We all know that doing the easy thing doesn’t necessarily translate to doing the right thing. This truth is perfectly exemplified in politics, where leaders opt to do what might be perceived as popular, instead of standing on the side of common sense and good governance.
We are seeing this truth play out in San Francisco, where the San Francisco Employees’ Retirement System board plans to discuss whether to divest the municipal pension fund of fossil fuels. The board has been pressured by loud but small environmental groups to consider divestment of the pension fund, which oversees the retirement savings of city employees.
Divesting from fossil fuels to show that you care about the environment is certainly a great way to make some noise and create the illusion that you did something good for the planet. The simple truth is, not only does divestment not work effectively, but it also hurts the beneficiaries of those funds. Divesting doesn’t reduce the use of fossil fuels. San Francisco will still need oil and natural gas to function. As the late Joseph Dear, CalPERS’ former chief investment officer, once famously said, divestment is “a noble way to lose money.”
San Francisco’s municipal pension funds are certainly in no position to be able to lose money. According to a recent Bloomberg analysis, The City’s net pension liability has reached $5.5 billion. The amount of tax dollars that The City will need to pay into the system from our revenue fund will increase by 36 percent, three times as fast as the growth rate of San Francisco’s revenue. The costs of keeping the fund solvent will be “a significant budgetary challenge for the foreseeable future,” according to an S&P Global Ratings analysis.
These sobering statistics run headlong into the losses that divestment of funds can cause. A recent analysis by Arizona State University Professor Hendrik Bessembinder concluded that “divestment equates to a reduction in monthly pension benefits of approximately five to seven percent for a typical pensioner.”
None of this may mean anything for the activists pushing this divestment action. Then again, not many of these individuals may actually rely on these funds for their retirement. However, our retired teachers, public safety officers and civil servants, who have paid into the SFERS their entire careers, expect the fund to put their well-being ahead of any ideological considerations. The taxpayers of The City, including many minority-owned local businesses, expect that our contributions to this city go toward funding essential services, not plugging self-inflicted holes in the pension fund returns.
There is plenty that we can do as a city to reduce our carbon footprint. Encouraging more widespread use of solar power, investing more in building infrastructure to support widespread electric vehicle use and mandating industry-leading efficiency features in our buildings are all ways that San Francisco can limit its emissions. Divestment simply is not a viable solution. None of these are easy or politically galvanizing, but they are the right thing to do, as opposed to divestment.
The SFERS board has a choice. They can chase the accolades of a small group of activists, or they can do the right thing and protect the pensions of thousands of retired civil servants. Let’s hope they do what’s right.
Carlos Solorzano is CEO of the Hispanic Chambers of Commerce of San Francisco. Yolanda Hudson is a retired science teacher in the Detroit Public School System. Both are members of the Protect Our Pensions coalition.