School Boards Not Thinking of the Real Costs of Divestment

In a backwards effort to enact social change, the San Diego Unified school board is calling for the California State Teachers’ Retirement System (CalSTRS) and the California Public Employee’s Retirement System (CalPERS) to divest from fossil fuel interests. Unfortunately, this call to action underscores yet another group that is failing to understand the financial consequences of divestment action.

Pensions should not be a chess piece in a game of social activism, and yet this move puts a target on the retirement fund of many deserving teachers and civil servants. Unlike personal investment portfolios, pension funds have a responsibility to its benefactors – not to the social whims of the few. And by divesting in any investments, the San Diego Unified school board is failing to uphold these responsibilities.

Additionally, diversified investments are essential to growing and sustaining any pension fund. In fact, studies have found that divestment action can actually shrink a portfolio’s return on investments, especially if divesting from fossil fuels. Specifically, a 2015 study by University of Chicago law professor Daniel Fischel concluded that portfolios, including pension funds that divest from energy companies produced a return 0.7 percent lower than the alternative. Over time this number will add up to an astounding 23 percent loss over 50 years.

Not only should school boards consider these numbers, but also the thoughts of Chris Ailman, CalSTRS Chief Investment Officer, who stated:

“I’ve been involved in five divestments for our fund. All five of them we’ve lost money, and all five of them have not brought about social change.”

The San Diego Unified school board and other school boards across the country need to fully understand the rippling consequences any divestment action could have on a pension fund. One being the financial loss that could negatively impact the amount of funds available to present and future retirees – a move that will cost deserving civil servants dearly.

This entry was posted in Blog. Bookmark the permalink.