Activists have gone to new lengths this year to promote fossil fuel divestment, occupying New York campus libraries and holding protests at the offices of major pension funds. The activity has led to some headlines, but few have asked the right questions: how much does divestment actually cost, and what do the people who stand to be impacted the most by these policies actually think about them? 

To date, no tangible effort has been made to capture what pensioners – the folks that are directly impacted by the performance of their retirement funds -- actually think about fossil fuel divestment. To help answer this important question, IPAA commissioned a new survey to capture the views of nearly 800 individuals from all across the United States, all beneficiaries of pension-fund disbursements, such as federal government personnel, retired teachers, fire and police officers.

According to the survey, nearly two out of three respondents said they could not support divestment if doing so could lead to lower returns. Respondents in energy producing states like Texas said they would actively oppose divestment, with 88 percent of respondents saying they would actively oppose divesting from oil and gas companies, and large majorities registered the same position in Pennsylvania (77 percent), Ohio (71 percent) and New York (72 percent).

Pensioners are right to be wary of the impact of divestment on their returns. According to a new report by a researcher at Arizona State University, divestment carries substantial “frictional costs” by way of transaction and management costs. According to his research, these costs have the potential to rob university endowment funds of as much as 12 percent of their total value over a 20-year timeframe. These same costs would apply to a pension fund that, much like universities, are invested in mutual funds, commingled funds, and private equity funds. In turn, to truly give up fossil fuel holdings requires the sale of a large portion of the overall fund, not just the energy stocks included within it – a significant cost to undertake.

So if divestment carries significant costs for endowments, and a majority of pensioners oppose it, why did places like UMass and the Washington, D.C. Retirement Board give up their holdings in fossil fuels? That’s because, for the most part, they didn’t.

The Washington, D.C. Retirement Fund, for instance, is invested in private equity firms focused on the upstream oil and gas sector. These types of investments, alongside many others, would be considered “direct holdings” in fossil fuels and are therefore not part of the recent “divestment” announcement.

UMass, which announced its plan to divest its endowment from “direct holdings” in fossil fuels in May, is also only giving up its direct holdings in fossil fuels, about $5 million of its roughly $770 million endowment. In other words, UMass is committed to divesting less than one percent of the entire endowment of the school system. Not exactly a big change, but one you may have missed given the media attention around the decision.

No matter how you slice it, divestment is a flawed strategy. Energy plays a critical part in the global economy. It powers our daily lives, fueling our cars, lighting our homes, and heating our food. Giving up a financial stake in this critical part of the economy is not only a costly strategy; it is ineffective at generating anything more than a headline. But for pensioners relying on their retirement benefits or students relying on financial aid, this costly decision to make a symbolic divestment choice may carry an unintended consequence.

Jeff Eshelman is a Senior Vice President of the Independent Petroleum Association of America and Director of the association’s campaign.