Massachusetts's senators are debating a bill that would divest the state's pension fund from fossil fuel companies in response to concerns over climate change.
Senate bill S.1225, sponsored by Democratic state Sen. Benjamin Downing, is being considered in the chamber's Joint Committee on Public Service. Committee members have until June 30 to debate the law's merits and consequences to Massachusetts pension portfolio.
This week, students at Stanford University successfully lobbied administrators to divest fossil fuel companies from that school's endowment, and students at Harvard are attempting to do the same. But Massachusetts would be the first state to divest its pension fund from fossil fuels.
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Massachusetts has divested over social, moral and political objections before. Most recently, the state divested from companies doing business in Iran. In the late 90s, the pension fund eschewed investments in all tobacco companies. Like other institutional entities, it divested from companies operating in South Africa in 1982.
The movement to divest from fossil fuel companies, which, according to reporting from masslive.com, has the strong support of the state's environmental activists, has much different ramifications from previous divestment movements. For one, fossil fuel companies account for $1.4 billion in investments, or 2.6 percent of the state's pension fund. Prior targets of divestment accounted for smaller stakes; tobacco companies represented less than 1 percent of the pension when Massachusetts moved out of that industry.
Then there is the question of financial reality. The proposed bill has yet to specify which companies would be subject to divestment. Oil companies like Exxon and Chevron would presumably be targets. Those companies make money, and lots of it, and are considered safe long-term performance investments.
And Massachusetts isn't exactly in a position to shed productive investments. The state's pension system is funded at a rate of 60.6 percent. The nationwide average is 74 percent, according to The American Interest, a conservative publication.
The Urban Institute, a left-leaning think-tank, recently released a study putting Massachusetts at or near the bottom of the country's state pension systems.
State workers in Massachusetts aren't eligible for a pension until they've spent at least 10 years of service to the state. That has dissuaded younger workers from seeking employment with the state, say experts, while older workers have been retiring early with rich benefit programs supporting them.
If history is any measurement, the proposed bill may have to endure years of legal wrangling. The first calls to divest from tobacco companies were issued in 1990 by then Gov. Michael Dukakis, but the pension didn't drop its investments until 1997.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
