Over the last few months, we have seen a fringe group of activists push cities to divest their holdings from banks involved with the Dakota Access Pipeline. Several cities in California have divested their holdings based on certain officials’ ideological opposition to the project, although these cities would lose taxpayer money in the process. However, in Providence, Rhode Island, labor and business leaders finally came together to voice their opposition to using city finances as a vehicle to make political statements.
Speaking before the Providence City Council, Michael Sabitoni, President of the Rhode Island Building and Construction Trades Council, spoke out against a proposed city ordinance that would divest Providence from Citizens Bank due to their involvement with the DAPL project. Mr. Sabitoni raised a few points about divestment – and you can watch the video for yourself here:
Divestment starts a dangerous precedent: Considering that there is absolutely no consensus about the question of whether divestment is an effective tool to help the environment, establishing a precedent of using divestment measures as a legitimate way of expressing political opinion leaves pension funds vulnerable to the same kind of interference. Divesting from energy portfolios, especially in the context of pensions, would be a highly irresponsible move, considering that these stocks, on average, have provided very strong returns. As Mr. Sabitoni pointed out, while the City Council was considering divesting the city from Citizens Bank for the moment, it is entirely possible that the same activists would then demand divestment of the municipal pension funds.
Divestment is a poor substitute to corporate engagement: From Vermont to Oregon to California, multiple officials involved with managing pensions have encouraged corporate engagement as the best strategy to improving the environment. Working with companies to address environmental issues is much more flexible than blanket divestment, and helps reward good behavior. Similarly, Michael Sabitoni pointed out Citizens Bank’s longtime commitment to being a good corporate citizen in Rhode Island as a reason why divestment just didn’t make sense. Divesting, in addition to being “an ineffective strategy for achieving social or political goals”, as CalPERS recently described it, fails to recognize the complexities and nuances involved in the energy debate.