Somerville Retirement System case study

Measuring the Financial Returns of Divestment:
A Case Study of the Somerville Retirement System

Comparison of S&P 500 and S&P 500 ex. FF Returns (%)

We know that the fossil fuel industry is a bad bet, but just how bad is it? The experience of the Somerville Retirement Board gives us a clue.

In June 2017, the SRB voted to divest $9.5 million of its assets from a fossil fuel-inclusive portfolio and reinvest them in a fossil free index fund. In July 2017, the Public Employee Retirement Administration Commission of Massachusetts intervened in Somerville’s divestment decision, forcing the SRB to reverse the move. MassDivest analyzed the consequences of PERAC’s intervention, and it’s clear it cost the members of the Somerville retirement system.

Read the full report: Executive Summary | White Paper | Combined summary/white paper

In our analysis, we show that Somerville’s divested portfolio would have achieved 5.0 percent higher growth than it did by remaining invested in an index fund that includes fossil fuel companies. Further analysis shows that over a longer period of time, the difference grows.

The chart above extrapolates what might have happened if the SRB had divested the fund back in 2014. The fossil fuel-divested portfolio would have achieved a return 22.1 percent greater than the standard S&P 500 portfolio.

This analysis shows in stark terms why public pension funds across the state need our local option fossil fuel divestment bill. PERAC’s intervention in the Somerville Retirement Board’s decision has locked Somerville and other public pension funds into investment portfolios that include one of the poorest performing sectors of the market. Our bill, H.3662/S.636, gives independent public retirement systems the power to make the decisions that will best serve their members.

You can help us get our local option divestment bill passed. A legislative hearing is scheduled for Nov. 18 at the State House, and you can show your support.

Read the full report: Executive Summary | White Paper | Combined summary/white paper