Fossil Fuel Holdings Cost State Pension Fund Half a Billion Dollars

Oil rig image via Shutterstock

Investments in coal, oil, and gas companies cost the Massachusetts Pension Reserves Investment Trust $521 million last year, or nearly $10 million a week, according to a new study published by Trillium Asset Management. The staggering loss and Trillium’s cutting analysis give new firepower to activists at a time when state legislators are mulling over two bills that would divest the Massachusetts pension fund from all fossil fuels.

The poor performance of investments in coal, oil, and gas is not surprising, says Will Lana, a partner at Trillium, who helped prepare the report. On the supply side, increased production from OPEC nations, Saudi Arabia in particular, and the U.S. shale boom have flooded the market with cheap fuel. On the demand side, shaky economies in China and India and increased access to renewables have meant that consumption of fossil fuels, while significant, has not been as voracious as expected.

Lana expects the underwhelming performance of these energy stocks to continue for quite sometime, noting that a report from Goldman Sachs released earlier this month suggested that oil could drop as low as $20 a barrel in the future.

“That lag could last as long as 15 years,” Lana says. “Cycles in this particular market can be very long, and expecting a rebound right around the corner is a risky assumption to make.”

This isn’t the first time Trillium has scrutinized the holdings of a Massachusetts institution. Earlier this year, the group estimated that Harvard Management Company, which oversees the school’s endowment, lost $21 million in the past three years as a result of its investments in fossil fuel firms. Lana notes that the $21 million estimate is conservative; the Harvard analysis was complicated by the fact that the school publicly discloses information on less than $1 billion of its $36 billion endowment.

“With Harvard, it was like looking through a keyhole and trying to make assumptions on what was going on throughout the whole house,” Lana says. “In the case of [Massachusetts Pension Reserves Investment Trust] we were able to see the lion’s share of public equity holdings…and that gives us a lot of confidence in these results.”

In April, two unions, the Massachusetts Nursing Association and the Massachusetts Union for Human Service Workers, which combined include more than 40,000 members, submitted a formal letter asking the Massachusetts Pension Reserves Investment Management Board to figure out how big of a risk they were taking by clinging to holdings in dirty energy.

Monday’s report from Trillium only amplifies their concern.

“We are the largest organization of registered nurses in Massachusetts, and we’re concerned about the impact of our reliance on fossil fuels on our environment and the public health, and now we are further alarmed to learn about these financial losses to our state’s pension fund,” Ryan Berard, associate director of the Massachusetts Nurses Association, said in a prepared statement. “We already knew that fossil fuels were raising the prevalence of Lyme disease in New England, flood-borne illnesses around the world, respiratory illnesses everywhere, and placing the long-term health of coastal communities like Boston at extreme risk. Now we know they’re hurting Massachusetts pensions as well.”

A press statement issued by Better Future Project, a local environmental organization, noted that four of the state’s largest public sector unions have come out in favor of divestment. Those unions are: SEIU Local 509, SEIU Local 888, the Massachusetts Nurses Association, and the Boston Teachers Union.

The state’s pension fund has $62 billion in holdings.