The Most Vocal Opponent of SFERS’ Divestment Plan? SFERS’ Chief Investment Officer

Imagine you sit on the Board of the San Francisco Employees Retirement System and you’re schedule to vote tomorrow on a proposal “to divest of fossil fuel holdings in SFERS Public Market Securities.”

Now imagine you’ve just received an 87-page memo from SFERS’ Executive Director—written by SFERS’ Chief Investment Officer and his staff—which outlines all of the reasons why divestment is a really bad idea that will actually hurt the very people whose pensions you have sworn to “secure, protect and prudently invest.”


Don’t have time to read an 87-page memo but still not sure how you’d vote? Then just take a gander at these seven reasons to reject divestment, taken verbatim from the CIO’s report:

1. Divestment does not reduce fossil fuels

This cannot be emphasized enough: divestment does not reduce fossil fuels … Divestment does not even in the smallest way reduce carbon emissions. Divestment simply changes ownership … Ironically, if SFERS divests and fossil fuel companies earn good investment returns, we would be harmed, while fossil fuel companies themselves would not be.  (Emphasis in original.)

2. It's going to take a long time to find other ways to create the products made from fossil fuels

To gain a sense as to why transitioning from fossil fuels to renewables is going to take time — even a long time — consider the … products people consume which are made from fossil fuels. Many hundreds of millions of people are using products made from fossil fuels all throughout their day, including at home while awake or asleep, how we eat, how we travel, our leisure and entertainment, the places we work, and how we conduct our work.

3. There are no substitutes to fossil fuels that meet the large demand for energy

There are many reasons why renewables have only gained a few percent market share of global energy production over the past several decades:

  • Demand for Fossil Fuels Remains High. Products made from fossil fuels are regularly used by hundreds of millions or billions of people.
  • 85% of fossil fuel growth will come from emerging countries, not from the West.
  • Lack of renewables on a scale that meets demand: There is not a substitute available in the magnitude of supply that meets the enormous demand for products made from fossil fuels.

4. Regarding whether existing assets could become stranded, technological advancements are always underway in every segment of the economy

Economic advancement, modernization, and obsolescence are taking place all the time in every sector of the economy … 365 companies in the S&P 500 in 1987 are no longer in the index, while there have been 371 new additions to the index since then. In short, arguments that assets may become stranded is not new.

5. Past predictions of peak oil and declining supply of traditional energy sources have proved to be completely incorrect, due to rising demand and technological improvements

Doomsday forecast of peak oil and the world running out of food and energy have been proven completely wrong for the past 100 years, even as global GDP has risen approximately 20-fold. That's because advances in technology and new discoveries have repeatedly proven predictions of peak supply to be incorrect …The International Energy Agency projects that global reserves will likely increase, not decline, as innovative technologies increase production.

6. Alternative Energy ETFs have lost money the past 10 years

Some proponents of divestment might suggest that if Staff does not recommend divestment, then at least Staff should recommend investments in alternative energy. Even rapid growth of an industry such as renewables does not mean that the sector will provide excess returns. Almost all alternative energy ETF's have lost money the past 10 years, even as renewables have grown by 350%.

And most importantly …

7. Our existing holdings in the CU200 have been profitable

The motion for SFERS to divest of all its fossil fuels was made on May 17, 2017 … If SFERS had divested of $450 million in equity investments in fossil fuel companies by July 1, 2017, between that date and December 31, 2017, it would have cost SFERS approximately $78 million in gains and about $27 million in excess returns over the MSCI ACWI.

Again, these are just the highlights. The full report is much more critical of the divestment proposal. Any Board member who votes for divestment after reading the report is simply putting politics before the pensioners that they have sworn to protect.