millions of Americans who work in them.