by Chris White
The Trump administration released a new set of regulatory guidelines all-but destroying activists’ ability to cajole and browbeat retirement pension funds into taking up green energy investments.
The Labor Department issued a warning Monday to managers of retirement funds to avoid using politically motivated investment strategies to tackle environmental issues. Several retirement funds have used exotic techniques during the past several years to submit proposals designed to push political campaigns.
Using resources to promote so-called environmental, social and governance (ESG) proposals is a violation of a pension fund’s fiduciary duty unless the proposal can financially improve the company’s value. If the shareholder cannot demonstrably prove the proposal’s financial benefit, then pension recipients can sue the retirement fund for mishandling their money.
“Fiduciaries (including investment managers) may not routinely incur significant plan expenses to pay for the costs of shareholder resolutions or special shareholder meetings, or to initiate or actively sponsor proxy fights on environmental or social issues,” a DOL press statement on the rule change notes.
The new guidance rule comes as reports consistently warn about the real-world consequences of forcing pensions to take up green activist agendas. A report published in July 2017 suggested public pension funds could be on the hook for trillions of dollars if they move to divestment from troves of fossil fuel assets.
Selling off oil and gas investments would cost 11 of the largest and wealthiest public pension funds in the world nearly $5 trillion over 50 years due, in part, to a lack of diversity, according to a 2017 report sanctioned by energy lobby group Independent Petroleum Association of America (IPAA)
The report analyzed the effect divesting would have on the California Public Employees’ Retirement System (CalPERS), as well as municipal funds in New York and San Francisco. The IPAA-funded report is not the only one warning pensions about potentially nuking pensioners retirement funds.
A study from Arizona State University conducted in 2016, for instance, found that managing divestments cost endowment funds at universities as much as $7.4 billion in value over a 20-year period. Transactional costs associated with purging pensions of oil assets contribute to the overall expense of delving into political posturing on the environment, both reports note.
The problem is not relegated strictly to pensions. Private companies have also been exposed to similar risks. Exxon executives opposed a shareholder measure in December 2017 forcing the company to publish detailed reports on the effects of oil production on the climate, but activists managed to gather enough votes to pass the measure.
The measure asked Exxon potential risks of “technology changes and from climate change policies such as the 2015 accord aiming to keep average global temperature increases below 2 degrees Celsius,” Reuters reported in May 2017.
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