In this story:
- A new divestment bill would limit PERA’s investment options
- PERA’s Board has stated that PERA serves the singular purpose of ensuring the retirement security of Colorado’s current and former public servants
A bill recently introduced in the Colorado House would limit the investments PERA has access to, which could affect the ability to maximize the long-term risk-adjusted return for members.
If passed, the bill, HB 21-1246, would do the following:
- Require PERA’s Board to create an exclusion list of all direct investments PERA has in fossil fuel companies.
- Within 6 months after completing the exclusion list, the Board would be required to determine whether divestment from the companies on the exclusion list complies with the Board’s fiduciary obligations.
- If the Board determines that divestment from any company on the exclusion list does comply with its fiduciary duty, the Board would be required to divest from those companies on the exclusion list.
- And the Board would be required to cease new direct investments in any company that is a fossil fuel company.
- Beginning one year after the effective date of the bill, the Board would be required to ensure that no money or assets of the fund are invested in an indirect investment vehicle unless the Board is satisfied that such indirect investment vehicle is unlikely to have in excess of 2% of its assets directly or indirectly invested in fossil fuel companies.
The Position of PERA’s Board
PERA opposes divestment efforts unless such opposition is inconsistent with its fiduciary duty and recommends the legislature thoughtfully consider such proposals with caution and fiduciary care.
Per the Board’s Statement on Divestment, PERA serves the singular purpose of ensuring the retirement security of Colorado’s current and former public servants. Global issues are difficult to prioritize and proper recourse falls beyond the duty of the retirement system.
The Problem With Divestment
Divestment is expensive.
Requiring PERA to divest comes with significant costs – including costs to research, sell, and replace its fossil fuel investments. This bill would cost millions of dollars just to implement and does not include the opportunity cost of continued investment in the securities that meet the stated criteria.
Divestment is a slippery slope.
Just in the past several years, advocacy campaigns have pressed pension funds to divest from countless industries for varying reasons. Divestment could cost PERA members more by limiting the investable universe and PERA’s ability to generate the investment returns that make their retirement benefit possible. PERA’s investment program has generated over $69 billion over the last 30 years – returns that fund benefits and fuel local economies across the state.
Divestment is not effective.
Divestment mandates are a blunt instrument designed to impose economic hardship on the subject companies, but often result in assets simply being transferred from one investor to another with no impact on the company’s financial position. To make a change you need a voice and divestment means leaving the conversation entirely. PERA prefers engagement with companies to promote responsible business practices because it has a real and lasting impact.
PERA’s Investment Framework
PERA’s investment framework has been the focus of previous PERA On The Issues stories, including:
- A look into the Board’s Statement on Divestment
- How PERA considers issues like ESG factors when making investment decisions
- How PERA has a positive track record of taking its role as shareholder seriously by engaging with the companies it invests in
- An overview of how PERA’s commitment to stewardship includes considering a variety of factors that could have a financial impact on PERA’s investments, including: carbon emissions, labor rights, natural resource utility, executive oversight, animal welfare, corporate culture, and social impact.