Revisiting Divestment

Nancy Schneider

Volume 66, Issue 2, 589-617

This Note explores whether state and local legislation passed during the anti-apartheid divestment campaign can serve as a model for trustees of public pension funds to divest their holdings in fossil fuels consistent with their fiduciary duties of loyalty and prudence. The primary case to emerge from the anti-apartheid divestment campaign, Board of Trustees of the Employees Retirement System of the City of Baltimore v. Mayor and City Council of Baltimore City gives some (albeit insufficient) guidance as to whether divestment by trustees of public pension plans of investments in fossil fuels would be a breach of their fiduciary duties. While the duty of loyalty allows for consideration of moral and ethical factors under certain circumstances, the duty of prudence more strictly requires that investors make no sacrifice in plan performance in favor of other considerations. However, the Baltimore analysis does not answer the question of whether it is consistent with the fiduciary duties of trustees to consider the risk that investments in fossil fuel companies will become “stranded assets” or that stigmatization will likely affect the share value of fossil fuel companies. This Note concludes that as the risks of climate change become clearer, fiduciary duties do not prohibit divestment.

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