In the past, fossil fuels were considered a sound and profitable investment. So a lot of cities bought shares of coal, oil and natural gas companies for their pension funds. But as the climate changes, many cities are selling off their fossil fuel investments.
Erwann Michel-Kerjan is the executive director of the Wharton Risk Management Center. He says fund managers used to be hesitant to sell off investments they’ve long considered sound.
Michel-Kerjan: “At the end of the day as a pension fund you have some return on investment that you have to maintain.”
But as the clean energy industry grows, and oil and coal prices fall, fossil fuels are no longer such a safe bet. That makes a switch to other industries less risky. So a growing number of cities are taking a hard look at their investments.
Michel-Kerjan: “So to the extent that you can move from some industry to others and still maintain or even improve your return on investment – that’s a no brainer of course.”
Cities in the U.S., from Washington, D.C. to Santa Fe, New Mexico. have passed resolutions calling on their pension fund boards to sell off their fossil fuel holdings. And as the market changes, it’s becoming easier – and more financially prudent – for them to do so.
Reporting credit: ChavoBart Digital Media.
Image graphic: Created by David McCarthy.