Fossil-fuel divestment by major pension funds reportedly could cost trillions in profit, leading to slashed payments to pensioners and eventual taxpayer bailouts.
A new report from University of Chicago professor Daniel Fischel warns that a move away from fossil-fuel investments by 11 of the nation's major public pension funds would lead to a nearly $5 trillion shortfall over the next 50 years.
The report comes in the wake of President Donald Trump’s controversial announcement that the United States would abandon the landmark 2015 Paris climate agreement with 195 countries to slash carbon emissions and curb global warming.
The Republican president, who had previously called climate change a "hoax" despite overwhelming evidence to the contrary, said he thought the pact would harm the U.S. economy without providing a tangible benefit, Reuters reported.
The Paris agreement created a new momentum in green investing and accelerated the move away from the dirtiest fossil fuels such as coal. Trump’s decision drew anger and condemnation from world leaders and business chiefs, many of them worried a U.S. exit would put the planet at risk and leave the United States behind in a global shift away from fossil fuels.
The Free Beacon reports that the study from Fischel, formerly the dean of University of Chicago Law School, says that those pension holders would actually see the city's funds shrink by over $100 million annually if they were to divest, and that it would have "minimal or no environmental impact."
The study, which calculated the effects that divestment would have on the nation's largest state pension fund (CalPERS) and all the major funds for New York City, Chicago, and San Francisco, found that portfolios including fossil fuel stocks outperformed divested portfolios annually.
"These annual losses add up to a 23 percent reduction in the value of a divested portfolio over a 50-year period," the report found.
"The study concluded that fossil fuel divestment has minimal or no environmental impact because it is highly unlikely to affect the production or distribution of fossil fuels on the part of targeted companies," the report states. "Moreover, not only is fossil fuel divestment ineffective, it is also costly to investors."
"This loss from divestment is due to the simple fact that a divested portfolio is suboptimally diversified, as it excludes one of the most important sectors of the economy," it states. "In fact, the diversification benefits of the energy sector exceed those of any other major sector of the economy."
The report estimates that the California Public Employees' Retirement System, or CalPERS, fund would lose between $210 million to $289 million annually depending on the extent to which it abandons fossil fuels. Over 50 years, the losses are estimated to range from $2.3 trillion to $3.1 trillion.
To be sure, most of the world’s largest asset owners have gotten the message that climate change poses a risk to their portfolios and are pivoting toward greener investments, Bloomberg reported.
Funds worth $27 trillion that comprise 60 percent of the world’s biggest investors are considering climate change when making investment decisions, according to the Asset Owners Disclosure Project. Funds listing climate as an investment criteria rose 18 percent from last year.
The climate issue has found its way into the spotlight at recent corporate shareholder meetings. For example, a majority of Exxon Mobil’s shareholders, in a reversal, recently voted in favor of more open and detailed analyses of the risks posed to its business by policies aimed at stemming climate change, the New York Times reported.
“Increasingly, though, Wall Street and large investors, including fund managers like BlackRock and Vanguard, two of Exxon’s largest investors, have signaled concerns about the risks to companies whose assets were based in fossil fuels that could lose significant value as climate policies and market forces reduce demand,” the Times explained.
“BlackRock voted for a similar proposal earlier this year at Occidental Petroleum, the first time it had opposed company management on such a measure,” the Times reported.
Meanwhile, most Americans believe the United States should take "aggressive action" to fight climate change, but few see it as a priority issue when compared with the economy or security, according to a recent Reuters/Ipsos poll.
The June 2-4 opinion poll suggests American voters may not penalize Trump too harshly for walking away from the 2015 Paris deal, even if they would have preferred he keep the country in the deal, Reuters reported.
The poll found 68 percent of Americans want the United States to lead global efforts to slow climate change, and 72 percent agree "that given the amount of greenhouse gases that it produces, the United States should take aggressive action to slow global warming."
(Newsmax wire services contributed to this report).
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