As the Ann Arbor City Council weighs the benefits and costs of a symbolic resolution to divest the city’s pension fund from fossil fuel industries, members of the council and Ann Arbor residents are speaking out against the proposal that threatens to raise management costs for pensions for city employees.
Originally submitted by the city’s Energy Commission, the proposal would have the City Council recommend that the Pension Board, which oversees the city’s retirement investment accounts, divest from all fossil-fuel companies in an effort to symbolically and practically combat global climate change.
The proposal first came to vote at the Sept. 2 meeting but failed to garner enough support among City Council members. After being reconsidered and postponed at the Sept. 16 meeting, council members have been evaluating the possibility of the divestiture without adding risk to the pension fund.
However, a resolution from council doesn’t necessarily mean divestment will occur: council members don’t have the power to direct the investment decisions of the Pension Board, so the proposal would be merely an expression of support for divestment.
Similar movements for divestment from traditional fossil-fuel-focused energy companies have been cropping up across the country as the movement gains more attention. Over the summer, Berkeley, Calif. passed a proposal to have the city explore the possibility of fossil-fuel divestment for the retirement fund.
Nils Moe, senior aide to Berkeley Mayor Tom Bates, said the divestment proposal originally came through the Mayors Innovation Project, an initiative that involves cities across the country committing to combat climate change and other projects. Student groups at the University of California, Berkeley were also very vocal in supporting divestment.
Similar to the Ann Arbor proposal, the Berkeley proposal was a request from the city to CalPERS — a large retirement fund the city has about $1.6 billion invested in — to divest from fossil fuels over a five-year period, Moe said.
Moe said while divestment would likely send a signal to other cities to support the effort, the practical implications are still being explored and the city is still involved in other sustainability efforts.
“We certainly don’t look at this as a silver bullet or we will hang our hats solely on the issue of divestment, but this comes within a package of climate-mitigation and climate-adaptation programs that we, Berkeley, as a city are working on,” Moe said.
Moe added that while a divestment plan has yet to be implemented, he thinks the topic has at least opened the discussion on divestment and climate change solutions.
In Ann Arbor, council members, members of the pension board and members of the energy commission are also in the process of exploring the divestment’s financial implications.
Councilmember Jane Lumm (I–Ward 2) sent an e-mail to the involved parties explaining the possible fund options for the pension. Lumm said the city essentially faces a choice between low-fee index funds and the more costly, highly managed fund. The issue, according to Lumm, is that there are very few index funds without fossil fuel as a portion of their diversified portfolio, and excluding those investments would decrease returns.
Nancy Walker, executive director of the Ann Arbor Employees’ Retirement System, declined to comment for this article. The Investment Policy Committee will meet Tuesday and the Administrative Policy and Audit Committee will meet on Oct. 8.
Kai Petainen, a lecturer in the Business School, has been advising the city council against divestment. In an essay sent to the council members, Petainen wrote that the proposal asks for the Pension Board to divest from 200 fossil-fuel companies, adding that that eliminating an entire sector of a portfolio is never advisable.
Petainen also wrote that he is unaware of any index funds without fossil fuel investment and that the umbrella of the proposed divested stocks could potentially be widened to include other large companies like General Electric, which is involved in supplying materials to the energy sector.
He also wrote that the proposal includes several other flaws, including a request to support local projects, which could risk issues of insider trading. His letter concluded that the Pension Board might consider removing a handful of companies, but eliminating all of them is fiscally irresponsible.
Councilmember Lumm said that as much as the council wants to make the symbolic gesture for environmental awareness, such a proposal would put the independent Pension Board in a tough position.
“We can’t, nor should we, tie the hands of the retirement manager,” Lumm said. “We’re kind of saying, ‘You should do this but you don’t have to,’ and I think that’s tough for them.”