By DANIEL C. LEVLER
The politically correct push to force public pension funds to immediately begin to divest from fossil fuels has become a runaway train in New York with many politicians, lawmakers and environmental activists at the wheel.
But the truth is that divestment will have little, if any, impact on slowing climate change, but could have a crushing effect on state and local public employees, retirees, their families and – ultimately – taxpayers.
No reasonable person disputes that climate change is real, man-made and will harm the planet we leave to our children, grandchildren and great-grandchildren.
As president of the Suffolk County Association of Municipal Employees, the largest independent union in New York, I know that a majority of our more than 10,000 active and retired members agree there needs to be progressive change to address the climate change issue.
But divestment is regressive by nature. Studies have shown that it won’t slow climate change, but will just speed up the economic impact on working men and women.
Immediate, forced divestment asks working families to shoulder a disproportionate amount of the cost of the change in investment strategies by sacrificing the performance of their pensions. It also could ultimately affect taxpayers if the new investments don’t perform as well.
That’s why it’s a bad idea to require the state’s nearly $200 billion Common Retirement Fund to completely and immediately divest from fossil fuel companies. It’s also a bad idea to force New York City to divest its $189 billion pension fund from fossil fuels within five years.
The Common Retirement Fund holds the assets of the New York State and Local Retirement System. It represents about 650,000 active state and local employees and 452,000 retirees.
A recent report from Global Analytics Services found that the fund would lose hundreds of millions of dollars in a relatively short period if required to divest in fossil fuels and replace those investments with lower-earning “green” assets.
The report estimated the fund would lose $188 million to $302 million over five years if forced to divest from fossil fuels – which earn at least the mandated 8 percent annual return – and replace them with environmentally cleaner investments that return as little as 3% to 5%. Contributions also would rise by at least $21.4 million over the five-year period and continue to grow afterward.
Independent actuary Bradley Heinrichs, who analyzed the report, noted investment performance is the most important driver of public pension costs. He said diverting nearly $1 billion in fossil fuel investments into lower-earning securities jeopardizes returns, increases contribution requirements and could force governments to raise taxes or cut services.
Most importantly, divestment does not align with the fiduciary responsibilities of state Comptroller Thomas P. DiNapoli, who oversees the Common Retirement Fund and who is obligated to achieve the highest returns possible for pensioners. To his credit, DiNapoli agrees with many state and municipal labor leaders that divestment is not the answer.
And we are not alone. Many public sector unions, colleges and universities from coast to coast have gone on record as opposing total divestment, saying divestment could cause funds to lose millions of dollars and result in substantial tuition hikes.
DiNapoli is opposed to a bill pending in the state Legislature that would require him to divest retirement funds from fossil fuel companies. Instead, he favors having conversations with all stakeholders to find alternative means.
That’s the smart way to do it.
Labor will always fight for progressive change, but we will strongly oppose the notion that we should solve climate change to the detriment of state and local workers who have dedicated their lives to public service.
Daniel C. Levler is president of the Suffolk County Association of Municipal Employees, the largest independent union in New York.