What Fiduciary Duty? San Fran Politicians Try To Force Pension To Dump $470MM Of "Fossil Fuel" Stocks | Zero Hedge


What Fiduciary Duty? San Fran Politicians Try To Force Pension To Dump $470MM Of "Fossil Fuel" Stocks
We've frequently argued that public pension underfundings are perhaps the greatest threat to the long-term economic outlook of the United States, if not the globe. With aggregate underfunding levels of $5-$8 trillion, depending on what discount rate your local politicians decide to pull out of thin air, the forthcoming pension crisis will be too large for even the very generous American taxpayer to cover.

That said, and as if avoiding the next pension-induced global financial crisis weren't hard enough, the San Francisco Board of Supervisors seems hell bent on accelerating the crisis by forcing their public pension board to completely ignore their fiduciary duty to retirees (and all taxpayers, frankly, as we'll all be left holding the bag when these ponzi schemes implode) and immediately dump all "fossil fuel" investments irrespective of financial merit. You know, because restricting investing options is clearly in the best interest of retirees...even though we would venture to guess that most of them couldn't care less where their money is invested as long as their benefits never get cut. Here's more fromthe San Francisco Chronicle:

The San Francisco Employee Retirement System is facing mounting pressure to unload its roughly $470 million worth of investments in the fossil fuel industry, which would make it the first major pension fund in the nation to do so.

On Tuesday, the Board of Supervisors is expected to pass a resolution urging SFERS officials to consider selling all fossil fuel investments. It’s the second time since 2013 that city lawmakers have asked the governing board of San Francisco’s $23 billion employee pension plan to reconsider the fossil fuel companies.

But after what critics say has been four years of procrastination, time may be running out for the board to make an independent decision on the issue. Supervisor Aaron Peskin, who authored the resolution, said if the board doesn’t address the issue soon, he’s prepared to put a ballot measure before voters next year that would compel the the fund to sell its fossil fuel stocks.

"The preponderance of evidence is in favor of divestment,” Peskin said. “It’s in their best financial interest and it’s a moral imperative, and they’re dithering on that.”

Citing the environmental risks posed by coal mining, oil refining and natural gas extraction, a growing chorus of political and environmental activists has been pushing San Francisco’s retirement system and many other large, public pension funds and endowments to sell off their fossil fuel holdings.

Aaron Peskin of the San Francisco Board of Supervisors

Now, admittedly we're not so great at the whole math thing, but maybe is makes some sense to dig yourself out of your current $6 billion funding hole before you go restricting the ways in which your pension board can make money for your city's retirees?

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And since it's our favorite pension topic, we'd just point out that that $6 billion underfunding would magically grow to over $9 billion if San Francisco's pension board decided to lower its discount rate by just 1%.

Luckily, at least San Fran's pension executive director seems to understand the concept of fiduciary duty...

Selling off a well-performing part of the portfolio, SFERS officials argue, would deal a financial blow that could constitute a breach of their duty to the fund and the pensioners who have paid into it. Last year, SFERS paid out $1.24 billion to over 28,200 retirees and their beneficiaries.

“This is a very difficult legal question and discussion that every fiduciary on every public pension plan across the United States is dealing with today,” said Jay Huish, the SFERS executive director, speaking before the supervisors’ Government Audit and Oversight Committee last week. “None of them have been able to come forward and do a complete ban.”

Opponents of divestment also say that holding on to fossil fuel stocks allows pension funds to pressure those companies toward more environmentally friendly practices.

By divesting, “you lose the opportunity to influence the company or industry you’re investing in,” said Keith Brainard, research director for the National Association of State Retirement Administrators.

Of course, silly things like 'laws' have rarely been effective against liberal politicians intent upon shoving their 'progressive' agenda down your throat.

“It’s getting to the point where … if you can’t get there and your board can’t get there, it’s going to be incumbent on me and my colleagues to get you there,” Peskin said.

“I will certainly be interested in the legal analysis of forcing us to sell at a potential loss without having repercussions on the members of the board as fiduciaries,” Huish replied.

“I’ve got some theories,” Peskin said, wryly.

Perhaps SNAP is about to get a new $470 million investor? That should work out well for city retirees.