The Board of Supervisors recently passed a resolution urging The City’s Retirement Board to divest municipal pension funds of $583 million in fossil fuel stocks. The Retirement Board didn’t take up the recommendation, opting instead to join shareholder resolutions promoting change in the fossil fuel industry and to continue to study the possibility of full divestment.
This result is not ideal, but it does pave the way for a historic discussion. As the board studies divestment, I believe it will discover a powerful financial argument for selling off fossil fuel stocks. It will also highlight a question with major implications for our city: After we divest, how do we reinvest?
San Francisco would be the largest institutional investor to divest from fossil fuels, but it’s far from the first. Universities, religious organizations, insurers and other municipalities are all dumping their dirty energy stocks.
The consideration is as much financial as ethical. Recent reports from groups such as Standard & Poor’s and HSBC have warned that the fossil fuel industry faces immense systemic risks. If governments follow through on commitments to reduce carbon emissions, most of the world’s reserves of oil and coal will have to remain underground — a write-off of assets that could cost fossil fuel investors (including pensioners) trillions of dollars.
The issue is pressing enough that institutional investors representing $3 trillion in assets recently asked fossil fuel companies to conduct urgent risk assessments for their stocks’ performance in a “low-carbon scenario.”
For San Francisco, the financial risk posed by investing in fossil fuels is even starker. A recent Nature study estimated that sea-level rise alone could incur billions of dollars in annual damage to the Bay Area by 2050. In other words, even if fossil fuels produce returns for our pensioners, they’ll also cripple our future municipal budgets.
But divestment is not only about avoiding risk. It also presents a powerful opportunity to reimagine our city. One way to use divested funds would be to reinvest in local green infrastructure — to take the money we’ve been putting into globalized fossil fuel stocks and use it build a world-leading clean-energy economy at home.
California is already in trouble on infrastructure, with $750 billion in investment needs projected for the next decade — far more than the government has or can feasibly borrow. And that figure doesn’t account for climate change.
We need to start now to prepare our infrastructure for a world of rising sea levels, droughts and fires. We also need to dramatically accelerate the transition to clean energy and transportation systems.
Imagine the kind of jump start we could get with a half-billion dollars in investment. Imagine a city of public schools covered with solar panels financed by public pensioners. Imagine having resources equal to the vision and ambition this city already has for energy efficiency, electric vehicles and public transportation.
Most importantly, imagine doubling down on our capacity for clean-tech innovation. The world’s urban population is growing fast, as are concerns about climate change.
By investing now in climate solutions, San Francisco would position itself to spend the next several decades exporting its ideas and products.
The key word here is “invest.” Asset managers and financial researchers are learning that returns on investments in clean infrastructure can match or exceed returns on investments in the fossil fuel industry. Moreover, local infrastructure investments would provide pension fund managers with a welcome way to hedge against volatility and inflation in global markets.
San Francisco is on the verge of realizing a huge opportunity. To divest from fossil fuels seems fitting for a city that has often taken the lead on tough moral issues.
To reinvest in a new clean-energy economy would be to live up to the other, equally powerful part of our municipal reputation — the part about innovation, bold thinking and a persistent belief in our power to build a brighter future.
Billy Parish is president of Mosaic, a clean-energy investment platform, and the author of “Making Good: Finding Meaning, Money and Community in a Changing World.”