Yesterday, I proposed a motion to the Investment Committee of the Seattle City Employee Retirement System (SCERS) Board, to answer the question: “How divestment could be sequenced over the next 5 (or appropriate number of) years by refraining from making new investments in Carbon Underground 200 companies…consistent with fiduciary duties; identifying other comparable jurisdictions that have addressed this issue and the steps they have or have not taken.” That motion passed unanimously.
The Carbon Underground 200 identifies the top 100 public coal companies globally and the top 100 public oil and gas companies globally, ranked by the potential carbon emissions content of their reported reserves. Last June, the City Council passed Resolution 31525 adopting investment policies for the City. In that resolution, the City Council urged the SCERS Board to work towards divestment from fossil fuel holdings.
In response to the Council resolution, in August, SCERS Executive Director Ken Nakatsu’s directed NEPC, the SCERS Board’s investment consultant, to analyze the likely impacts of a 5 year incremental divestment process focused upon the publicly traded stocks of the Carbon Underground 200. NEPC produced a report instead using the scenario of an overnight divestment, identifying $2.1 million in fees and penalties that would result.
In response to the report and opposing the proposed motion to approve NEPC’s recommendation that SCERS not pursue fossil fuel divestment, Councilmember O’Brien and several members of the public, including individuals representing 350.org testified before the Board. That testimony included the following points:
1. The NEPC report states that the market has accounted for risks like a carbon bubble and stranded assets. Yet, a July report from the Oxford Stranded Assets Programme says that the lack of a mandate for companies to “disclose environment-related risks hinders both consistent understanding of the issues and the ability to mitigate risks.”
2. The report states that NEPC is unaware of other public pension funds which have divested. Several have, including Sweden’s largest. The report did not assess the arguments of the many cities, universities, and institutions considering divestment.
3. The report does not indicate that fossil fuel investments have underperformed relative to the market for each of the last 5 years.
4. The NEPC analysis was based upon the elimination of entire asset classes, for instance real estate, or equity asset classes. Yet the interest is only in divesting from the publicly traded stocks of the Carbon Underground 200.
Hopefully yesterday’s Investment Committee action clarifies that the intent is to do only what’s responsible to the pension-system and t0 those invested in it, using the most cost-efficient timing. Through this kind of incremental approach, the fossil free investing market may develop further in response.