Do not mess up people’s pensions.
Of all the lessons I learned while serving six years in the Minnesota House of Representatives, this was among the most important. Pensions are just too important to mess up.
I’m currently at the United Nations climate negotiations in Paris, and I find myself thinking about pensions. Surprised? I am, too.
The climate negotiations began with the largest gathering of heads of state or government ever. Global leaders spoke about making progress on the agreed-upon limit of 2 degrees Celsius of warming. Now negotiators from 196 parties to the United Nations Framework Convention on Climate Change are working toward agreements resulting in real emissions reductions and climate adaptation.
I first started thinking about pensions when I attended a news conference about the fast-growing success of the global divestment movement. The idea of divestment is to get large investment funds to take money out of fossil-fuel companies, undermining both the financial interests and social license of these industries. The divestment movement announced the number of institutions committed to divestment now numbers more than 500, including universities and cities around the world. Since mid-September, the total assets under management committed to divestment from fossil fuels has grown from $2.6 trillion to $3.4 trillion. That’s $800 billion in just 10 weeks.
Kevin de Leon, president pro tempore of the California state Senate, spoke at the news conference. He talked about California’s recent law requiring the state’s two largest pension funds to divest from companies mostly making money from the mining or use of thermal coal.
Big pension funds divesting. It’s getting serious. You don’t mess around with pensions.
The next day I listened to a panel of leaders in trade unions around the world talking about pension funds. The conversation was wide-ranging, but it can be summarized as such: Focus on financial risk and finance the climate and energy transition the world needs.
Let’s start with financial risk. Whatever your views on the divestment movement, it’s no longer possible to ignore the financial risk of fossil-fuel investments for pension funds. The value of many global companies comes from their ownership of vast fossil-fuel reserves still in the ground — reserves that are increasingly considered stranded assets. Mark Carney, governor of the Bank of England, recently commented “the vast majority of reserves are unburnable” if the world actually will limit climate change to 2 degrees Celsius.
Staying under 2 degrees of warming means we can’t burn a whole bunch of fossil fuels that are currently highly valued in our financial markets.
What happens to pension funds when that carbon bubble pops? No one really knows. Last week, the Financial Stability Board, chaired by Carney, announced the creation of a task force to help financial markets better understand the risks of climate change. It will be led by Michael Bloomberg.
The flip side of the risk from investing in the old carbon economy is the potential to invest in transitioning to the new clean-energy economy. How do we invest in clean energy, energy efficiency and economic development in communities currently dependent on fossil-fuel industries and worker training for people with fossil-fuel jobs? How can pensions play a role in financing this transition?
The former legislator in me balks at offering a definitive answer to the questions I’ve posed, but I know Minnesotans should be asking them and expecting answers. As a legislator, I trusted the work of the Legislative Commission on Pensions and Retirement. The commission should hold hearings on the financial risks of fossil-fuel industry investments and the opportunities of investing in the climate and clean-energy transition. The State Board of Investment should do the same. I also ask Gov. Mark Dayton and his administration to look into questions of divestment and reinvestment. If you have assets in a pension fund, ask your pension fund leaders to do the same.
Ultimately, the divestment and reinvestment fight is between society and physics. Can society operate in a way that allows people to thrive within the physics of our planet? Getting our pension funds in line with physics is a good place to start to ensure the answer to that question is yes.
Kate Knuth is part of the University of Minnesota delegation to the United Nations climate negotiations in Paris. The views here are her own and do not represent the University of Minnesota.