The (Limited) Power of Wishful Thinking

The recommendation to the Seattle City Employees’ Retirement System Board from their own Investment Advisory Committee (IAC) could not have been more clear: divesting “would negatively affect expected investment performance, even if pursued on a limited scale (e.g. only coal) or if pursued over many years.”

“It’s a consensus view,” they said. “We believe this is not a close call.”

Upon hearing this damning and unambiguous recommendation against divestment, the never-at-a-loss-for-words activist group 350 Seattle live-tweeted this thoughtful rejoinder: “ARRAGGGGGGGHHH.”

The problem that 350 Seattle faced at that hearing is the same problem all divestment activists grapple with—it’s just a really dumb idea. The factual arguments against divestment simply overpower the emotional rhetoric of the activists, which may explain why, “There are no investment consultants to U.S. public pensions that have recommended that those public pensions divest from fossil fuel companies,” according to Jason Malinowski, chief investment officer at SCERS.

But despite the facts, these passionate activists still believe that wishful thinking and organized foot-stamping will trump logic. According to, “Activists had hoped that this national momentum … would persuade the SCERS board to vote Thursday to start divesting.”

Unfortunately for them, “national momentum” is not sound investment strategy.

Divestment proponents did cite a recent report by Gang Chen, a one-time director of equity index trading at UBS Investment Bank, which purported to show that Seattle’s pension fund lost $100 million over the last decade by not divesting. But, as Seattle City Council Insight reported, that claim “needs some unpacking.”

According to SCC Insight, “despite their repeated claims that the fossil fuel investments ‘lost’ $100 million, in fact they were profitable.” Further, they wrote, there were some fundamental problems with Chen’s analysis.

“The first and obvious one,” they wrote, “is that Chen is cherry-picking the time interval, and just looking at the end points. You’ll notice that for the vast majority of the ten years, the energy sector outperformed the overall market. It’s only since mid-2014 that it has underperformed. If you were to look at just the period from January 2016 to the end of the chart, you’d see that recently the energy sector has generally outperformed the broader market.”

Seattle’s Investment Advisory Committee is not alone is strongly advising against divestment. In a recent column opposing Pittsburgh Mayor Bill Peduto’s executive order that called for the divestment of the municipal pension system, Protect Our Pensions cited anti-divestment statements from four pension fund managers and two state treasurers. Here is a sample:

  • “Divestment would increase costs and add diversification and technological risk to the portfolio.” ­– Beth Pearce, Vermont State Treasurer
  • “Our experience is that this has been a noble way to lose money. And we’re not here to lose money.” – Joseph Dear, Former CalPERS’ Chief Investment Officer
  • “Divestment offers symbolic rather than genuine impact on climate change given the complexity of fossil fuel investments.” – Montgomery County MD Retired Employees Association

Ultimately, the Seattle City Employees’ Retirement System Board declined to vote on the divestment proposal, effectively killing it for now. But apparently this story isn’t over yet. According to 350 Seattle’s Facebook page, the IAC had originally proposed banning all future divestment proposals, but that proposal hasn't (yet) seen the light of day.

We’ll keep you posted as this story develops.